“Winter is Coming”: Preparing for the Next Wave of Annual Reporting Challenges

Just like the ominous warning from Game of Thrones—"Winter is coming"—there's an inevitable shift on the horizon that companies must brace themselves for. No, it's not a literal winter but a significant transformation in how annual reports are produced, driven by new sustainability disclosure mandates. The process is getting more complex, and companies in various jurisdictions must be ready for the challenges ahead.

The Push for Sustainability Reporting

In June 2023, the International Sustainability Standards Board (ISSB) under the IFRS Foundation published the long-awaited IFRS Sustainability Disclosure Standards. These standards consist of two parts: IFRS S1, which covers General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2, which focuses on Climate-related Disclosures. Jurisdictions around the world are beginning by mandating localized standards based on IFRS S2 first, but it is expected that standards based on IFRS S1 will soon follow. As we look further ahead, the ISSB is already developing additional standards related to nature, biodiversity, and human capital.

Sustainability reporting is not just a passing trend—it’s an imperative. Investors, regulators, and stakeholders demand transparency, and the ISSB standards are setting the bar. But while this drive toward increased accountability is commendable, it introduces a host of new challenges for companies—especially those that already struggle to manage the complexity of annual financial reporting.

Australia and New Zealand: The Early Adopters

In the Australia and New Zealand region, the movement toward mandatory sustainability reporting is already well underway.

Australia has taken significant steps to require large corporations to disclose their sustainability-related information. Starting with the financial year that begins on or after 1 January 2025, Australian Sustainability Reporting Standards will apply to companies that meet at least two of the following three criteria: consolidated revenue of A$500 million or more, A$1 billion or more in gross assets, or 500 or more employees. These new standards are expected to set the stage for how Australia handles its sustainability reporting, affecting a large number of businesses across various industries.

Across the Tasman Sea, New Zealand has also moved decisively. The Aotearoa New Zealand Climate Standards (NZCS) are already mandatory for the reporting year beginning on or after 1 January 2023. These standards apply to listed entities with a market capitalization of NZ$60 million or more and financial services entities with total assets of NZ$1 billion or managed assets exceeding NZ$1 billion. Insurers with NZ$250 million or more in annual premium income are also required to adhere to these standards.

The uptake in these countries highlights how quickly sustainability reporting has gone from an emerging trend to a mandated requirement. However, as jurisdictions move forward, incorporating these new disclosure requirements into the traditional annual reporting process means more complexity for everyone involved.

A Heavier Load on the Reporting Process

For companies in Australia, New Zealand, and beyond, the immediate implication of incorporating sustainability disclosures is clear: more content, more data, and more people involved in the reporting process. This increased burden will necessitate a closer interface with ESG data management systems—systems that gather, cleanse, and consolidate sustainability-related data, and ultimately provide inputs into the annual report.

This additional complexity inevitably places more stress on the production process, requiring tighter coordination and more efficient workflows.

The increased scope also means the traditional tools and processes for producing annual reports—often rigid, cumbersome, and prone to error—may not be adequate for much longer.

What Lives Beyond the Wall: Digital Reporting as the Game Changer of Annual Reporting

And yet, the burden of expanded content and coordination is only the beginning. Beyond these immediate challenges, an even bigger transformation is lurking in the shadows, waiting to shake up the entire reporting process. Think of it as the mysterious forces beyond the Wall in Game of Thrones—unknown but inevitable. That game-changer is digital or electronic reporting.

Today, the annual report is typically published in PDF format, often accompanied by a microsite to make the information more accessible to investors and a broader audience. However, with the push toward ultimate transparency, this won’t be enough. The next step is to make the information in annual reports machine-readable—tagging data and narratives based on taxonomies and publishing reports in a fully digital format.

In the European Union, this transition is being driven by the Corporate Sustainability Reporting Directive (CSRD), which will require companies to adopt digital reporting formats by 2025/2026. Beyond the EU, the IFRS Foundation has already published the IFRS Sustainability Disclosure Taxonomy in April 2024 to provide the technical backbone for such reporting. In addition, the Global Reporting Initiative (GRI) is working on its own sustainability taxonomy, with a public consultation open until August 2024.

To learn more, see our blog post ‘The Rise of Digital Reporting in Corporate Disclosure’.

What does this mean for companies? It’s simple: the traditional way of producing annual reports will no longer be viable. Companies will need to invest in tools that not only streamline the reporting process but also incorporate tagging and automation capabilities to publish across multiple channels, from PDFs to microsites and now, digital formats. It’s a daunting task, but one that is essential for meeting future compliance and staying ahead of the curve.

Conclusion: Winter is Here

So, much like in Game of Thrones, winter is indeed coming—but for annual reporting. The question is not whether you can stop it, but whether you can be ready for it. With new sustainability reporting standards, the need for more automation, and the inevitable rise of digital reporting, the road ahead is complex. But with the right preparation and investment, companies can navigate the coming storm and emerge stronger on the other side.