NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

The 2024 Financing for Sustainable Development Report estimated that the annual financing gap for the Sustainable Development Goals (SDGs) is between US $2.5 and $4 trillion. This daunting gap highlights the importance of mobilizing much greater amounts of investment capital to respond to global development challenges.

But real impact won’t be achieved with just investment and ambitious goals. It requires globally consistent data sharing and measurement — in other words, global impact transparency. To meet this need, the International Financial Reporting Standards Foundation (IFRS) established the International Sustainability Standards Board (ISSB) in 2021. The IFRS is the international body responsible for setting global accounting standards, now adopted by over 140 jurisdictions.

These standards will have a substantial impact on businesses in the countries that adopt them. Their adoption progresses in stages: The ISSB issue their sustainability reporting standards; these standards are in many cases transposed into law by individual countries; their enforcement becomes the responsibility of local regulators.

Last year the ISSB launched its inaugural two standards. The first covers general sustainability-related financial disclosures, including social and governance issues that could impact a company’s financial performance. For example, a manufacturer whose business processes require a lot of water would need to disclose the impact of water scarcity on its financial performance, while a bank may need to detail its governance processes for assessing ESG risks in its loan portfolio. The second requires further detail on climate-related disclosures, such as greenhouse gas emissions.

These standards aim to usher in “a new era of sustainability-related disclosures in capital markets worldwide,” helping to “improve trust and confidence in company disclosures about sustainability to inform investment decisions” and “create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.” They are designed to “ensure that companies provide sustainability-related information alongside financial statements — in the same reporting package.”

This is a huge step forward for global impact transparency. Yet despite this milestone, there remain huge disparities between developed economies and emerging market and developing economies (EMDEs) in terms of their ability to influence and implement these key standards.

A process without the involvement of the Global South

GSG Impact, where I serve as a member of the Board, recently consulted over 500 stakeholders, in-person, across nine countries in Africa, Latin America and Southeast Asia to explore the impact and potential of these new standards in the Global South.

As with many initiatives in the development sector, we found that key voices in the Global South were left unheard during the process of developing the first set of ISSB reporting standards. As a result, the standards fail to fully take account of the implementation challenges in EMDEs.

These barriers, as we discovered, range from the unequal burdens implementation costs will place on the micro, small and medium-sized enterprises (MSMEs) that make up a large proportion of EMDEs’ economies, to the difficulties posed by a lack of data infrastructure and the need to train a new generation of technical experts in these countries.

Yet the Global South will be critical to ensuring that impact transparency achieves its laudable goals. Nowhere is this transparency more important than in EMDEs, where a proportionally larger percentage of populations still live in poverty, and where over 50% of the world’s biodiversity is contained. These countries are ground zero in achieving the SDGs — many of which focus on the challenges of poverty, climate change and environmental degradation. Their participation in establishing transparent standards for reporting progress toward these goals is essential.

Progress Toward the Adoption of Reporting Standards in EMDEs

This is why I have been heartened to see EMDEs, from Costa Rica to my home country of Nigeria, announce their decision to adopt the ISSB’s standards, despite the minimal role they played in developing them. Even more promising, these countries are offering an example to other emerging markets worldwide of how to take global standards and tailor them to local contexts.

For instance, Nigeria’s creation of the Adoption Readiness Working Group — a multidisciplinary body tasked with engaging stakeholders across the economy to develop a roadmap to implement the standards — provides a best-practice example not only for EMDEs but also for developed economies. Nigeria has rightly recognized the profound role that impact transparency can play in supporting its economic and social development. As the first country in Africa to adopt the ISSB standards, it has the opportunity to demonstrate how integrating sustainability practices into business models can help drive inclusive growth, and in turn attract more and diverse investment.

However, if we are to succeed in creating truly global impact transparency, with all EMDEs adopting sustainability standards, then emerging markets must be empowered to drive the movement from the ground up. This must be underpinned by two key changes: meaningful stakeholder engagement and genuine localization.

The first change will require international standard-setters to proactively engage with all stakeholders in EMDEs, including large and small businesses, national securities regulators, and investors. This will be especially crucial for the next set of impact transparency standards, which the ISSB has indicated will focus on biodiversity, ecosystems and human capital.

The second change will require stakeholders to facilitate the localization of international standards. To that end, a phased implementation process, involving capacity building through technical assistance from international organizations, will enable businesses of all sizes to meaningfully use transparency standards.

Across my career I have seen the transformative role that global principles and standards can play when applied locally. For instance, the global adoption of the International Financial Reporting Standards has made financial standards easily understandable and comparable, from Accra to Vilnius, reducing risk and increasing global economic confidence. But these standards only work when they are truly integrated into each local context and enforced by local regulators, ensuring their credibility.

As the countries at the forefront of many of the development challenges facing the world, EMDEs must be empowered to co-create the solutions. Global impact transparency promises inclusive and sustainable growth, aligning profit and purpose to build the economies of the future. As leaders in emerging markets, we should ensure that we seize this opportunity to engage with international standard setters such as the ISSB to deliver for our communities.

Ibukun Awosika is an African entrepreneur, author and globally recognized leader.

Photo courtesy of Natasa Dav.