In the recent years, the activities of business organizations have become subject to increasing scrutiny from the investors, regulators, and other stakeholders. Traditionally, financial statements served as the primary source of information for assessing a company’s performance, providing disclosures on profits, losses, assets, liabilities, and cash flows. Entities provided useful information to their users by producing financial reports which comply with principles in the International Financial Reporting Standards (IFRS). In Nepal, the financial statements complying with the Nepal Financial Reporting Standards (NFRS), developed by Accounting Standards Board Nepal (ASB Nepal), informed investors and regulators about a company’s financial performance.
However, financial statements alone no longer capture the full impact of a company’s operations. Businesses today affect not only shareholders, but also employees, communities, natural resources, and future generations. This has led to a growing awareness of sustainability-related risks and the potential impact which these may have on an entity’s current and future financial position, performance, and cash flows. Investors also require high-quality information about these risks, as well as potential sustainability-related opportunities, when making investment decisions.
To address this contemporary issue, the development of sustainability reporting principles has been significant. Sustainability reporting refers to the practice of publicly disclosing an organization’s most significant economic, environmental and/or social impact, and hence its contributions, positive or negative, toward the goal of sustainable development. It complements financial reporting by explaining how a company creates value over time while managing environmental and social responsibilities.
Why Implement Sustainability Reporting?
The requirement for businesses to implement sustainability reporting is growing because they need to cater to the growing demands from stakeholders, which include:
- Investors, who want to understand climate-related risks, governance quality, and whether the company will survive in the long term or not.
- Regulators, who require a transparent account of the non-financial risks faced by the company.
- Consumers, who prefer responsible brands following ethical and moral principles while contributing towards environmental protection.
- Communities and civil societies, who demand accountability from the company for its environmental and social impact.
Therefore, sustainability reporting is carried out by companies to enhance the transparency of their activities. It enables companies to identify and manage the Environmental, Social, and Governance (ESG) risks faced which assists in long-term decision making along with aligning business strategies with sustainable development. This in-turn helps companies in building trust among stakeholders.
Evolution of Sustainability Reporting
The concept of sustainability reporting came about very recently and has been evolving gradually. In earlier times, sustainability reporting was predominantly a voluntary activity done by multinational conglomerates. It was considered largely a part of the company’s Corporate Social Responsibility (CSR) initiatives. However, over time, the emergence of global environmental concerns, especially climate change, led to the requirement of more structured reporting frameworks for sustainability reporting.
The Global Reporting Initiative (GRI) guidelines published in 2000 provided the first global framework for sustainable reporting. After the adoption of Sustainable Development Goals (SDGs) in 2015, governments encouraged businesses to align their activities with global sustainability objectives. Following this, the International Accounting Standards Board (IASB) established the International Sustainability Standards Board (ISSB) for developing sustainability reporting standards that would fit into the global financial reporting scenario. Subsequently, the Corporate Sustainability Reporting Directive (CSRD) was adopted by the European Union (EU) to strengthen and standardize sustainability disclosures. Under the CSRD, companies are required to report in accordance with the European Sustainability Reporting Standards (ESRS), ensuring detailed, comparable, and reliable ESG information. This marked a significant shift from voluntary to mandatory sustainability reporting across companies in EU member states.
Scope of Sustainability Reporting
Sustainability reporting encompasses three core pillars: environmental, social, and governance (ESG) Impact. The environmental dimension includes disclosure of greenhouse gas emissions, energy consumption, water usage, waste management practices, and climate-related risks affecting operations. The social pillar covers employee welfare, diversity and inclusion, protection of human rights, community engagement initiatives, and responsible supply chain practices. The governance component requires reporting on board structure and composition, anti-corruption and compliance measures, internal risk management systems, and adherence to ethical standards. Together, these elements provide stakeholders with a comprehensive understanding of a company’s non-financial performance and its commitment to sustainable and responsible business practices.
The sustainability standards widely used by global companies are International Financial Reporting Standards (IFRS) developed by ISSB. ASB Nepal also develops standards based on the IFRS. ISSB has issued two inaugural IFRS Sustainability Disclosure Standards. They are IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2: Climate-related Disclosures. These standards were issued in June 2023 marking the establishment of a high-quality global baseline of investor-focused sustainability-related disclosures.
IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium, and long term. The information provided about sustainability-related risks and opportunities is based on the four content elements – governance, strategy, risk management, and metrics and targets – set out in the recommendations by the Task Force on Climate-related Financial Disclosure (TCFD).
IFRS S2 sets out specific climate-related disclosure requirements for a company to disclose information about its climate-related risks and opportunities. IFRS S2 builds on the requirements set out in IFRS S1 and fully integrates the recommendations by TCFD.
These two standards ensure consistency, comparability, and reliability of sustainability-related information.
Global Sustainability Reporting Practices
Globally, sustainability reporting has shifted from voluntary to mandatory in many jurisdictions. The EU mandates sustainability-related disclosures under its regulatory regime and countries such as the UK, Canada, Australia, and Japan are aligning financial reporting with ISSB standards. Large multinational corporations across varying sectors like banking, manufacturing, energy, and technology are regularly publishing sustainability or integrated reports. These include companies like Unilever, HSBC Holdings plc., Toyota Motor Corporation, Nestlé, etc.
Sustainability Reporting Practices in Nepal
In Nepal, sustainability reporting is still at an early stage. Financial reporting in Nepal is governed by NFRS issued by ASB Nepal. While NFRS aligns with international financial reporting standards, it primarily focuses on financial disclosures. ASB Nepal issued a Public Consultation Document in July 2025 for the development of Nepal Sustainability Reporting Standards (NSRS) aligned with IFRS S1 and IFRS S2. This indicates Nepal’s initiation at sustainability reporting. Some of the companies in Nepal, mostly from the banking and hydropower sector, have moved towards sustainability or integrated reporting and financial reporting with sustainability-related disclosures. These include commercial banks like Siddhartha Bank Limited and NMB Bank Limited as well as hydropower companies like Samling Power Company Limited. It is also worth noting that sustainability reporting goes beyond Corporate Social Responsibility (CSR) initiatives. While there are many companies disclosing their CSR narratives, very few have moved further towards performing sustainability reporting or including sustainability-related disclosures in their annual financial reports.
Since sustainability reporting frameworks have not yet been developed, and there is no compulsion for sustainability related disclosures, the ESG disclosures made by above mentioned companies are mostly voluntary and limited in scope. Therefore, Nepali sustainability-reporting practices lack uniformity and comparability.
Significance and Limitations of Sustainability Reporting in Nepal
Sustainability reporting holds a contextual importance in Nepal because of the country’s climate vulnerability towards climate change. Transparent climate-related disclosures can improve resilience planning and suggest prevention measures. Nepal’s energy sector is hydropower-driven; therefore environmental reporting is essential for understanding how hydropower companies are contributing towards environmental sustainability. Global investors are also increasingly demanding ESG disclosures and thus, Nepali companies seeking foreign investment must have an alignment of their financial reporting with international standards. Sustainability reporting can also strengthen corporate governance in Nepali companies of the private as well as public sector and thus lead towards reducing corruption risks.
However, the absence of a law that mandates sustainability reporting and the lack of guidelines and standards providing sustainability-related frameworks are restraining sustainability reporting in Nepal. Moreover, the reluctance of companies towards performing sustainability reporting considering it as costly, complex, and non-essential has led to limited disclosure of sustainability-related risks and opportunities among Nepali companies. Annual reports of companies are subject to audits from licensed auditors. Additionally, the human resources involved in preparing the annual reports are also predominantly Chartered Accountants. The Nepali Chartered Accountants learn and practice the Nepal Financial Reporting Standards rather than the International Financial Reporting Standards and the absence of sustainability standards in Nepal has limited the technical capacity of Nepali human resources in ESG disclosures and sustainability reporting and auditing.
The Way Forward
Sustainability reporting should become an integral part of corporate governance and financial reporting in Nepal. Integrating sustainability reporting into companies’ annual reports would help in attracting green finance and climate funds. It would also improve environmental and climate risk management as well as build stronger credibility of Nepali companies among the international investors.
Moving forward, it is necessary that Nepal government moves towards immediately adopting ISSB-aligned sustainability standards and develop national ESG reporting guidelines to gradually move towards mandating sustainability reporting starting from the listed companies. Together with this, professional bodies like Institute of Chartered Accountants Nepal (ICAN) should provide training to professionals on sustainability accounting and help them build technical expertise in ESG disclosures and auditing. Companies should also co-operate with these agencies and integrate ESG risks into their corporate strategy while beginning to disclose sustainability-related information that is aligned with global frameworks. They should treat sustainability as a tool for value creation rather than just a formality.
Aashutosh Sharma is an aspiring Chartered Accountant, currently pursuing the ACCA qualification at the Strategic Professional Level. He works as a research intern at the Nepal Economic Forum and has a strong interest in research, education, accounting, and consulting.
