New global standards-setting body for climate, sustainability-related disclosures launched

UNDERLINING the importance of having high-quality disclosures on climate and other sustainability issues, the international body responsible for setting global financial disclosure standards has launched a new International Sustainability Standards Board (ISSB).

The move comes as global leaders gather in Glasgow for the United Nations' climate conference, COP26, to address the increasingly urgent issue of climate change.

The ISSB - which will have a global and multi-location presence, in which all regions will be covered - was launched by the IFRS Foundation Trustees on Wednesday (Nov 3); the trustees are responsible for the governance and oversight of the International Financial Reporting Standards Foundation (IFRS) and the International Accounting Standards Board (IASB).

The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards, providing investors and other capital-market participants with information about companies' sustainability-related risks and opportunities to help them make informed decisions.

"Sustainability, and particularly climate change, is the defining issue of our time," said Erkki Liikanen, chair of the IFRS Foundation Trustees. "To properly assess related opportunities and risks, investors require high-quality, transparent and globally comparable sustainability disclosures that are compatible with the financial statements."

Mary Schapiro, head of the Task Force on Climate-Related Financial Disclosures (TCFD) Secretariat, said the development of the ISSB's global baseline will deliver "transformative change in sustainability disclosures for the financial markets" and that the ISSB "represents a major step forward in establishing consistent, comparable global reporting standards".

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Accompanying the launch of the ISSB are: a commitment by leading investor-focused sustainability disclosure organisations, namely the Climate Disclosure Standards Board and the Value Reporting Foundation - to consolidate into the new board; and the publication of prototype climate and general disclosure requirements developed by the Technical Readiness Working Group, a group formed by the IFRS Foundation Trustees to undertake preparatory work for the ISSB.

"Together, these developments create the necessary institutional arrangements, set out in the Foundation's revised constitution, and lay the technical groundwork for a global sustainability disclosure standard-setter for the financial markets. They fulfil the growing and urgent demand for streamlining and formalising corporate sustainability disclosures," the IFRS Foundation statement said.

It added that many investors and regulators have called for the IFRS Foundation to build upon market-led initiatives and use its experience in creating accounting standards to bring globally comparable reporting on sustainability matters to the financial markets.

"Financial markets need to assess the risks and opportunities facing individual companies which arise from environmental, social and governance (ESG) issues, as these affect enterprise value. This is driving significant demand for high-quality information. Investors and other providers of capital want global sustainability disclosure standards that meet their information needs. Voluntary reporting frameworks and guidance have prompted innovation and action, although fragmentation has also increased cost and complexity for investors, companies and regulators," it added.

The ISSB will develop the IFRS Sustainability Disclosure Standards, including disclosure requirements that address companies' impacts on sustainability matters relevant to assessing enterprise value and making investment decisions. They will be developed to facilitate compatibility with requirements that are jurisdiction-specific or aimed at a wider group of stakeholders, for example, the European Union's planned Corporate Sustainability Reporting Directive.

The ISSB will sit alongside and work in close cooperation with the IASB to ensure connectivity and compatibility between the IFRS Accounting Standards and the IFRS Sustainability Disclosure Standards.

Eric Hespenheide, interim chief executive officer of the Global Reporting Initiative (GRI) - which claims to maintain the world's most comprehensive sustainability reporting standards - said the announcement "marks a significant step towards strengthening (the need) to reflect sustainability risks to a company's value".

"Disclosure on a company's financially material sustainability topics - while important from the context of helping markets to assess opportunities and risks - is not sufficient to deliver full transparency on sustainability impacts, as envisioned by the GRI Standards and embraced by the EU (European Union).

"Corporate transparency that meets the needs of all stakeholders requires improved connectivity between sustainability and financial reporting," Hespenheide said.

The IFRS Foundation Trustees are said to be in the advanced stages of appointing a chair and vice-chair(s) to the ISSB, after which the board's work will commence.