Following calls for the IFRS Foundation to build upon market-led initiatives and to use its experience in creating accounting standards used in more than 140 jurisdictions, I am pleased to report that we are about to break ground on bringing 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. 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 was just over a year ago that I wrote to ask for your views about a question the IFRS Trustees had: Should the IFRS Foundation play a role in the standardization of sustainability reporting standards? Following an overwhelmingly positive reaction from the market, the IFRS Trustees announced three significant developments last month at the COP26 UN climate summit in Glasgow.
First, we announced the formation of the International Sustainability Standards Board (ISSB), which will work in the public interest to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. This was very much a demand-led decision. Many investors and regulators have called for the IFRS Foundation to build upon market-led initiatives and to use its experience in creating global accounting standards used in more than 140 jurisdictions to bring globally comparable reporting on sustainability matters to the financial markets. The decision was informed by the feedback received in two public consultations, discussions with advisory groups, frequent dialogue with the IFRS Foundation Monitoring Board and with support from the International Organization of Securities Commissions (IOSCO), the G20 and many others. We were particularly pleased to receive positive feedback and encouragement from so many investors.
The second announcement was a commitment by leading investor-focused sustainability disclosure organisations to consolidate into this new board. The IFRS Foundation plans to complete consolidation of the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF — which houses the Integrated Reporting Framework and the SASB Standards) by mid-2022. Consistent with feedback received through consultation, the ISSB will build on the work of existing investor-focused reporting initiatives to become the global standard-setter for sustainability disclosures for the financial markets. It is intended that the technical standards and frameworks of the CDSB and the VRF, along with those of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and the World Economic Forum Stakeholder Capitalism Metrics, will provide a strong basis for the technical work of the new board.
Third, we published the result of six month’s joint work with the abovementioned organisations, a set of prototype climate and general disclosure requirements developed by the Technical Readiness Working Group (TRWG). The TRWG is a group formed by the IFRS Foundation Trustees to undertake preparatory work for the ISSB. The group was also supported by IOSCO and its Technical Expert Group of securities regulators. The TRWG has consolidated key aspects of these organisations’ content into an enhanced, unified set of recommendations for consideration by the ISSB. As we embark on this journey to develop a globally consistent, comprehensive baseline for sustainability reporting relevant to assessing enterprise value, I encourage you to get familiar with the prototypes that were published by the TRWG. While these are not the final product, they are an early indication of the ISSB’s direction of travel.
What does this mean for investors? The ISSB will work to develop a comprehensive global baseline of IFRS Sustainability Disclosure Standards. The new board will focus on enterprise value which refers to information that is material to the decisions of investors, lenders and other creditors. This includes information on how climate and other sustainability issues can potentially erode a company’s worth, or how sustainability issues present opportunities to create value. Our hope is that these standards will harmonise investor-oriented reporting on sustainability, providing you the investor with high-quality, consistent and comparable information across markets to support your decision-making.
The ISSB aims to consult on the first elements of its work in early 2022 and I hope that we can count on your input at this stage. We encourage all those with an interest to respond. Hearing from investors, the users of this information, will be essential in helping the ISSB to ensure the highest quality of its standards. In the meantime, please register for alerts on the IFRS Foundation’s website to stay up to date with latest developments.
Larry Leva is the former Global Vice Chairman — Quality, Risk and Regulatory for KPMG International, and served as an executive member of KPMG’s senior leadership team. Mr Leva had global responsibility for KPMG’s system of quality controls, risk management and ethics and compliance programs.
Disclaimer: The views expressed in the blog are those of the author and do not necessarily represent the views of CRUF participants.
The views expressed in this article are those of the author as an individual and do not necessarily reflect the views of the International Accounting Standards Board (Board) or the IFRS Foundation (Foundation). The Board and the Foundation encourage members and staff to express their individual views. This article has not undergone the Foundation’s due process. The Board takes official positions only after extensive review, in accordance with the Foundation’s due process.