More reporting standards consolidation – but is it a good move?

November 11, 2021

The International Financial Reporting Standards (IFRS) Foundation has this week announced further consolidation plans between global sustainability reporting standard setters.

On 3 November, the foundation announced the formation of the International Sustainability Standards Board (ISSB) to “develop… a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs”.

It also pledged to complete a consolidation process with the Climate Disclosure Standards Board and the Value Reporting Foundation (VRF). The VRF was itself formed by a merger of the International Integrated Reporting Council and the Sustainability Account Standards Board.

Finally, the IFRS Foundation has formed a Technical Readiness Working Group to develop “prototype climate and general disclosure requirements”, bringing in contributions from several other international organisations. These collaborators include the International Accounting Standards Board, the Task Force on Climate-related Financial Disclosures, the World Economic Forum, and the International Organization of Securities Commissions (IOSCO).

The Global Reporting Initiative (GRI) has welcomed the developments and expressed willingness to participate, but has also emphasised that climate disclosure is “not sufficient” to deliver full transparency on sustainability impacts.

Eric Hespenheide, interim CEO of the GRI, said: “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.

“I therefore reiterate once again that GRI stands ready to engage with the IFRS Foundation in support of this aim.”

Eumedion, a corporate governance forum for investors in Dutch securities, stated that since the purpose of the foundation is to help investors, at least 25% of the total 14 ISSB board members should be investor-focused. Any less than this would be considered “deficient”, the organisation said.

At the COP26 climate change conference this week, IOSCO chairman Ashley Alder said the ISSB was “on the right track”, and indicated that the success of this approach could lead to widespread uptake by financial regulators.

“If the ISSB’s future standard meets IOSCO’s expectations, our endorsement will support all our 130 members in considering ways they might adopt, apply or be informed by the standard,” said Alder.

By the end of 2021, IOSCO will publish a detailed analysis of the disclosure issues that issuers and asset managers face regarding the assessment of sustainability data and ratings.

In 2022, the regulator will assess the ISSB’s draft climate disclosure standard. It aims to endorse the standard before the end of 2022.