Climate right for new ISSB
By Anne Adrain, Head of Sustainability and Reporting
5 November 2021
Anne Adrain summarises the latest update from the IFRS Foundation on developments in sustainability reporting.
The IFRS Foundation Trustees (Trustees) took the opportunity during the finance-themed session at the global climate summit, COP26, to announce three significant developments on the future of sustainability standard setting:
- A new International Sustainability Standards Board (ISSB) will be formed to develop a comprehensive global baseline of high-quality sustainability disclosure standards.
- The consolidation of the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF composed of the Integrated Reporting Framework and the SASB Standards) would be completed by June 2022.
- The publication of prototype climate and general disclosure requirements developed by the Technical Readiness Working Group (TRWG), a group formed by the IFRS Foundation Trustees to undertake preparatory work for the ISSB.
The ISSB will sit alongside and work in close co-operation with the IASB (International Accounting Standards Board). The ISSB and the IASB will be independent, and their standards will complement each other to provide comprehensive information to investors and other providers of capital.
Responding to investor and regulatory demand
Many investors and regulators have called 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 to bring globally comparable reporting on sustainability matters to the financial markets.
The Trustees’ decision to create the ISSB is informed by the feedback received in their 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) and others.
Establishing a global baseline
The ISSB will develop IFRS Sustainability Disclosure Standards which will enable companies to provide comprehensive sustainability information for the global financial markets. The standards 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 as well as initiatives in the Americas and Asia-Oceania).
The G20 Leaders and the Financial Stability Board have both welcomed the IFRS Foundation’s work programme to develop global baseline standards for sustainability disclosures.
Building blocks approach
In response to feedback received throughout the consultation process, 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. To achieve this goal, the IFRS Foundation has reached commitments with the CDSB and the VRF to consolidate their technical expertise, content, staff and other resources within the IFRS Foundation. It is intended that the technical standards and frameworks of the CDSB and the VRF, along with those of the TCFD and the World Economic Forum Stakeholder Capitalism Metrics, will provide a basis for the technical work of the new board.
Recognising the urgency required, the Trustees had already created the TRWG, made up of representatives from the bodies listed above, to provide recommendations to the ISSB. The TRWG has concluded its work on two prototype documents published today, one of which focuses on climate-related disclosures whilst the other sets out general sustainability disclosures. The ISSB will consider the prototypes as part of its initial work programme.
Global presence
The ISSB will have a global and multi-location presence. All regions: the Americas, Asia-Oceania and EMEA (Europe, the Middle-East and Africa) will be represented. Engagement with developing and emerging economies will be an important priority.
Offices in Frankfurt and in Montreal will be responsible for key functions supporting the new Board and deeper co-operation with regional stakeholders. Offices in San Francisco and London will also provide technical support and platforms for market engagement and deeper cooperation with regional stakeholders.
Based on expressions of interest received, the IFRS Foundation will engage without delay with Frankfurt and Montreal to make the necessary arrangements to enable the ISSB to commence work early in 2022. Further discussions will continue with proposals for offices from Beijing and Tokyo to finalise the new Board’s footprint in the Asia-Oceania region. Timely actions are needed to respect the urgency expressed by IOSCO and other important stakeholders.
Next steps
The Trustees are at advanced stages in appointing a Chair and Vice-Chair(s) to the ISSB. The Trustees will commence shortly a search for the additional board positions, up to the full complement of 14 members.
The ambition is to produce a globally accepted climate disclosure standard in the second half of 2022.
Read the full IFRS Foundation announcement.
Read the ICAS reaction to the announcement by the IFRS Foundation.