On November 3, 2021, at the 2021 United Nations Climate Change Conference or COP26 in Glasgow, Scotland, UK, the International Financial Reporting Standards (IFRS) Foundation announced the formation of the International Sustainability Standards Board (ISSB). And given the timing of its inception, the ISSB has its task cut out towards the setting up of “a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs”.
For all the net-zero pledges various countries might have made at the COP26, it is a single set of globally-accepted sustainability standards that will offer capital markets a true measure of the efforts being made for the climate cause. Indeed, the global investor community is steadily tightening the screws on any corporate activity that does not seem geared towards protecting the environment and society at large.
Factor this: The recently released PwC 2021 Global Investor ESG Survey has thrown up some interesting insights into investors’ seriousness about ESG issues. Of the close to 400 investors from around the world who participated in the survey, 49% said they are willing to divest from companies that aren’t taking sufficient action on ESG issues. Around 80% of investors said they would place more trust in ESG information that has been audited. Nearly 75% feel their decision-making would be better informed if companies use a consistent set of metrics to measure ESG performance.
A consolidation announced
The constant refrain of those watching developments in the sustainability standards space has been that there are too many sets of standards and too many standard setters. So, in a development that came as a surprise, the IFRS Foundation also announced on November 3 that leading investor-focused sustainability disclosure organizations would consolidate into the ISSB.
By June 2022, the ISSB will house both the Climate Disclosure Standards Board — which is an initiative of the CDP (formerly the Carbon Disclosure Project) and the Value Reporting Foundation (VRF) — which was formed by the merger of the International Integrated Reporting Council (IIRC) and the SASB (formerly the Sustainability Accounting Standards Board).
Publication of prototype disclosure requirements
The IFRS Foundation also announced the publication of prototype climate and general disclosure requirements developed by the Technical Readiness Working Group (TRWG), which is a group that the IFRS Foundation formed to lay the groundwork for the ISSB.
“These prototypes are the result of six months of joint work by representatives of the CDSB, the International Accounting Standards Board (IASB), the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the VRF, and the World Economic Forum (Forum), supported by the International Organization of Securities Commissions (IOSCO) and its Technical Expert Group of securities regulators. The TRWG has consolidated key aspects of these organizations’ content into an enhanced, unified set of recommendations for consideration by the ISSB,” said the IFRS Foundation release.
The developments we have discussed above lay the foundation for forming a set of globally-accepted sustainability standards that meet an urgent need for “streamlining and formalizing corporate sustainability disclosures”.