Following the strong support received on their 2020 consultation and endorsement from the FSB1 and IOSCO2, the IFRS Foundation Trustees have now reached the next milestone in their sustainability reporting journey by issuing proposed changes to the Foundation constitution. These changes are necessary to form a new board to develop international sustainability reporting standards. This could signal a new era in corporate reporting where the same rigour is demanded for sustainability reporting as for financial information.
With the pivotal support of the FSB and IOSCO, the IFRS Foundation is uniquely positioned to unify sustainability reporting. Our hope is that this will ultimately deliver a fully interconnected reporting system, addressing the key matters that drive long-term business value whether they relate to environmental, social, governance, intangibles or other non-financial information.
Steps towards establishing an International Sustainability Standards Board
The IFRS Foundation Trustees have previously outlined the strategic direction for a new International Sustainability Standards Board (ISSB) and the publication of the proposed change to its constitution is the latest step towards its creation. The ISSB’s remit would be to address the demand for sustainability information that is relevant to enterprise value creation and is globally consistent, comparable and reliable.
The ambition remains to announce the creation of the new board in advance of the United Nations Climate Change Conference (COP 26) in Glasgow in November 2021.
Strategic direction for the new board
The Trustees intend to focus on enterprise value, placing the emphasis firmly on those sustainability factors that drive companies’ short-, medium- and long-term prospects, and the information the capital markets need to assess them. The emphasis on investor decision making provides a clarity of focus that is key for high quality standard-setting, while recognising that companies’ prospects also depend on value created for society and the environment.
Sustainability scope, prioritising climate
The new board would initially focus on climate related information while also working towards meeting the information needs of investors on other ESG matters, recognising the calls for urgent action in this area. This pragmatic approach acknowledges investors’ wider need for information on other sustainability topics.
Build on existing frameworks
The Trustees have formed a technical readiness working group to build on existing initiatives focused on enterprise value reporting. This group will also coordinate efforts to develop consistent global sustainability reporting standards under the governance of the IFRS Foundation. The group will include participation from the International Accounting Standards Board (IASB), reflecting the importance of connectivity with financial reporting.
Other participants will include the FSB Task Force on Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation3, the Climate Disclosure Standards Board (CDSB) and the World Economic Forum (WEF). The working group will closely engage with the Global Reporting Initiative (GRI) and CDP.
This working group will assess how technical expertise and content could transition to the ISSB.
Building blocks approach
The Trustees are seeking to provide a global foundation for consistent and comparable sustainability reporting. They recognise that additional or different information may be required to meet other reporting objectives. A ‘building blocks’ approach would enable jurisdictions to layer local requirements onto the global baseline. The Trustees are forming a multilateral working group with IOSCO and other relevant organisations to create a multi-stakeholder expert consultative committee. This committee would support the new board’s engagement with international and jurisdictional initiatives, as well as stakeholders with different target audiences.
Changes to the IFRS Foundation constitution
The Trustees propose to amend the constitution to enable the creation of the ISSB. The new board would sit alongside the IASB Board to set IFRS sustainability standards. Its structure and operation would reflect that of the IASB Board, with 14 members providing mixed professional and regional representation.
As the Foundation will maintain its focus on meeting capital markets needs, no changes are proposed to the Foundation’s Monitoring Board or the composition of its Trustees.
The IFRS Foundation seeks input on the proposed changes to the constitution by 29 July 2021 in order to make a final determination to create the ISSB. Read the exposure draft and make your views known.
1 Financial Stability Board
2 International Organisation of Securities Commissions.
3 This comprises the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC).