I listened to a fascinating ICGN webinar recently, hosted by KPMG, which discussed perhaps the most important corporate reporting topic of our time: the creation of global sustainability reporting standards that organizations can use to report meaningfully and consistently against climate and wider ESG opportunities and risks.
As momentum on the ESG agenda continues to significantly grow, so does the need for a robust and standardized global reporting approach. Investors need to know they can rely on the information and compare it between organizations to inform their investment decisions; while wider stakeholders must be able to trust in its integrity.
IFRS Foundation to take the lead
For this reason, the recent announcement from the IFRS Foundation (IFRSF) to establish a Sustainability Standards Board (SSB) to develop a set of global sustainability reporting standards – working in close collaboration with bodies such as the GRI, FSB, SASB, IIRC, WEF and more – has attracted considerable attention.
I welcome it – I wrote in a blog last year that we need decisive action, and I’m hopeful this will kickstart accelerated progress. The IFRSF has the backing of IOSCO and others which is really significant. On the webinar, Larry Leva, Vice-Chair of the IFRSF, outlined some key takeaways from the nearly 600 responses received in their consultation:
- Broad demand for a global set of sustainability reporting standards
- Wide support for the IFRSF to play a key role
- Strong agreement that reporting on climate-related issues should be the first priority
Also made clear is that the standards will focus primarily on the needs of investors and enterprise value - so the sustainability aspects that are most material to the decisions of investors, lenders and other creditors; and to facilitate the efficient flow of capital by investors.
Building on what’s been achieved
This is not about ‘starting again’ and adding to the alphabet soup. Rather, the aim is to build on valuable work already done. So, a working group including SASB and IIRC (who are merging to form the Value Reporting Foundation) will develop a draft climate change standard based on an earlier prototype released by an alliance of five standard setters late last year. In such a way, the SSB once formed will be able to hit the ground running – recognizing that time is of the essence for climate change in particular.
A working group will also engage with other multi-lateral organizations, gathering their input on other aspects in the sustainability landscape beyond climate change, so that fast progress can be made on these too.
For global reporting standards to work, the support of key jurisdictions around the world will be crucial. Jurisdictions such as the EU and the US, for example, already have a number of advanced initiatives in play. Consequently, a building blocks approach is anticipated – establishing a global baseline that jurisdictions can build on as appropriate, based on regional priorities.
On the webinar, Mirte Bronsdijk, Senior Corporate Governance specialist at APG Asset Management in the Netherlands, spoke of the need for “global coherence” around sustainability reporting standards and said the IFRSF initiative “could lead to a more rapid and smoother transition”.
James Andrus, Investment Manager at CalPERS, the US public pension fund, said he advocated for greater non-financial reporting transparency, adding that “there should be a broader focus on what’s in the public interest, because it’s relevant to investors and especially universal owners”.
Work in progress
Certainly, here are questions to be addressed. The focus on enterprise value creation is key, but there should be a link to societal impacts – how should the two ‘talk to each other’? Materiality is another complex question. Should disclosures only be mandatory when something is deemed to be financially material? The concept of ‘dynamic materiality’ has been gaining currency – recognizing that, while an issue may not be material right now, it could become so over time as regulatory requirements change, global conditions evolve, or consumer behaviors and attitudes shift. This is an area to watch.
As my colleague Mark Vaessen raised, ”there will be an assurance need too. Information reported must be robust and reliable.” KPMG will continue to contribute to discussions and debate being led by the IAASB as they provide further guidance on ESG assurance.
It is hoped that a final determination about the SSB could be made in advance of COP26 in November. These are exciting times that offer the prospect of a new era for corporate reporting. I look forward to seeing the continued momentum and support for the IFRSF on this initiative.
To close, I couldn’t say it better than Larry Leva when he commented, “high quality sustainability reporting standards can help drive better decisions by investors, companies and policy makers. For sustainability issues such as climate and environmental reporting in particular, we need high quality global standards to address what is clearly a global issue.”
Do you have an opinion on the development of global sustainability standards? Share your thoughts with us!