Following the strong support received on their 2020 Consultation and endorsement from IOSCO, the IFRS Foundation Trustees have set out the strategic direction for a new board to develop global 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 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
Strategic direction for the new board
Investor focus for enterprise value
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 are forming a working group to build on existing initiatives focused on enterprise value reporting. It 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 Value Reporting Foundation1, the Climate Disclosure Standards Board (CDSB) and the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). The working group will closely engage with the Global Reporting Initiative (GRI) and CDP; and the World Economic Forum (WEF) will contribute their work on cross-industry metrics.
This working group will assess how technical expertise and content could transition to the new board.
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 IFRS Foundation plans to publish a feedback statement on their 2020 Consultation along with the proposed changes to its constitution necessary to formally establish a new board, including its composition. This could lead to the announcement of a new board in advance of the November 2021 United Nations Climate Change Conference (COP 26) in Glasgow. Further announcements are expected in the run up to this.
You can keep abreast of developments in this area, including the working group’s progress, on our Sustainability reporting page.
1 This comprises the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC).
*This article was updated on 23 March 2021, amending the paragraph headed “Build on existing frameworks” to reflect the announcement by the IFRS Foundation of the creation of a working group.
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