Sustainability Disclosures Launched to Support Global Financial Markets

by Catherine Harris

​Trustees of the International Financial Reporting Standards (IFRS) Foundation have unveiled key developments to provide the global financial markets with high quality disclosures on sustainability issues.

IFRS, the not-for-profit corporation which helps investors measure financial performance of companies based in different countries, has announced:

• A new International Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of sustainability disclosure standards
• A commitment by leading investor-focused sustainability disclosure organisations to consolidate into the new board
• 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 prototypes follow six months of joint work by representatives of the Climate Disclosure Standards Board (CDSB is an initiative of CDP), the International Accounting Standards Board (IASB), the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation (VRF) and the World Economic Forum (Forum), supported by the International Organization of Securities Commissions (IOSCO) and its technical expert group of securities regulators.

Both the G20 Leaders and the Financial Stability Board have welcomed the IFRS Foundation’s work programme to develop global baseline standards for sustainability disclosures.

Financial markets need to assess ESG-related risks and opportunities facing individual companies and investors want global sustainability disclosure standards that meet their requirements.

The developments will support a global sustainability disclosure standard-setter for the financial markets and fulfil the growing demand for formalising corporate sustainability disclosures.

The ISSB will have a global and multi-location presence and will engage with developing and emerging economies as a key priority. It will develop IFRS Sustainability Disclosure Standards, including disclosure requirements addressing companies’ impacts on sustainability matters.

The IFRS Foundation has committed, along with the CDSB and the VRF, to consolidate technical expertise, staff and other resources with the IFRS Foundation.

The ISSB will sit alongside the IASB and boards will be overseen by the Trustees, accountable to a Monitoring Board of capital market authorities.

The Trustees created the TRWG to provide recommendations to the ISSB and has recently concluded work on two prototype documents which focuses on climate-related disclosures and general sustainability disclosures.

Technical advice will be provided by a new sustainability committe, whose members include the International Monetary Fund, the United Nations, the World Bank and additional expert members.

The remit and expertise of the IFRS Advisory Council will provide strategic sustainability-related advice and counsel to the ISSB, as well as the Trustees and the IASB and the Foundation plans to use the International Integrated Reporting Council to provide advice and intends to leverage existing CDSB and VRF advisory groups.

The ISSB’s work is expected to start once the Chair and Vice-Chair(s) have been appointed and will commence with public consultations on the ISSB’s work plan.

Erkki Liikanen, Chair of the IFRS Foundation Trustees, said: “Sustainability, and particularly climate change, is the defining issue of our time. To properly assess related opportunities and risks, investors require high-quality, transparent and globally comparable sustainability disclosures that are compatible with the financial statements.

“Establishing the ISSB and building on the innovation and expertise of the CDSB, the Value Reporting Foundation and others will provide the foundations to achieve this goal”.

Richard Sexton and Robert K Steel, Co-Chairs of the Value Reporting Foundation Board, commented: “This announcement is a reflection of the changed world we live in—a world in which sustainability and long-term thinking are increasingly at the heart of business and investor decision-making.

“The Value Reporting Foundation Board believes the consolidation will help deliver effective disclosures to drive global sustainability performance. We count on your continued collaboration as we embark on this exciting next step.”

Richard Samans, Chairman of CDSB, and Paul Simpson, CEO of CDP said: “We are delighted that the IFRS Foundation is forming the ISSB to drive forward the development of global standards for sustainability-related financial disclosures. The ISSB’s integration of CDSB will ensure that the new board has a strong foundation and can move rapidly building on existing best practice. CDP looks forward to supporting the ISSB process with its global market led environmental disclosure mechanism and expertise on data.”

Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, said: “Creating long-term value requires both a focus on financial and sustainability performance. This means we need tools for measuring sustainability performance just as we have for financial performance.

“We look forward to continuing our partnership with the IFRS Foundation in support of the ISSB, during its establishment and as it delivers on its historical mandate.”

Catherine Harris, Director Sustainable Business - North America at Acre, attended the post COP26 Reuters’ Responsible Business USA event last week which was attended by more than 4,000 change-making CEOs, policymakers, chief sustainability officers, NGOs and investors.

All delegates share the joint goal of sharing strategies on leading a new business future through innovation, investment and collaboration and many were discussing the business impact of the IFRS announcement.

Catherine said: “This announcement means investors will increasingly be asking business for ESG data and transition plans - and we’re now seeing further announcements and moves towards making such reporting mandatory. We’ll see an explosion of investor leadership in this space – more engagement and a demand for better data that’ll drive positive action.

For a long time now we’ve needed a consistent standard which clearly defines what good looks like. We’ve seen more harmonizing of standards in the last month than there’s been in last 25 years. On the Environmental side there’s been significantly more convergence in terms of climate disclosure - but there’s still a lot more work to do in understanding how to define and report effectively on social and human rights issues.

This will have an enormous impact on business and on the need to hire specialist ESG talent from a junior, right up to a senior executive and non-executive level. In time we hope such expertise will become truly embedded in every business function - but in the meantime, it will require ESG leaders to engage across the business for support in collecting, reporting and acting on that data.

Catherine has been recruiting Senior Sustainability Executives and Non-Executives for over 9 years. Prior to Acre, Catherine worked for a boutique search firm with a focus on the charity and public sector. Catherine also sits on the board of Future-Fit Foundation, a non-profit offering tools to help investors and business tackle key Sustainability and climate change issues. With a passion for board diversity and appointing exceptional leaders at board level, she is also co-author of The Social Board, a paper exploring how to engage board members on key ESG and Sustainability issues. Catherine completed a Master’s at Kings College London in Sustainable Tourism, Development and the Environment in 2001, with a focus on standards and benchmarking in the tourism sector.