IFRS To Speed Convergence In Sustainability Reporting
The Trustees of the IFRS Foundation announced the formation of a working group to accelerate convergence in global sustainability reporting standards focused on enterprise value and to undertake technical preparation for a potential international sustainability reporting standards board under the governance of the IFRS Foundation.
The working group will provide a forum for structured engagement with initiatives focused on enterprise value reporting, as described by the Trustees’ 8 March statement. It also responds to the 24 February statement by the International Organization of Securities Commissions (IOSCO), calling for the coordination of work to drive international consistency of sustainability-related disclosures with a focus on enterprise value creation.
Specifically, the working group will provide technical recommendations, including further development of the prototype built on the TCFD recommendations, as a potential basis for the new board to build on existing initiatives and develop standards for climate-related reporting and other sustainability topics. The group will also review how technical expertise and content might potentially be transitioned to the new board under the IFRS Foundation’s governance structure, with a view to facilitating consolidation and reducing fragmentation in sustainability reporting standards.
The working group will be chaired by the IFRS Foundation and include participation by the International Accounting Standards Board, given the need for connectivity with financial reporting. IOSCO will participate in the group as an observer, given the essential role it would play in evaluating and endorsing standards issued by a new board. During this preparatory phase, the working group also welcomes engagement with jurisdictions that are working on sustainability reporting.
Participants in the working group are dedicated to reporting on enterprise value and bring together complementary international experience. The Financial Stability Board’s Task Force on Climate related Financial Disclosures (TCFD) brings recommendations for climate-related disclosures that promote more informed investment, credit and insurance underwriting decisions.
The Value Reporting Foundation brings international standard-setting experience. It represents the intended merger of the International Integrated Reporting Council (IIRC), which provides a framework for integrated reporting that connects financial and sustainability information, and the Sustainability Accounting Standards Board (SASB), which provides industry-specific standards for reporting on enterprise value.
These initiatives are joined by the Climate Disclosure Standards Board (CDSB), whose framework guides disclosure of material information for investors through the integration of climate, wider environmental and social-related information into financial reporting.
Finally, the World Economic Forum (WEF) will contribute their work on cross-industry metrics and disclosures that CEOs of a wide range of the world’s largest multinational companies have found to be important for disclosure. Throughout this process, the working group will also engage closely with the Global Reporting Initiative (GRI) and CDP.
The first meeting of the working group is expected to take place in April 2021, with updates on progress published on the IFRS Foundation website.
Compatibility with other initiatives
Consistent with the 8 March statement, as well as IOSCO’s recent press statement, the Trustees envisage that sustainability reporting standards issued by the new board would provide a global sustainability reporting baseline that would allow for greater comparability and consistency of application of the standards, while also providing flexibility for coordination on additional jurisdictional and multi-stakeholder reporting requirements (a ‘building blocks’ approach).
In this spirit, and in parallel to the working group, the Trustees will commence work with IOSCO and relevant organisations to explore the establishment of a multi-stakeholder expert consultative committee within the IFRS Foundation structure. The consultative committee would be tasked with formalising and streamlining the new board’s engagement with the relevant global stakeholders involved in sustainability reporting.
Clara Barby will take partial leave from the Impact Management Project (IMP) to be the project lead for the IFRS Foundation’s sustainability project, under the oversight and strategic direction of the IFRS Foundation’s Steering Committee of Trustees. This is complementary to her role as a facilitator for standard-setting organisations looking to achieve global convergence on sustainability reporting.
Response From Climate Disclosure Standards Board (CDSB)
The IFRS Foundation has invited CDSB to join a working group to accelerate convergence in global sustainability reporting.
The working group will provide technical recommendations, including further development of the climate prototype released in December by the Group of 5 reporting standard setters, as a potential basis for the new board to build on existing initiatives and develop standards for climate-related reporting and other sustainability topics.
CDSB Chairman Richard Samans commented: “CDSB’s creation in 2007 was a response to the absence of an international standard for the disclosure of material environmental information in mainstream corporate reports. We are encouraged by the prospect of the creation of such a sustainability standard by the IFRS, which would represent in principle the culmination of our original vision. We are therefore pleased to be part of the working group it is convening to help prepare the technical ground for such an effort, building in part upon the CDSB Framework and the use of it by over 500 large listed companies around the world.”
CDSB Managing Director Mardi McBrien said: “The purpose of CDSB was not to exist forever, but to develop a framework that can be adopted by authoritative bodies like the IFRS Foundation. We look forward to collaborating with the other organisations on enterprise value creation in the working group, including the IFRS Foundation, International Accounting Standards Board, Value Reporting Foundation and the WEF International Business Council.”
CDP which provides the world’s environmental disclosure system for companies, cities, states and regions, has hosted CDSB’s global Secretariat since its inception and will also engage closely with the working group.
Paul Simpson, CEO of CDP said: “Helping CDSB develop over the last 15 years from such ambitious beginnings, we are proud to see that vision on the cusp of becoming a reality. CDSB has become a world leading organisation providing invaluable tools to the market to bring environmental reporting to financial standard setters. This is the next, and final, step in that process. At CDP we look forward to informing and supporting the IFRS process with our expertise on environmental disclosure and data”
With Ankit Mittal, Business Change Manager, Global Trading, Schroders
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