ISSB Chair: Global Adoption is “Mission Possible”
Increased interoperability between developed and developing markets, as well as with other reporting rules, remains a priority.
Adoption of the IFRS Foundation International Sustainability Standards Board’s (ISSB) climate and sustainability reporting rules is gathering pace, with 20 jurisdictions having announced plans to implement the standards.
“When standing on the main stage at COP26 [to announce the launch of the ISSB], not everyone felt this was possible,” said Emmanuel Faber, Chair of the ISSB, speaking at the International Organization of Securities Commissions’ (IOSCO) 49th annual conference in Athens. “But, three years on, the goal to establish a global baseline of sustainability-related disclosures no longer seems like mission impossible – it feels [like] mission possible.”
The ISSB’s IFRS S1 and IFRS S2 sustainability reporting standards, developed to enhance sustainability-related disclosures and ensure global interoperability, have been in effect since January. While S1 requires companies to disclose information about their sustainability-focused governance, strategy and risk management processes, S2 sets out requirements for reporting exposures to climate-related risks and opportunities.
According to Faber, the implementation of these standards is an essential condition for markets to appropriately price sustainability-related risks and opportunities – particularly those associated with climate change.
“The last two years, in particular, have shown there is collective momentum and support [for global sustainability reporting standards], with more than 100 jurisdictions now around the table,” he said.
Responding to this trend, the IFRS Foundation published this week a guide to help countries design and plan their adoption of the ISSB standards – including for partial adoption.
According to the IFRS, 20 jurisdictions representing over half of the global GDP and over half of global greenhouse gas (GHG) emissions have now announced plans to use the ISSB climate and sustainability reporting standards. These jurisdictions include Canada, Australia, the UK, Singapore, and South Korea.
In parallel, the foundation outlined a regulatory implementation programme which will provide educational materials and capacity–building tools to implement the standards.
Earlier this year, the ISSB had flagged a common desire among policymakers, regulators and investors globally to address the fragmented landscape of voluntary climate and sustainability reporting requirements.
IOSCO publicly endorsed the ISSB standards last year, calling on its 130 member jurisdictions to consider how they might adopt, apply or be informed by climate and sustainability reporting requirements to better promote interoperable disclosures for investors. IOSCO estimates that between 100,000 and 130,000 companies globally will likely apply the standards.
“This is a new successful step in our journey toward a more sustainable finance ecosystem,” said Jean-Paul Servais, Chair of IOSCO. “What has been achieved [by the ISSB] in less than three years is absolutely unbelievable.”
Moving in sync
Fully harmonised sustainability reporting, however, also implies that emerging markets (EMs) are able to easily implement the standards.
“I’m delighted to see that a number of emerging markets are taking steps towards the adopt of the ISSB standards, such as Brazil, Bolivia and Nigeria,” said Mohamed Farid Saleh, Chair of IOSCO’s GEMC. “This is one of the most needed actions to mainstream sustainability disclosures.”
But Farid Saleh also emphasised the importance of recognising the challenges that EMs face with ISSB adoption, claiming that further guidance and support is needed.
“Regulators will need to walk through a series of questions capturing key decision points, and develop an adoption approach for their jurisdiction based on the [IFRS] guide,” he added.
These include establishing a policy rationale, navigating the legal or regulatory process, and deciding which entities should be in scope.
Earlier this month, a multi-stakeholder group called on governments globally to accelerate their adoption of the ISSB standards by 2025, arguing that standardised reporting would bolster the finance sector’s efforts to fund climate- and sustainability-related opportunities.
The IFRS Foundation, for its part, has been making strides to ensure the standards align with various reporting rules around the world.
The foundation recently recently co-published interoperability guidance with the European Financial Reporting Advisory Group to illustrate the degree of alignment between the ISSB standards and European sustainability reporting standards. Along a similar vein, the IFRS Foundation has further deepened its working relationship with the Global Reporting Initiative.
Discrepancies, however, do exist. The EU has developed reporting standards championing double materiality – in contrast to the ISSB’s focus on enterprise value only – meaning EU-domiciled companies and investors are also expected to report on their impact on the environment and local communities.
Published last month, the IFRS Sustainable Disclosure Taxonomy aims to enable investors to search, extract and compare corporates’ sustainability-related financial disclosures. In a bid to widen its scope, the ISSB has also initiated projects to research disclosures on nature- and human capital-related financial risks.
“It is important to emphasise that the aim should not be to identify a single roll-out [climate and sustainability] reporting model for markets, but rather to introduce a flexible framework for authorities to use,” said Farid Saleh.
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