November 8, 2021

Monday Morning Memo: IFRS and IOSCO Delivered on Their Promise and Launched the International Sustainability Standards Board (ISSB)

by Detlef Glow.

In my article IOSCO May Take the Lead for Implementing Standards on ESG Disclosures and Ratings I mentioned that the International Organization of Securities Commissions is working with the IFRS Foundation on setting up a new body in November 2021.

As world leaders meet in Glasgow for COP26, the UN global summit to address the critical and urgent issue of climate change, the IFRS Foundation Trustees delivered on their promise and announced on November 3, 2021, the formation of a new International Sustainability Standards Board (ISSB) to develop—in the public interest—a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. The headquarters of ISSB will be based in Frankfurt, Germany, which is highly appreciated by the German fund and asset management industry, as shown by a press release by its industry association BVI.

The aim of the ISSB is to develop IFRS Sustainability Disclosure Standards, including disclosure requirements that address companies’ impacts on sustainability matters relevant to assessing enterprise value and making investment decisions. The ISSB’s standards shall enable companies to provide comprehensive sustainability information for the global financial markets. The standards will be developed to facilitate compatibility with requirements that are jurisdiction-specific or aimed at a wider group of stakeholders (for example, the European Union’s planned Corporate Sustainability Reporting Directive, as well as initiatives in the Americas and Asia-Oceania).

The launch of the ISSB is an important step as we still lack a definition of sustainable investments and standards for corporate disclosures. As a result, investors and asset managers interpret sustainability and ESG as they want to and create a rather confusing number of terms and definitions to describe their investment style. In addition to this, regulators around the globe started to develop their own standards. Such a patchwork of regulations would make it even harder to create a harmonized definition of sustainability and the respective disclosure standards. Therefore, one needs to hope that the ISSB will be able to align the interest of regulators around the globe sooner rather than later and publish the first draft of its disclosure requirements quite soon. That said, we all know that it can take some time before a body like the ISSB can finalize a draft of the disclosure requirements. Nevertheless, I believe that the ISSB will be able to publish its disclosure requirements within the next three years. Let’s hope that the regulators around the globe appreciate the effort from the ISSB and align their regulatory requirements to the ISSB standards.

 

The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.

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