COP26 in Glasgow is possibly the most crucial event for the global community to properly develop a response to the climate crisis. While many speeches and announcements have been made, one has caught the eye of many sustainability professionals, the IFRS (International Financial Reporting Standards) Foundation’s announcement of the ISSB (International Sustainability Standards Board) is this a new frontier for disclosure and the beginning of the end of systematic greenwashing?
What is the IFRS and the ISSB?
On the face of it, this announcement may look like a small technical detail, only of interest to those in the know.
However, it could indicate a sea change in the quality, visibility and utility of corporate sustainability disclosure.
The IFRS Foundation is, put simply, the place where globally accepted accounting standards are developed. To date, while sustainability could theoretically be included as relevant in several existing standards, there have been no dedicated sustainability disclosure requirements to account for this vital dimension of organisational performance.
IFRS’s announcement, made on the 3rd November 2021, is set to change this, including the following commitments:
- The formation of the new ISSB to develop “in the public interest—a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs”.
- A commitment to bring two of the players in the sustainability disclosure space – the CDSB (Climate Disclosure Standards Board) and the Value Reporting Foundation (itself a recent merger of the IIRC and SASB) into complete consolidation by June 2022.
- The publication of prototype climate and general disclosure standards, which have been developed by the Technical Readiness Working Group and intended to provide a “running start” for the work of the ISSB.
Why is this important? and the implications for corporate climate disclosure
Consistent concerns for both the producers (companies) and users (investors, regulators and wider stakeholders) of sustainability information are focus, consistency and quality.
Put simply, are companies producing:
- the right information
- with the right focus; and
- of the required quality
… to allow users to tell whether information is meaningful, how, and if it can be relied upon.
By becoming the global standard setter, providing worldwide standards for sustainability disclosures for financial markets the ISSB and the prototype standards are intended to answer these questions.
If it works, it will require companies to provide a complete and true picture of their impacts and performance, and investors to understand and develop complete pictures of their portfolio impacts and emissions – crucial for the journey to a 1.5 °C future.
The start not the destination
The announcement of the ISSB is important, as it marks the recognition that not only does sustainability performance information have relevance for company and investor performance but that performance on climate issues requires quality information and data.
However, it does not provide the whole solution. The ISSB announcement concerns the IFRS Foundation’s intent to form a board and to consult on the initial prototype standards. We don’t, yet, have agreed disclosure standards, or the complete set of standards required to support a comprehensive picture of sustainability performance.
Climate is only one of the cross-cutting issues companies should report on, there are many other material issues that organisational activity gives rise to.
However, for many of us involved in the seemingly endless journey for a sustainable future to be put at the heart of the economy, the ISSB may mark a significant moment for serious change.