IFRS Foundation and GRI agree to collaborate on ESG standards

The International Financial Reporting Standards Foundation and the Global Reporting Initiative said Thursday they have reached a collaboration agreement to coordinate their standard-setting and work programs between the IFRS Foundation’s nascent International Sustainability Standards Board and GRI’s Global Sustainability Standards Board.

The move comes after the IFRS Foundation formally launched the ISSB last November during the United Nations COP26 climate change conference in Scotland (see story). At the time, the IFRS Foundation, which also oversees the International Accounting Standards Board, also announced that the Value Reporting Foundation, which oversees the Sustainability Accounting Standards Board and the International Integrated Standards Board, as well as the Climate Disclosure Project’s Climate Disclosure Standards Board, would be consolidated into the new ISSB by June of this year. GRI said it would work with the new international standard-setting board, but would maintain its independence (see story).

The competing sustainability standard-setters have come under increasing pressure in recent years from global financial regulators such as the International Organization of Securities Commissions (IOSCO) to do more to harmonize and align their sometimes conflicting standards and frameworks as investors flock to environmental, social and governance (ESG) funds. Regulators are concerned that investors may have trouble comparing the performance of such funds, with accusations of “greenwashing” by companies that tout sustainability claims that don’t match the reality of their actions. In the U.S. the Securities and Exchange Commission unveiled a proposed rule Monday that would require disclosures by public companies and other issuers of their climate-related risks (see story). It references the commonly accepted framework of the Taskforce on Climate-related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol (GGP) but wouldn’t preclude the use of more specific standards from groups such as GRI, the ISSB and the SASB Standards Board.

The agreement from the IFRS Foundation and GRI aims to ensure greater compatibility and interconnectedness of investor-focused baseline sustainability information that meets the needs of the capital markets to serve the needs of a wider range of stakeholders. The IFRS Foundation and GRI said they recognize the considerable public interest in aligning where possible their work programs, terminology and guidance to reduce the reporting burden for companies and harmonize the sustainability reporting landscape at an international level.

By working together, the IFRS Foundation and GRI will provide two “pillars” of international sustainability reporting. The first pillar will represent investor-focused capital market standards of IFRS Sustainability Disclosure Standards developed by the ISSB, and a second pillar of GRI sustainability reporting requirements set by the GSSB will be compatible with the first, but will be designed to meet multistakeholder needs.

“At COP26 we heard strong support for consolidation in the sustainability reporting landscape,” said IFRS Foundation chair Erkki Liikanen in a statement Thursday. “The work of the ISSB and its global baseline concept will help deliver this objective for the capital markets, whilst this agreement with GRI will help ensure capital market standards are developed in a way that minimizes reporting burden for those companies also using GRI Standards.”

The agreement comes in the form of a memorandum of understanding and is the latest development in the efforts to consolidate or align multiple international initiatives covering sustainability reporting into a more cohesive approach.

“The MoU between GRI and the IFRS Foundation is a strong signal to capital markets and society that a comprehensive reporting system, which combines financial and impact materiality for sustainability reporting, is possible on a global scale,” said GRI CEO Eelco van der Enden in a statement. “Aligning GRI’s established and widely adopted standards for sustainability impacts with the investor-focused standards being developed by the ISSB will benefit both companies and investors, as well as a wide range of stakeholders around the world.”

The agreement is a sign of increasing cooperation between the various standard-setters. “For those interested in considering impact when assessing enterprise value, using the standards set by the ISSB and GSSB together will offer a complete and compatible suite of sustainability disclosures,” said ISSB chair Emmanuel Faber in a statement. “This agreement will see the two standard-setting boards cooperate in pursuit of that objective.”

To be sure, the various groups will have a long way to go before they can align all the competing sets of standards and the ISSB is still in the process of forming, and the role that will be played by the Value Reporting Foundation and the CDSB and their standards is not yet clear until they are merged into the ISSB in June.

The IFRS Foundation announced consolidation with the CDSB and the Value Reporting Foundation (which houses the IIRC’s Integrated Reporting framework and SASB standards) during the COP26 conference last fall. The ISSB said Thursday it plans to publish next week proposed Climate and General Sustainability-related Disclosure requirements that, once finalized, will form the global baseline for climate-related disclosures. The global baseline concept has been welcomed by the G20 finance leaders, IOSCO and others.

“The collaboration between the GSSB and the ISSB demonstrates our shared commitment to the global alignment of disclosure requirements,” said Judy Kuszewski, chair of the GRI GSSB, in a statement. “This is crucial if we are to enable consistent reporting by companies, which increases accountability and drives responsible business practices. We look forward to aligning work programs and to making the two-pillar corporate reporting system a reality, with financial and sustainability reporting on an equal footing.”