IFRS Foundation plans ISSB offices in Germany

The International Financial Reporting Standards Foundation is moving closer to establishing an International Sustainability Standards Board, signing a memorandum of understanding Wednesday to set up an ISSB office in Frankfurt, Germany.

The IFRS Foundation trustees signed the MoU with German public and private sector institutions to formalize partnerships and funding arrangements for the new board, which will be bringing together some of the existing standard-setters in the environmental, social and governance (ESG) area to agree on a common set of standards.

At the United Nations’ COP26 climate change summit in Glasgow, Scotland, last November, the IFRS Foundation — which also oversees the International Accounting Standards Board — formally launched the ISSB and announced that the Value Reporting Foundation and the Climate Disclosure Standards Board would be consolidated into the new ISSB (see story). The Value Reporting Foundation itself came out of the merger last year of the Sustainability Accounting Standards Board and the International Integrated Reporting Council. On Wednesday, the VRF’s SASB Standards Board held its next to last meeting before it's absorbed into the ISSB in June to discuss its progress on some of its remaining projects.

Financial regulators have been pressuring the various standard-setters to harmonize the sometimes conflicting sets of standards and frameworks as the popularity of ESG funds continues to grow and the pace of climate change accelerates. The United Nations’ Intergovernmental Panel on Climate Change released a dire report this week that found the impacts of global warming have become nearly irreversible and over 40% of the world’s population are highly vulnerable to its effects.

The move to establish a Frankfurt office for the ISSB is another part of the process of establishing the board after it announced in recent months that Danone chair and CEO Emmanuel Faber will be the ISSB chair, IASB vice-chair Sue Lloyd will be ISSB vice-chair, and VRF CEO Janine Guillot will be special advisor to the ISSB CEO.

“Creating a permanent presence in Frankfurt, and soon in Montreal, are important steps on the path to building our global multi-location model,” Faber said in a statement Wednesday. “These offices will serve key roles as the ISSB begins its ambitious program of work. We have much to do.”

The main offices will be in Frankfurt and Montreal. The ISSB also plans to set up an Asia-Oceania presence. “The formalization of our collaboration with public and private institutions in Germany will enable us to establish the ISSB’s Frankfurt office, which― together with Montreal — will host key functions and facilitate engagement and cooperation with regional stakeholders,” said IFRS Foundation trustees chair Erkki Liikanen in a statement.

The signatories to the MoU with the public sector institutions are the Federal Government of the Federal Republic of Germany and the Government of the State of Hessen, the Cities of Frankfurt am Main and Eschborn. The signatories to the MoU with the private sector organizations are Deutsches Aktieninstitut e.V., Deutsches Rechnungslegungs Standards Committee e.V., Frankfurt Main Finance e.V., Institut der Wirtschaftsprüfer in Deutschland e.V. and Wirtschaftsförderung Frankfurt GmbH.

The IFRS Foundation trustees previously announced that Montreal will also host key functions of the ISSB and will act as a hub for the Americas region, enabling close cooperation with the San Francisco office, where the VRF has its headquarters. The consolidation of the VRF into the IFRS Foundation is expected to be completed by June 30, 2022.

“My understanding is that the principal offices are going to be in Frankfurt and in Montreal,” said SASB Standards Board chair Jeffrey Hales during a press conference following the VRF meeting Wednesday. “Frankfurt will be the office of the ISSB chair, but Montreal will be another key office. But the Value Reporting Foundation has staff in San Francisco, but also in London and in some other cities as well. There are a lot of details still to be worked out, but it’s definitely a multi-location presence. The Value Reporting staff broadly, not just the research team, are working with the IFRS Foundation to have a smooth transition over. I don’t know that we have a clear understanding of whether there will be relocations or not, but there is certainly going to be a fair amount of additional hiring that is going to have to be done for the ISSB to be able to build out its capacity.”

The SASB Standards Board met to discuss its ongoing projects on raw materials sourcing in apparel, plastic risks and opportunities, particularly for single-use plastics, and content governance in the internet media and services industry. The UN report adds extra urgency to the work on environmental measures, however.

“When I think about the latest report from the UN IPCC, it’s just another reminder that the science has been clear on this, and there continue to be concerns about the pressing aspects of climate change,” said Hales. “We certainly understand that is an important issue. We suspect that will continue to mobilize both governments and industries as well as consumer opinion and hopefully lead to the types of changes that we think are needed for companies to operate in a way that is sustainable over the long run. As dire as those things are, we continue to see in 2020, 2021 and now in 2022 how social issues can regularly and routinely pop up as being very pressing as well. That’s just a reminder that sustainability isn’t really separable. The environmental issues aren’t separable from the social issues, and the social issues aren’t really separable from the environmental ones, and governance over all of them is really important.”