IFRS Foundation sets up working group to converge sustainability standards

The International Financial Reporting Standards Foundation trustees formed a working group Monday to focus on harmonizing global sustainability reporting standards in preparation for a potential international sustainability standard board.

The group will provide a forum for representatives from the various standard-setting and framework-setting boards to converge their standards. They will offer technical recommendations as a potential basis for the new international sustainability standards board to build on existing initiatives and develop standards for climate-related reporting and other sustainability topics. The group will also review how technical expertise and content could transition to the new board under the IFRS Foundation's governance structure to ease consolidation and reduce fragmentation in sustainability reporting standards.

International financial regulators have been calling for greater consistency among the various environmental, social and governance standards and frameworks as ESG funds grow in popularity with investors. Last fall, five of the organizations — the Sustainability Accounting Standards Board, the International Integrated Reporting Council, the Global Reporting Initiative, the Climate Disclosure Standards Board and the Carbon Disclosure Project — announced plans to harmonize their various standards and frameworks to provide more consistency.

However, leaders of the International Organization of Securities Commissions and the International Federation of Accountants would like to see the convergence effort go further and have encouraged the IFRS Foundation to set up an international sustainability standards board that it would oversee alongside the International Accounting Standards Board that it already oversees. The IFRS Foundation trustees posted a consultation paper last September asking for feedback on the proposal. In response to the feedback, it announced plans earlier this month to move ahead with establishing such a board within its existing governance infrastructure ahead of a United Nations Climate Change COP 26 Conference in November (see story). Monday’s announcement describes how it will involve the existing standard-setters and other stakeholder groups.

The five standard-setters already unveiled a prototype of how their standards and frameworks can come together by building on the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures, and the working group will further develop that prototype. Two of the groups, SASB and the IIRC, announced plans last year to merge together under the auspices of a new group called the Value Reporting Foundation later this year, and the CDSB may merge with them as well. The three of them will be part of the working group. The World Economic Forum will contribute its work on cross-industry metrics and disclosures that CEOs of a wide variety of large multinational companies have found to be important for disclosure. The working group will also engage closely with GRI and the CDP.

The working group’s initial meeting is expected to take place next month, with updates on their progress published on the IFRS Foundation website.

The IFRS Foundation trustees anticipate that sustainability reporting standards issued by the new board will provide a global sustainability reporting baseline that will allow for better comparability and consistency of application of the standards, while also offering flexibility for coordination on more jurisdictional and multi-stakeholder reporting requirements by taking a “building blocks” approach. The trustees will start working with IOSCO and other organizations to explore setting up an expert consultative committee within the IFRS Foundation structure. The consultative committee would have the job of formalizing and streamlining the new board's engagement with relevant global stakeholders involved in sustainability reporting.

Clara Barby will take partial leave from the Impact Management Project to be the project lead for the IFRS Foundation's sustainability project, under the oversight and strategic direction of the IFRS Foundation's Steering Committee of Trustees. That will complement her role as a facilitator for standard-setting organizations looking to achieve global convergence on sustainability reporting.

The CDSB issued a statement saying it looked forward to being part of the group.

“We are encouraged by the prospect of the creation of such a sustainability standard by the IFRS, which would represent in principle the culmination of our original vision,” said CDSB chairman Richard Samans in a statement Monday. "We are therefore pleased to be part of the working group it is convening to help prepare the technical ground for such an effort, building in part upon the CDSB Framework and the use of it by over 500 large listed companies around the world.”

GRI also expressed its support. “GRI looks forward to collaborating with the IFRS working group and helping make the important link with sustainability reporting, which focuses on disclosing a company’s impact on the world,” said GRI chairman Eric Hespenheide in a statement. "We will continue to work with IFRS, the European Commission and others to support global changes that fulfill these aims.”

The Securities and Exchange Commission, under its new acting chair Allison Herren Lee, has also been moving ahead on requiring public companies in the U.S. to provide more disclosure of ESG-related risks. On Monday, the SEC today unveiled a new page on its website to unite agency actions and the latest information about climate and ESG investing. In response to increased investor appetite for such information, the page will be displayed on the front page of SEC.gov and will be updated as the agency continues to respond to investors.

“Our all-of-SEC approach looks at how climate and ESG intersect with our broader regulatory framework to get investors the information they need to plan for their financial future,” Herren Lee said in a statement.