IOSCO endorses ISSB standards

The International Organization of Securities Commissions, an association of organizations that regulate the world's securities and futures markets whose members include the Securities and Exchange Commission, officially approved sustainability and climate disclosure standards Tuesday from the International Sustainability Standards Board.

IOSCO, as the group is typically known, was an early proponent of creating the ISSB as a way to bring together the various standard-setters in the sustainability area. The Value Reporting Foundation's Sustainability Accounting Standards Board and the International Integrated Reporting Council were consolidated into the ISSB last year, along with the Climate Disclosure Standards Board. The ISSB is overseen by the International Financial Reporting Standards Foundation, which also oversees the International Accounting Standards Board. Last year, the ISSB unveiled draft versions of its first two standards, S1 on general sustainability and S2 on climate-related disclosures, and finalized them late last month (see story).

Now IOSCO is calling on its 130 member jurisdictions, which regulate more than 95% of the world's financial markets, to consider ways they can adopt, apply, or otherwise be informed by the ISSB standards. However, that would be within the context of their jurisdictional arrangements, in a way that promotes consistent and comparable climate-related and other sustainability-related disclosures for investors. The SEC has its own proposed rule on climate-related disclosures that it unveiled last year, and it's expected to be finalized this fall after a delay, although it has faced considerable pushback and is likely to generate lawsuits.

Nevertheless, IOSCO believes its endorsement will carry considerable weight. "An IOSCO endorsement of the final standards creates momentum that's a real momentum for the ISSB standards as it no signals to jurisdictions that the global standard setter for capital markets believes these standards are fit for purpose," said IOSCO chair Jean-Paul Servais during a press conference in Brussels. "I hope, frankly speaking, that my successor will be able to sit in front of you in 20 years … and tell our successors that ISSB standards have played the same importance and played a key role in addressing the fragmentation of sustainability disclosures, following IOSCO's endorsement."

He sees the standards playing an important role in mitigating the practice of "greenwashing" by companies that can pick and choose which standards to use. He noted that data collection and data management would be key issues.

IOSCO also hopes to have ESG assurance standards in 2024, according to a slide deck.

Individual countries will still be responsible for adopting the sustainability and climate standards and there may be some national and regional differences, although IOSCO and the ISSB hope to keep them consistent.

"It means a real involvement and added value as a facilitator for sustainability reporting and also more capacity if we speak the same language, with some different accents, just to be clear," said Servais. 

The endorsement comes at the request of the G20 and G7 finance leaders and the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system.

"Widespread regulatory adoption of a global baseline of sustainability-related disclosures through the ISSB standards will secure the consistency and comparability of information that capital markets demand," said ISSB chair Emmanuel Faber in a statement. "IOSCO's timely endorsement and strong encouragement for capital market authorities to act confirms that the ISSB standards are fit for purpose. Together with IOSCO, we are committed to deliver a substantial and inclusive capacity-building program to set everyone in motion."

The IFRS Foundation released an adoption guide overview Tuesday outlining ways to help different jurisdictions implement the two standards, previewing an upcoming adoption guide that will set out more specific pathways for implementation of the ISSB standards. 

"Today's endorsement of those standards by IOSCO is a landmark and a historical achievement," said IFRS Foundation trustees chair Erkki Liikanen. "Varying voluntary standards and frameworks have caused fragmentation and even confusion to investors and companies. It has meant companies were not able to communicate effectively and have struggled with having to apply multiple reporting frameworks. Investors were not receiving the information they needed to price in sustainability risks and opportunities. Markets were not able to play their important role in the struggle against climate change. These were important drivers that led to the establishment of the ISSB. By endorsing the ISSB standards, securities regulators around the world are working to achieve the consistency and comparability of information that capital markets demand."