The Value Reporting Foundation held an online “sunsetting event” Tuesday as the environmental, social and governance standard-setter merges into the recently formed International Sustainability Standards Board.
The VRF itself merged together the Sustainability Accounting Standards Board and the International Integrated Reporting Council last year as global financial regulators such as the G-7 finance ministers and the International Organization of Securities Commissions (IOSCO) have been calling for various ESG standard-setters to unite around a common set of standards as the pace of climate change accelerates and ESG funds grow in popularity among investors.
Last November, at the United Nations’ COP26 climate change conference, the International Financial Reporting Standards Foundation, which oversees the International Accounting Standards Board, formally launched the ISSB and announced it would be “consolidating” both the VRF and the Climate Disclosure Standards Board by the end of June (
“I think one of the key takeaways is what a collective effort it has been to move from SASB and IIRC, both two startups a little over 10 years ago, merging into the IFRS Foundation,” said VRF CEO Janine Guillot. “I think one of the reasons that so much was achieved so quickly is that this was a tremendous collective effort with many, many stakeholders coming together — investors, businesses, accountants, funders, civil society — who drove significant change in the corporate reporting landscape in a relatively short period of time.”
The sunsetting event took place Tuesday in the midst of a heat wave across the U.S. and Europe, with the U.K. setting temperature records. “It is a coincidence that today is the hottest day ever recorded in the U.K.,” said Paul Druckman, chairman of the World Benchmarking Alliance and founding CEO of the IIRC. “I’m sitting here today in London on the hottest day ever, so it is quite poignant.”
He reflected on how 10 years ago, the various standard-setters like the IIRC and SASB were forming and getting ready to come out with separate standards, yet the real power for the human race has always emerged from when people came together.
“You have the confluence of investors and global capital markets saying they just need better information,” said International Federation of Accountants CEO Kevin Dancey, who has long urged the various ESG standard-setters to unite together.
The standards and frameworks coalesced over the same period of time. “It was just the right tools at the right time,” said Marvin Smith, director of ESG reporting and disclosure at the Gap. "If you look at SASB standards and the integrated reporting framework, you have really valuable tools for companies to tell investors their story about how they’re managing risks and opportunities related to value creation. I think the emergence of these tools was in direct response to obvious needs in the market.”
The various standard setters all supported the Task Force on Climate-related Financial Disclosures (TCFD) framework from the Financial Stability Board.
“Investor demand created these reporting regimes, which naturally led to a marketplace, and marketplaces are very hard to organize, no matter what the intentions of the stakeholders are,” said Ilmi Granoff, senior advisor at the ClimateWorks Foundation. “A couple of things changed that I think made it possible to race to this stage. The TCFD recommendations sharpened attention on climate and created a set of shared principles that would help smooth the path to shared standards. That helped lead the way to real change and this outcome.” He also cited the work of the Impact Measurement Project, which worked with his organization.
The IFRS Foundation, through the ISSB, will be overseeing development of the future standards.
“There have been lots of efforts from the various standard-setters on voluntary frameworks and standards for many years who have really paved the way for what we are celebrating today,” said Carine Smith Ihenacho, chief governance and compliance officer at Norges Bank Investment Management. “I think there’s been quite a lot of resistance from many investors like us who have been asking for this information for so long because this is important to us. There has been a lot of open-mindedness from the IFRS trustees to really expand their remit and take a deep dive into unknown territory.”
The urgency of climate change is prompting rapid changes in ESG reporting. “It took 50 years to shape the global accounting system for the capital markets,” said ISSB chair Emmanuel Faber. “We won’t have 50 years. We don’t have decades. We have years at best. For me the success will be that in 10 years ESG parameters as provided through the ISSB language for decision-useful information will by then shape market allocations and will translate into equity and debt pricing. This is going to change economies and the world with a system that works for stability and resilience better than what it does today. By then, we may have well moved the needle on what we call accounting. Today we apparently don’t count everything that counts.”
He believes the consolidation of the different standard-setters under the auspices of the IFRS will connect the IASB with the ISSB and transform the notion of “real accounting” 10 years from now.
