IFRS Foundation Announces International Sustainability Standards Board
As world leaders meet in Glasgow for COP26, the UN global summit to address the critical and urgent issue of climate change, the IFRS Foundation Trustees (Trustees) announced three significant developments to provide the global financial markets with high-quality disclosures on climate and other sustainability issues:
- The formation of a new International Sustainability Standards Board (ISSB) to develop—in the public interest—a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs;
- A commitment by leading investor-focused sustainability disclosure organizations to consolidate into the ISSB. The IFRS Foundation will complete consolidation of the Climate Disclosure Standards Board (CDSB), an initiative of CDP, and the Value Reporting Foundation (VRF), which houses the Integrated Reporting Framework and the SASB Standards, by June 2022;
- The publication of prototype climate and general disclosure requirements developed by the Technical Readiness Working Group (TRWG), a group formed by the IFRS Foundation Trustees to undertake preparatory work for the ISSB. These prototypes are the result of six months of joint work by representatives of the CDSB, the IASB, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the VRF, and the World Economic Forum (Forum), supported by the International Organization of Securities Commissions (IOSCO) and its Technical Expert Group of securities regulators. The TRWG has consolidated key aspects of these organizations’ content into an enhanced, unified set of recommendations for consideration by the ISSB.
Together, these developments create the necessary institutional arrangements, set out in the Foundation’s revised Constitution, and lay the technical groundwork for a global sustainability disclosure standard-setter for the financial markets. They fulfill the growing and urgent demand for streamlining and formalizing corporate sustainability disclosures.
The ISSB will sit alongside and work in close cooperation with the IASB, ensuring connectivity and compatibility between International Financial Reporting Standards (IFRS) and the ISSB’s standards. To ensure public interest legitimacy, both boards will be overseen by the Trustees, who are in turn accountable to a Monitoring Board of capital market authorities responsible for corporate reporting in their jurisdictions. The ISSB and the IASB will be independent, and their standards will complement each other to provide comprehensive information to investors and other providers of capital.
Comprehensive global baseline
The ISSB will develop IFRS Sustainability Disclosure Standards, including disclosure requirements that address companies’ impacts on sustainability matters relevant to assessing enterprise value and making investment decisions. The ISSB’s standards will enable companies to provide comprehensive sustainability information for the global financial markets. The standards will be developed to facilitate compatibility with requirements that are jurisdiction specific or aimed at a wider group of stakeholders (for example, the European Union’s planned Corporate Sustainability Reporting Directive as well as initiatives in the Americas and Asia-Oceania).
Consolidating and Building on Existing Initiatives
Consistent with feedback received through consultation, the ISSB will build on the work of existing investor-focused reporting initiatives to become the global standard-setter for sustainability disclosures for the financial markets. To achieve this goal, the IFRS Foundation has reached commitments with the CDSB, whose secretariat is hosted by CDP, and the VRF to consolidate their technical expertise, content, staff and other resources with the IFRS Foundation. It is intended that the technical standards and frameworks of the CDSB and the VRF, along with those of the TCFD and the Forum Stakeholder Capitalism Metrics, will provide a basis for the technical work of the new board.
Recognizing the urgency and the desire to provide the ISSB with a solid foundation on which to start its work, the Trustees created the TRWG—comprising representatives from the CDSB, TCFD, IASB, VRF and the Forum—to provide recommendations to the ISSB. The TRWG has concluded its work on two prototype documents published today—one which focuses on climate-related disclosures that build on the TCFD’s recommendations and includes industry-specific disclosures, and a second that sets out general sustainability disclosures. The ISSB will consider the prototypes as part of its initial work program.
Informed by Expert Advice
The ISSB will draw upon expertise from several advisory groups. Technical advice on sustainability matters will be provided to the ISSB by a new Sustainability Consultative Committee, whose members will include the International Monetary Fund, the Organization for Economic Co-operation and Development, the United Nations, the World Bank and additional expert members drawn from public, private and non-governmental organizations.
The remit and expertise of the IFRS Advisory Council will be extended to provide strategic sustainability-related advice and counsel to the ISSB, as well as the Trustees and the IASB. Finally, the Trustees have formed a working group to create a mechanism for formal engagement on standard-setting between the ISSB and jurisdictional representatives, including from emerging markets (similar to the Accounting Standards Advisory Forum, which fulfils this role for the IASB).
The Foundation intends to leverage the existing CDSB and VRF advisory groups, which include investors and other experts who have demonstrated long-standing support for improved sustainability disclosure. As well, the Forum’s private sector coalition will be engaged. The Foundation also intends to use the International Integrated Reporting Council to provide advice on establishing connectivity between the work of the IASB and the ISSB via the fundamental concepts and guiding principles of integrated reporting.
The ISSB will have a global and multi-location presence. All regions, including the Americas, Asia-Oceania and EMEA (Europe, the Middle East and Africa), will be covered. Engagement with developing and emerging economies will be an important priority.
Offices in Frankfurt (the seat of the Board and the office of the Chair) and in Montreal will be responsible for key functions supporting the new Board and deeper co-operation with regional stakeholders. Offices in San Francisco, following the consolidation with the VRF, and London will also provide technical support and platforms for market engagement and deeper cooperation with regional stakeholders.
Based on expressions of interest received, the IFRS Foundation will engage with Frankfurt and Montreal to make the necessary arrangements to enable the ISSB to commence work early in 2022. Further discussions will continue with proposals for offices from Beijing and Tokyo to finalize the new Board’s footprint in the Asia Oceania region. Timely actions are needed to respect the urgency expressed by IOSCO and other important stakeholders.
The Trustees are at advanced stages in appointing a Chair and Vice-Chair(s) to the ISSB. The Trustees will commence shortly a search for the additional board positions, up to the full complement of 14 members.
The ISSB’s work is expected to commence as soon as the Chair and Vice-Chair(s) have been appointed and to begin with public consultations to inform the ISSB’s work plan and on proposals informed by recommendations from the TRWG. Following these consultations, the ISSB’s work will follow the IFRS Foundation’s due process, including public discussions of feedback received to the consultations and possible improvements to the proposals prior to their finalization as standards. The entire process will be overseen by the Trustees’ Due Process Oversight Committee.