Allianz says inside-out impacts ‘absolutely essential’ in ISSB submission

Asset owners push case for impact, as HSBC bank’s pension fund warns of ‘disrepute’ without greater connectivity between sustainability standards and financial reporting ones.

Allianz has told the International Sustainability Standards Board (ISSB) that it is “absolutely essential” that the global standard setter’s concept of materiality covers investors’ needs in their entirety, including “inside-out impacts”. 

The German insurance giant was responding to the ISSB’s consultation on its future work, which closed on Friday. 

In its submission, it wrote: “We deem it as absolutely essential that the ISSB’s materiality concept is defined in a way to cover investors’ information demands in their entirety, namely by taking into account that investors are interested in a significant number of inside-out impacts.”

Allianz recommended that the ISSB “explicitly integrate/consider investors’ interest in impacts” into its work. 

“Investors are (increasingly) interested in a company’s impact on planet and people, irrespective of concrete/immediate financial effects, already today, but likely even more so going forward, meaning that they need this information to decide whether to provide resources to the entity, which is part of the ISSB standards’ objective,” it added.  

This interest is driven by factors such as “sustainability preferences, expected second-tier effects on enterprise value in the (potentially long-term) future or because of systemic risks from a portfolio instead of a single-issuer perspective”, Allianz wrote.  

The investor concluded that a comprehensive global baseline of sustainability-related disclosures “cannot be produced with an exclusive focus on the financial statements, or an exclusive focus on risks to individual issuers, but needs to focus on impacts, also but not only because of them being a source of many systemic risks”.   

ISSB’s focus on financial materiality is a key difference between its corporate sustainability standards and those being developed in Europe by standard setter EFRAG, which factor in environmental and social impacts generated by companies. This orientation is covered by the European concept of “double materiality”. 

Allianz was not the only investor to raise the topic of impacts.  

Californian public pension giant CalPERS also suggested that ISSB enhance disclosures requirements and guidance “to indicate how a company identifies and manages impacts, or potential impacts of climate-related risks, on local environments and communities, including a company’s approach to material human capital issues”.

This includes “targeted enhancements to the ISSB standards that address the just transition to a low carbon economy and its impact on workers, as well as externalities created by emitters of carbon and other pollutants that harm people”, the $462 billion fund added.  

Focusing on human rights more specifically, the UK’s Church Commissioners expressed concern that a company-focused approach, which does not embed the “impact-to-people focus of human rights due diligence”, will prove inadequate in identifying and assessing a company’s “relationships, dependencies and impacts on its business ecosystem”.

An incomplete materiality process will create an inaccurate picture of risks and opportunities, “resulting in misinformed investor decisions and the misallocation of capital”, the fund warned.

The faith investor also “strongly” encouraged ISSB to develop a “cross-cutting social disclosure standard (ie an ‘S3’) to support the general and climate disclosure standards”. 

It added that the current proposal for separate “human capital” and “human rights” disclosure standards “could create confusion and ultimately fail to address investor needs”. 

HSBC pension fund warns of “disrepute” 

In its submission, HSBC Bank’s pension scheme encouraged ISSB to undertake a “substantive project” to foster greater connectivity between its standards and the financial reporting standards of the IFRS Foundation, which are overseen by the International Accounting Standards Board (IASB).

The ISSB was launched in 2021 by the IFRS with a mandate to develop a global baseline for corporate sustainability standards.  

“Without greater connectivity, there is a risk that both ISSB and IASB standards may fall into some disrepute,” the UK-based pension fund wrote. “Close work between the two boards could help avoid this risk.”

The scheme added that the issue of connectivity is much more important than the “integration in reporting” project being put forward by ISSB.  

“We do not agree with the ISSB’s conclusion that it has already substantively delivered the ambitions of connectivity with the IASB.”