France’s central bank has warned that developing global sustainability reporting standards via the IFRS Foundation could give undue influence to the US and other countries that do not support IFRS standards on home turf.
The IFRS – or International Financial Reporting Standards – Foundation is a non-profit body which develops the accounting standards used by 166 jurisdictions. It plans to start setting corporate sustainability reporting standards, and has just closed a second consultation on creating an ‘International Sustainability Standards Board’ (ISSB) to oversee such efforts.
In its response, the Banque de France said it “deeply regrets” that concerns it raised during the first consultation had not been addressed – including worries that the proposed governance structure for the new board could give significant power to jurisdictions that neither fund nor promote standards issued by the IFRS.
Under current plans, the ISSB would have a board of trustees and a monitoring board, but Banque de France argues that current trustee nomination rules have created “a widening gap between the number of trustees and board members for the America area and the financial contributions from those jurisdictions”.
“These quotas result in allowing jurisdictions that do not apply IFRS domestically to exercise significant influence over the standard setting agenda of the Foundation.”
According to 2020 figures, the US contributed just £397,051 to the IFRS Foundation – chiefly because it uses an alternative set of standards known as Generally Accepted Accounting Principles (GAAP). The EU, on the other hand, stumped up £4m, with other major funders including China (£2.1m), Japan (£2m) and international accountancy firms (£2.3m).
Considering the EU’s contributions to the IFRS Foundation, and the bloc’s leading role in creating ESG reporting rules, the French Treasury argued in its consultation response that “the European Union should find its rightful place” in the new governance structure – and called for European members to be approved by the European Commission.
In another response to the consultation, French bank Societe Generale said the EU – or a representative from its new European Financial Reporting Advisory Group – should automatically have a seat on the ISSB board.
The Global Steering Group for Impact Investment also raised concerns about geographical representation, noting that Africa is significantly underrepresented in IFRS’ current governance.
Last week, the Government of Canada – which has required IFRS adoption since 2011 – submitted a formal offer to host the headquarters of the new ISSB. The bid is backed by the Chartered Professional Accountants of Canada as well as many of the country’s pension funds, banks, asset managers, insurers and regulators. Other bids to host and fund the body are now being accepted, and a decision is due in November at the global climate summit, COP26.
A working group will also unveil a prototype for reporting aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) at COP26. The group includes the Climate Disclosure Standards Board, International Organisation of Securities Commissions, the TCFD, the Value Reporting Foundation and the World Economic Forum’s International Business Council.
In related news, financial giant BlackRock has urged the China Securities Regulatory Commission to engage with the IFRS Foundation on its sustainability standard setting work.
China’s Ministry of Finance has expressed support for the IFRS’ work in a consultation response, but noted the “rapid speed” of the work expected to be finished by mid-2022 and called for the IFRS to publish the due process on how the sustainability standards are being developed to enhance transparency.