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Experts warn of digitisation gap in IFRS sustainability project

Feedback comes as BlackRock asks for whole gamut of ESG standards, not just climate

Experts have warned the International Financial Reporting Standards Foundation that its sustainability project lacks the digital strategy needed to make it fit for purpose in the context of the current data revolution.

Responding to the current IFRS consultation on ESG-related disclosure, Jane Diplock and Liv Watson caution that whatever the final standards look like, they should be machine-readable.

Diplock is a former Executive Committee Chair of the International Organisation of Securities Commissions (IOSCO), while Watson is a veteran technology and governance professional who is currently advising the development of potential non-financial reporting standards at EU level. Both are involved in the Impact Management Project, which oversees the alignment efforts of the five main reporting standards bodies.

The warning comes as evidence grows that companies are shaping their disclosures for a predominantly AI audience of algorithmic traders, robot investment advisors and quantitative analysts. 

“The establishment of a Sustainability Standards Board provides a perfect opportunity to establish a global [digital] taxonomy that will interrelate with the current IFRS taxonomy for financial reporting,” Diplock and Watson wrote. They also suggested the creation of a global registry of taxonomies, a project that is currently being explored by the IMP, to design and align machine-readable formats of existing sustainability standards and frameworks, noting: “The IFRS Foundation holds the keys to the establishment of vitally necessary pieces of global reporting architecture.”

Watson told RI that the growing investor demand for improved standardisation and granularity in sustainability data will be answered by digitisation. “Digital taxonomies need to be embedded early on and not after-the-fact, that's a key priority in the European project,” she said. 

Watson is a member of the expert group within the European Financial Reporting Advisory Group undertaking preparatory work for potential non-financial reporting standards in the EU, where digitisation is one of the key work streams.  

Meanwhile, BlackRock has formally responded to the IFRS Foundation consultation, which closed on 31 December, asking for the future Sustainability Standards Board to go beyond producing climate-related standards.

Sandra Boss Global, Head of Investment Stewardship, and Michelle Edkins, Managing Director Investment Stewardship, said: “As much as climate related risks impact the whole economy it is important for the users of sustainability reporting to have a comprehensive understanding of the material sustainability risks and opportunities in a company’s business model. Thus, the SSB should develop reporting standards that cover all relevant governance, social and environmental factors.”