Germany, Japan, Switzerland, UK vie to host ESG standards body as France mulls next move

The Banque de France previously criticised the IFRS initiative over undue US influence

The governments of Germany, Japan, Switzerland and the UK have this week joined Canada in throwing their hats in the ring to host a critical initiative developing global sustainability reporting standards. 

The new International Sustainability Standards Board (ISSB) was set up by the influential International Financial Reporting Standards (IFRS) Foundation to oversee the new framework – expected to underpin global consensus on how to report on ESG issues. It is looking for a headquarters and funding as its work begins. 

The project is intended to put an end to long-standing criticism about the current fragmentation of reporting requirements depending on geography and sector.  

Canada was the first country to offer to host, back in July. The federal government penned a letter backed by 55 of the country’s public and private institutions, including pension funds, banks, asset managers, insurers and regulators.

Based on public documents, the Japanese government has made the most explicit guarantees on future financial contribution to the ISSB in its bid, saying it had already made provisions for expenses related to the running of the ISSB in its annual 2022 budget.

Its proposal also suggested that “more than one jurisdiction provide financial contributions” to the ISSB, although further details on the proposed allocation were not provided.

The UK’s proposal, on the other hand, leveraged the country’s reputation as “the world's pre-eminent global financial centre” which would “offer the ISSB access to concentrations of expertise across all financial and commercial disciplines – including a growing professional ESG community – and exceptional worldwide connections.”

Similarly, Switzerland’s bid referred to Geneva – its proposed location for the ISSB – as having “unique proximity to important international organisations and NGOs … and is recognised throughout the world as an independent and neutral negotiation venue”.

Germany’s bid, announced yesterday, referred to its central bank’s “strong interest in the development of globally accepted sustainability reporting standards” and the presence of sustainability accounting body the Value Balancing Alliance in Frankfurt – its preferred location for the ISSB.

However, France – a world leader in sustainability reporting having introduced the world’s first investor climate reporting rules in 2015 – has remained tight-lipped on whether it would submit a bid. Banque de France has repeatedly warned against an ISSB governance structure that would give significant power to jurisdictions that neither fund nor promote standards issued by the IFRS – such as the US.

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).

When contacted by RI on whether an official bid had been made to host the ISSB, a spokesperson from the French Treasury said “France is still considering the best way forward with its European partners”.

One market observer based in Europe told RI: “There is considerable doubt about how the new ISSB will be funded, and a government that is prepared to make a major financial contribution to act as host will be a serious prospect. I think the Canadian bid is a serious one and they have the advantage of getting in first.”