IOSCO, the body coordinating securities regulators globally, has announced it is planning a “timely and thorough review” of the draft corporate disclosure standards expected soon from the International Sustainability Standards Board (ISSB).
The International Financial Reporting Standards (IFRS) Foundation launched the ISSB in November with the mission to develop a sustainability reporting standard to serve as a global baseline.
ISSB, which is chaired by former CEO and Chair of Danone, Emmanuel Faber, is expected to publish its draft corporate disclosure standards for both climate and general sustainability soon.
In an overview of its plan for 2022, published today, IOSCO – the International Organization of Securities Commissions – added that if its review found ISSB’s nascent standards to be “fit for purpose”, it would “provide all 140 IOSCO member jurisdictions with the basis to decide how they might adopt, apply or be informed by the ISSB standards.”
The ISSB’s standards will be voluntary. Therefore, how they are used by regulators will be crucial both for their adoption and for comparability of corporate disclosures across jurisdictions.
The importance of comparability when it comes to corporate reporting prompted Europe’s securities watchdog, ESMA, to urge last month that the EU’s emerging Corporate Sustainability Reporting Directive (CSRD) should not “unnecessarily depart” from the ISSB.
A key difference between the EU’s approach and that of the ISSB is the latter’s focus on ‘enterprise value’ or how sustainability impacts a company’s valuation. By contrast, the EU is pursuing a more progressive approach, whereby proposed standards will also seek to capture a company’s impact on the environment and society, so-called ‘double materiality’.
In recent months, IOSCO, whose membership regulates more than 95 percent of the world’s markets, has, like many of its members, also been increasingly vocal on the threat posed to investors by greenwashing, and this was flagged again in its sustainable finance workplan.
Specifically, on this, it announced that it would push forwards its work on developing assurance standards to assess the quality of corporates’ sustainability disclosures. IOSCO stated that it has “identified independent assurance of the quality of corporate reporting of sustainability information as a key element of building trust in sustainability reporting.”
IOSCO also said that it would be stepping up its engagement with national regulators and market participants on its recent recommendations to asset managers, and ESG ratings and data providers.
In early November, the global body recommended that regulators should consider tightening up requirements for product-level sustainability disclosures and set expectations for asset managers on sustainability-related risks and disclosures to combat greenwashing,
Later that same month, IOSCO also recommended that ESG data and ratings be placed under the remit of securities regulators to improve the comparability and reliability of ESG products and “increase trust” among users.
Both the US Securities and Exchange Commission (SEC) and ESMA have raised concerns about ESG data providers in recent month and years, particularly in relation to the potential risk of conflicts of interest between such ESG products and other lines of business conducted by parent companies, such as credit ratings.
Last month, ESMA, also echoing IOSCO, put tackling greenwashing as priority number one in its first sustainable finance roadmap, stating that “investigating this issue, defining its fundamental features and addressing it with coordinated action across multiple sectors, finding common solutions in the EU, will be key to safeguarding investors”.
The SEC, which also identified greenwashing as key issue for 2022, last week revealed that it will meet on Monday 21 March to discuss its long-awaited proposal on climate disclosure rules for US public companies.