IOSCO namechecks TCFD as it urges issuers to disclose on ESG

‘ESG matters may pose serious threats to sustained viability of an issuer’ warns regulatory body

The International Organisation of Securities Commissions (IOSCO) has warned securities issuers to ensure they are including relevant ESG topics in regulatory disclosure documents, saying: “ESG matters may… under certain circumstances, pose serious threats to the sustained viability of an issuer”.
In an official statement published on Friday (Jan 18), IOSCO – whose members between them regulate more than 95% of global securities markets – said that “ESG matters, though sometimes characterised as non-financial, may have a material short-term and long-term impact on the business operations of the issuers as well as on risks and returns for investors and their investment and voting decisions”.
As a result, it concludes that information disclosed through voluntary channels – as much ESG reporting currently is – “may also be required to be disclosed under security filings, if it is material”. The ‘reminder’ comes on the back of IOSCO’s recent move to establish a Sustainable Finance Network for securities regulators.
The statement also flags up the disparate nature of ESG reporting, and specifically references the TCFD recommendations, which it says seek “to facilitate more consistent disclosure practices and encourage firms to align their disclosures with investors’ needs”.A growing chorus of regulatory bodies are namechecking the TCFD in their guidance and policymaking, suggesting the Recommendations may become the first truly global benchmark for climate disclosure. Earlier this month, the EU Commission’s Technical Expert Group on sustainable finance issued a report on how to align the guidance for the Non-Financial Reporting Directive with the TCFD. In the UK, all four financial regulators have now agreed to take part in a climate-reporting process which many expect will be based on the TCFD recommendations, while French ministers have shown a desire to make the recommendations mandatory and regulatory advisors in China are also reported to be supportive of the initiative.
IOSCO points out that its Principles already include a requirement for issuers to provide disclosure on all topics that are material to investors’ decision making, but says its members “have a key role to play in reminding issuers to… disclose material ESG information to investors”.
Once issuers have identified material ESG issues, they should disclose the “impact or potential impact” on financial performance and value creation, looking at both risk and opportunity.
“Issuers also are encouraged to give insight into the governance and oversight of ESG-related material risks. Issuers can provide such insight, for example, by disclosing the methodologies they follow in their risk assessment, and the steps taken, and/or action plans developed, to address the risks that they have identified.”