The International Sustainability Standards Board (ISSB), the global sustainability standards body launched last year, has announced the formation of a new working group made up of global regulators and policymakers – including from the US, EU and China – to look at harmonising corporate reporting frameworks under development in different jurisdictions.
Launched by accounting standards body IFRS Foundation in November, the ISSB has been tasked with developing “a global baseline” sustainability disclosure regime for corporations. Last month, the new body launched a consultation on its draft standards.
The new working group, announced 27 April, includes representatives from the Chinese ministry of finance, the European Commission, the US Securities and Exchange Commission (SEC) and the Japanese Financial Services Authority.
Its aim is to “to establish dialogue for enhanced compatibility between the ISSB’s exposure drafts … and ongoing jurisdictional initiatives on sustainability disclosures”.
Also represented in the new body are the UK’s Financial Conduct Authority and EU corporate reporting body EFRAG.
Late last year, Responsible Investor reported that trade group Accountancy Europe and non-profit the Global Reporting Initiative (GRI) had called on the IFRS to include representatives from EFRAG – which is leading the development of new EU corporate disclosure rules – in the ISSB.
The ISSB’s approach to corporate reporting contrasts with that being pursued by the EU. The former is focused on enterprise value, or the impact of sustainability on a company’s valuation. A more progressive approach is being adopted in Europe, where rules are being developed to capture “double materiality” – how business activities impact the environment and society as well as how corporate bottom lines could be affected by sustainability issues.
Last month, Martin Moloney, the secretary general of IOSCO, the representative body for global securities regulators, told Responsible Investor that the ISSB’s global standard should not prevent other jurisdictions from bolting on additional layers to their disclosure requirements.
Moloney also said that he believes the difference between double materiality and enterprise value will “shrink” as governments get more committed to sustainability investment programmes. Increasingly, he said, “the sustainability of your business model will become material to the enterprise and to its financial value”.
Last week, Norges Bank Investment Management (NBIM), manager of Norway’s trillion-dollar sovereign wealth fund, welcomed the ISSB’s focus on enterprise value. The sovereign wealth fund stated: “[As] other institutions develop standards for broader sustainability reporting, they could refer to the IFRS Sustainability Standards as a core, and only seek to add further topic, region or viewpoint-specific requirements (‘building blocks’ approach).”
Earlier this year, by contrast, a survey of Japanese investors by Nikkei affiliate data provider QUICK ESG found that half of respondents expected companies to take a double materiality approach in their sustainability disclosures.
The importance of comparability when it comes to corporate reporting prompted Europe’s securities watchdog, ESMA, to urge recently that the EU’s emerging Corporate Sustainability Reporting Directive (CSRD) should not “unnecessarily depart” from the ISSB.
A spokesperson for ESMA told Responsible Investor that the new working group “looks like a good cooperation mechanism to build convergence internationally”. They added that the watchdog was pleased to see the EU represented in the group but that it was unclear whether ESMA “as the regulator and standard-setter for a large part of the sustainable finance rulebook” may be invited to join as well.
The new ISSB working group will meet in May and July. Summaries of the gatherings will be published on the IFRS Foundation website.
ISSB also announced the planned launch in the next quarter of a new advisory body – the Sustainability Standards Advisory Forum – to “facilitate regular dialogue with, and high-level advice from, a broad set of jurisdictions”. A spokesperson for ISSB said the members would be named “in due course”.
The ISSB is chaired by Emmanuel Faber, the former CEO and chair of Danone. The body is in the process of recruiting members, of which 11 are expected. ISSB’s spokesperson told Responsible Investor these would likely be named in mid-May.
On the creation of the working group, Faber said: “There is strong public interest in seeking to align where possible the international and jurisdictional requirements for sustainability disclosures.”