ISSB to outline range of adoption ‘pathways’ for countries in early 2024, says Faber

In an interview with RI, Emmanuel Faber dismisses the idea that differences in adoption undermine the global baseline and gives his definition of interoperability.

The International Sustainability Standards Board (ISSB) plans to publish an adoption guide for national policymakers that will include different “pathways” for implementing its S1 and S2 standards, its chair has told Responsible Investor.

“I do believe in the strength of the proposition of the global baseline – but having said that, it’s going to be a journey,” says Emmanuel Faber, who was last week re-elected to chair the standard setter for a second three-year term.

“It’s for any regulator to decide how much they want to be part of the global baseline or if, for whatever reason, they would want to be slightly specific about what they want to do.”

Asked whether the creation of a global baseline would require all jurisdictions to swiftly adopt the standards in full without differences, Faber says: “That’s not going to happen.”

It is important to be pragmatic and understand that jurisdictions want to take their own needs into account, he adds. “The ISSB is becoming more and more a possibility, with locked in commitments to develop standards substantially based on S1 and S2.”

And while the ultimate goal is a consistent adoption of the standards, Faber says the ISSB wants jurisdictions to provide clarity on “where you want to be with the baseline and pathways to get there so we can design appropriate support”.

Adoption guide

The standard setter’s next step to ensure this will be the publication “in a couple of months” of an Adoption Guide. Among other things, this will set out different pathways for adoption that will be “more or less easy”, Faber says.

“This means that, in early 2024, jurisdictions can start thinking about what pathway they would like and how long it would take for them to reach the global baseline if they want to.”

The IFRS Foundation said in July that the guide will “outline the scaling and phasing‑in approaches the IFRS Foundation envisages that jurisdictions will use”.

“The Adoption Guide’s ultimate objective is for IFRS S1 and IFRS S2 to be widely applied, while taking into account jurisdictional considerations on the application of the ISSB Standards,” it added.

In practice, this is expected to result in phased introduction. “Some jurisdictions will start in 2024, some in 2025, some have said 2026 and others even say 2028,” says Faber. “And maybe some start with climate first while others, like Brazil, will say voluntary in 2024 and 2025, and mandatory in 2026. All of these are pathways.”

He adds that it is too early to provide further details on the pathways, but said he would refrain from describing some approaches as more ambitious than others. “What is ambitious for Nigeria is not what is ambitious for Japan,” he says.

A country “might decide on the short pathway or a long pathway – and that is what we want to clarify”, he adds.

He believes the “notion that the baseline will be so important” will gradually gain further ground.

COP commitments

Faber was speaking to RI last week during COP28, just after the ISSB’s announcement that nearly 400 organisations from 64 jurisdictions had signed a statement committing to advancing the global adoption or use of its climate-related standard.

Supporters included more than 70 institutional investors, including Norges Bank Investment Management, as well as the Principles for Responsible Investment.

More than 20 regulators and standard setters also issued statements of support. These included policymakers from countries set to adopt disclosure rules based on the ISSB standards, such as the UK, Brazil, Mexico, Canada, Singapore, Hong Kong and Japan.

RI reported last month that the ISSB had reached out to a wide range of organisations and regulators to drum up support for its S2 standard as the global baseline on climate. At the time, two market observers questioned the potential for ISSB to become a global standard, given that few countries have indicated they will adopt it in full.

But Faber describes the “broad market support” announced at COP for the climate baseline as “striking”.

He also points to an announcement by EFRAG during the climate talks, in which the EU standards body said it “welcomes the work by the ISSB and its climate reporting requirements in delivering high quality climate-related disclosures that enable enhanced transparency about climate risks and opportunities at the global level”.

EFRAG noted that the European standards “already incorporate the climate-related ISSB disclosures under a thorough interoperability approach”.

Interoperability between frameworks is key to delivering a global sustainability reporting baseline, given that the EU has its own standards and the US is set to announce its long-awaited climate rules next year.

Asked how he defines interoperability, Faber says: “It’s a mechanism that allows us to reduce the burden to its minimum for standards that are similar but not the same.”

Materiality questions

A key difference between the ISSB and EU standards is the approach to materiality. The European Sustainability Reporting Standards (ESRS) are underpinned by double materiality, whereas the ISSB standards are based on single or financial materiality.

In a controversial op-ed in Le Monde in October, Faber described double materiality as “simplistic” and said there were “illusions” around what it could deliver.

He reiterates to RI that double materiality is an “ambitious project”, adding that his piece had “probably discounted hopes” for some about what the approach could achieve.

Faber has experience of using double materiality – in his previous role as CEO of Danone, he reported using the GRI’s impact framework. “It can be interesting for companies to directly talk to their customers, employees and stakeholders in describing their relationships with the overall ecosystem,” he says.

Where he disagrees with some advocates of double materiality is over their contention that “simple materiality will not change anything”.

In a new op-ed in Le Monde, published at the weekend, Faber doubled down on this. “The systemic effects of reporting to all stakeholders will take a long time to have an impact, and the transition cannot wait,” he wrote.

But he also highlighted the recent announcement of “high-level alignment” between the ISSB climate standards and those in the ESRS that are focused on financial materiality, saying that the European standards are “present” in the ISSB and vice versa.

“For me, ISSB is providing a global baseline which is investor-focused, which any jurisdiction or any company might build on,” he told RI. “It’s not one against the other, it’s one on top of the other.”

Asked what success would look like for the ISSB, he says: “We’re here to move capital allocations by creating information that is relevant to decisions for investors or capital providers.

“Our tool is an accounting tool that brings sustainability into financial statements, that allows a dialogue with investors, bankers and others which will ultimately allow CEOs, boards and CFOs to create a competitive advantage on the cost of capital for their company if they have a better plan.

“Success is when we see capital assets being moved to the transition through the capital markets system.”