Regulators, asset owners and other stakeholders are split on whether the International Sustainability Standards Board should prioritise biodiversity or social issues for its next research and standard-setting projects.
In June, the ISSB finalised its general (IFRS S1) and climate (IFRS S2) standards, less than two years after it was launched by the IFRS Foundation.
A month earlier, the global sustainability standard setter launched a consultation – which closes today – on priorities for the coming two years. The ISSB is seeking feedback on whether it should pursue research projects on topics including: biodiversity, ecosystems and ecosystem services; human rights; and human capital management.
Among the supporters of prioritising nature is the UK’s Financial Conduct Authority.
In its response, the regulator said the direction of the ISSB’s work should be towards embedding IFRS S1 and IFRS S2 “while also launching a comprehensive work programme to build out a suite of investor material sustainability-related disclosure standards beyond climate”.
The FCA called on the ISSB to “move swiftly” to start work towards developing a thematic standard on nature in the short term.
“We acknowledge the resource constraints to launching new projects,” the FCA said. “We therefore encourage the ISSB to leverage existing work that would enable the development of a standard quickly – notably the Taskforce on Nature-related Financial Disclosures (TNFD) framework.”
A spokesperson for the FCA told Responsible Investor that it will consult on the implementation of ISSB standards in its disclosure rules for listed companies, once these have been endorsed in the UK. “As the ISSB standards expand, including to incorporate disclosures on nature, we would expect to consult on updating our own disclosure rules.”
Also pushing the case for nature are the UK’s Environment Agency, the Canadian Sustainability Standards Board, ESMA, Singapore Exchange, Responsible Investment Association Australasia, Swiss Re, Sustainalytics, Karner Blue Capital, BSI (British Standards Institute) and CDP.
Leveraging TNFD
As with the FCA, the majority of respondents stressed the importance of leveraging and aligning with the TNFD.
“Aligning with the framework will provide businesses with a cohesive, comprehensive and globally recognised set of guidelines to measure and disclose their nature-related financial risks and opportunities,” wrote CDP. “This will not only simplify the reporting process but also enhance the comparability of biodiversity-related information across different entities.”
At COP15 in December, the ISSB announced plans to research “incremental enhancements” that complement its climate-related standard, including relating to natural ecosystems. It said it would consider the work of the TNFD and other existing nature-related standards and disclosures where they relate to the information needs of investors.
And in the ISSB’s request for information for the consultation, when detailing how it could execute a potential biodiversity project, it said it could leverage the work of the TNFD, as well as that of the Partnership for Biodiversity Accounting Financials and the Science Based Targets Network.
Tony Goldner, the TNFD’s executive director, told RI that the initiative had had “excellent collaboration” with ISSB over the past two years.
“We are working hard to align our final recommendations with their S1 standard and we’re keen and focused post-launch in September to collaborate with ISSB further as and when they decide nature is a priority and they want to get started,” he said.
GFANZ also argued for the prioritisation of nature and biodiversity in its response to the consultation.
The initiative added that it is in the process of forming a group of members to support harmonisation across leading initiatives in the market and establish ambition around nature for 2024, and “welcomes the opportunity to work collaboratively with the ISSB to bring greater clarity to the market on the role of nature in the context of the broader net-zero transition”.
Prioritise social issues
Other leading stakeholders have called for human capital and/or human rights to be prioritised.
These include Brazil’s Securities and Exchange Commission, which argued that social issues “seem the next logical path towards a complete set of sustainability disclosure requirements, as environmental information is already being addressed and governance is already largely covered by securities regulators”.
Japan’s Financial Services Agency pushed specifically for a project on human capital.
In its response, the regulator said: “In both developed and developing countries, companies are addressing a range of sustainability issues, including ‘biodiversity, ecosystems and ecosystem services’, as well as ‘climate change’.
“While the significance of individual sustainability topics varies from company to company, whether or not a company has in place human resources with specialised knowledge relevant to the sustainability issues it faces is seen as material in relation to the company’s long-term value creation and risk management.”
The FSA added: “Advancing human capital disclosure would contribute to supporting the implementation of IFRS S1 and IFRS S2.”
CalPERS also came out in support of human capital. The Californian pension giant noted that current financial reporting rules “require companies to disclose very little information about how human capital is measured or managed”.
“We acknowledge that some human capital metrics may be unique or universal depending on the industry, sector, or business strategy; however, there are a number of specific cross-cutting issues that applies to all companies.”
Other stakeholders calling for the prioritisation of social topics included the Sustainability Standards Board of Japan, Allianz, New York City Pension Funds/NYC Office of the Comptroller, Church Commissioners for England, NYS Teachers’ Retirement System, Investors Against Slavery and Trafficking Asia Pacific, Eumedion and ShareAction.
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