International Sustainability Standards Board launches as investors worth $130trn focus in on climate

The IFRS Foundation Trustees have marked Finance Day at COP26 by confirming the formation of an International Sustainability Standards Board (ISSB) to create a globe baseline for corporate sustainability disclosures that meet investor demands.

International Sustainability Standards Board launches as investors worth $130trn focus in on climate

Carney claimed the $130trn from GFANZ was sufficient in delivering net-zero

The formation of the new International Sustainability Standards Board (ISSB) was confirmed by the IFRS Foundation Trustees on Wednesday (3 November).

The ISSB was first proposed by the not-for-profit International Financial Reporting Standards Foundation (IFRS Foundation) earlier this year.

The aim of the new Board is to unify disclosures from corporates, helping investors and other stakeholders to properly compare their sustainability performance and related risks. At present, the Foundation has stated, a patchwork of various voluntary disclosure guidelines has made meaningful comparisons of corporate environmental credentials complicated.

Additionally, the IFRS Foundation has issued a new commitment to consolidate the Climate Disclosure Standards Board (CDSB—an initiative of CDP) and the Value Reporting Foundation, which houses the Integrated Reporting Framework and the SASB Standards, by June 2022. This is designed to ensure that the new Board builds on these existing disclosure frameworks to ease the process for corporates.

The Foundation’s chair Erkki Liikanen said: “Sustainability, and particularly climate change, is the defining issue of our time. To properly assess related opportunities and risks, investors require high-quality, transparent and globally comparable sustainability disclosures that are compatible with the financial statements. Establishing the ISSB and building on the innovation and expertise of the CDSB, the Value Reporting Foundation and others will provide the foundations to achieve this goal.”

As part of the new Board process, a prototype of disclosure requirements will be introduced by the Technical Readiness Working Group (TRWG), a group formed by the IFRS Foundation Trustees to undertake preparatory work for the ISSB. These are built on work with CDSB, the International Accounting Standards Board (IASB), the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the VRF and the World Economic Forum (Forum), supported by the International Organization of Securities Commissions (IOSCO) and its Technical Expert Group of securities regulators.  

Carney and GFANZ

The introduction of the board was welcomed by Former Bank of England Governor Mark Carney, who discussed climate finance this morning at COP26.

Carney confirmed that the Glasgow Financial Alliance for Net-Zero (GFANZ), which launched in April in a drive to unite the global financial sector in transitioning to net-zero portfolios by 2050, now represented more than $130trn in assets under management.

GFANZ members are required to transition their portfolios in line with the Paris Agreement and are being pushed to work towards 1.5C rather than 2C temperature pathways.

The Alliance now accounts for 40% of the world’s total financial assets, up from $90trn at the start of October. These assets are managed by 450 firms across 45 nations, from all parts of the financial industry.

Carney claimed that the money was there globally to reach net-zero emissions, but that the financial sector “needed” net-zero projects and businesses to invest in.

“In finance, candidly, [climate] issues were viewed as CSR, not a strategic imperative,” Carney said.

“Right here, right now is where private finance draws the line. The £130trn [announced by Sunak through GFANZ] is more than what is needed for the net-zero transition globally and a pool of that capital is being carved out for the transition to a low-carbon economy in emerging and developing countries.

“The money is here today, but that money needs net-zero-aligned projects. There’s a way to turn this into a very powerful virtuous circle. This is what we need to crack over the course of this year.”

Reclaim Finance is highlighting the fact that only one-third of the Alliance’s collective assets are being aligned with a net-zero by 2050 roadmap, and that this roadmap came from the Alliance itself. In short, there is a risk that they are marking their own homework.

The monetary value of GFANZ was confirmed by Chancellor Rishi Sunak at COP26. Sunak also reiterated a new standard of climate disclosure for corporates.

Industry reaction

The formation of the ISSB has been welcomed by an array of reporting and financial institutions, as well as the G20.

The GRI’s interim chief executive Eric Hespenheide said: “GRI is pleased that the IFRS Foundation has recognised the merits of incorporating sustainability considerations into financial disclosures, through the creation of a sustainability standards board. We also welcome that the reporting organizations with a core focus on investors needs are to come together under one house.

“We advocate for a comprehensive corporate reporting system, with a two-pillar structure in which robust sustainability and financial reporting are on an equal footing. The sustainability pillar, under which GRI sits, addresses a company’s external impacts on society and the environment, while the financial pillar needs to reflect sustainability risks to a company’s value. Today’s announcement marks a significant step towards strengthening that second pillar.

 “Disclosure on a company’s financially material sustainability topics – while important from the context of helping markets to assess opportunities and risks – is not sufficient to deliver full transparency on sustainability impacts, as envisioned by the GRI Standards and embraced by the EU.” 

PwC UK’s head of audit, Hemione Hudson, said: “The launch today of the International Sustainability Standards Board is an important step towards achieving a global common approach to ESG related disclosure standards. Harnessing the power of the financial markets to play a leading role in the transition to a net zero economy will require a dramatic improvement in the quality and comparability of companies’ emissions data.

“Reporting standards are a critical component to achieving this and we look forward to supporting the board in it’s important work. Problems range from an overreliance on models and assumptions, to poor quality emissions data along companies’ supply chains. As PwC highlights in a new report this week, failure to improve climate reporting will erode public trust in business and global confidence in the world’s effort to halve emissions by 2030.”

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Matt Mace

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