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Global ESG reporting authority announced (2021)
| Environmental, social, and corporate governance |
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On November 3, at the COP26 environmental summit in Scotland, the International Finance Reporting Standards (IFRS) Foundation announced the creation of a new partner organization, the International Sustainability Standards Board (ISSB) which is intended to be the global ESG reporting authority. The ISSB was constructed by combining several different organizations – including what was SASB, the Sustainability Accounting Standards Board, which according to its website aimed to set "standards to guide the disclosure of financially material sustainability information by companies to their investors." Nasdaq reported on the announcement:
| “ | Anyone who has dipped a toe in environmental, social, and governance (ESG) investing knows that there is an alphabet soup of reporting standards aiming to measure corporate adherence to sustainability.
Because government regulators have been reluctant to establish mandatory reporting standards, a host of mostly nonprofit groups have worked for decades to build consensus among the private sector, governments, investors, and stakeholders to build out voluntary reporting systems, such as the Global Reporting Initiative (GRI), or the Carbon Disclosure Project (CDP). Companies were left to pick and choose between reporting frameworks, confounding investors’ ability to compare companies across platforms – and in some cases, enabling greenwashing by companies able to cherry-pick data for a particular reporting system. Enter the International Sustainability Standards Board (ISSB), a new effort to merge many ESG disclosure standards into one, and to encourage the uptake of these standards globally. The International Sustainability Standards Board was announced this week at the COP26 global climate conference in Glasgow. Thirty-eight governments expressed support for the standards, including the U.S. The ISSB will be managed by the International Financial Reporting Standards (IFRS) body, based in Germany. The IFRS released a working draft of climate-related disclosures that will be vetted over the next few months, and released in mid- to late 2022. Erkki Liikanen, chair of the IFRS Foundation Trustees, says "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 … others will provide the foundations to achieve this goal."[1] |
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Opponents argue against mixing sustainability standards with financial reporting standards
Not everyone is convinced that placing sustainability standards under the same umbrella organization as traditional accounting standards is necessarily a good idea. At least one member of the United States Securities Exchange Commission (SEC), Commissioner Hester Peirce, has insisted that such an arrangement will cause significant confusion and undermine the goals of traditional external accounting practices:
| “ | I urge the IFRS Foundation not to wade into sustainability standard-setting because doing so would (i) improperly equate sustainability standards with financial reporting standards, (ii) undermine the Foundation’s current important, investor-centered work, and (iii) raise serious governance concerns.
Strong financial reporting standards are the bedrock of our capital markets. They enable investors to make informed decisions about how to allocate capital. We must be careful not to compromise accounting standard-setting in an effort to achieve objectives other than high-quality financial reporting, no matter how noble those objectives may be.[1] |
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According to Erkki Liikanen, the IRFS Foundation trustee chair, there is a good chance that the ISSB’s first set of global standards will be ready for market use by the second half of 2022.
See also
- Environmental, social, and corporate governance (ESG)
- Economy and Society: Ballotpedia's ESG newsletter
External links
Footnotes
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