On the 29^th of June, Erkki Liikanen, Chair of the IFRS Foundation Trustees, delivered a keynote speech at CFA Institute’s Global Financial Regulatory Symposium titled: “Is There A Path To Global Sustainability Standards?” He talked about the Foundation’s work to meet the information needs of investors and other capital market participants by creating a proposed new board that would develop a global baseline of sustainability-related disclosures focused on enterprise value. Here is an excerpt from that speech. This is the last of a two-part installment. 

Reconciling jurisdictional and international requirements 

After the consultation, the IFRS Foundation reiterated that is does not play a role in determining sustainability reporting requirements required for broader public policy objectives. 

At a jurisdictional level, public policy determines sustainability-related priorities, and they drive what information companies within each jurisdiction are required to report. For example, the EU’s proposed Corporate Sustainability Reporting Directive is a key element of the EU’s Green Deal policy framework. It seems likely that different jurisdictions—the United States and in Asia―will each establish different policy approaches, and therefore their sustainability reporting requirements will also be different. 

Internationally, there are multi-stakeholder standards, with the GRI Standards being the most well-known voluntary standard, and various sustainability initiatives focused on investors and the capital markets. These investor-focused initiatives include the work of the Task Force on Climate-related Financial Disclosures, the Value Reporting Foundation (incorporating the SASB and the IIRC), and the Climate Disclosure Board. 

The organisations behind these initiatives affirm that consolidation is required. They have welcomed the IFRS Foundation’s proposals to establish a new International Sustainability Standards Board within the governance structure of the IFRS Foundation. They are also involved in the preparations.   

Our shared ambition is to introduce a global baseline of standards for sustainability-related disclosures which are focused on meeting the information needs of investors globally when assessing enterprise value. Enterprise value is a key concept, designed to capture expected value creation for investors in the short, medium and long term, and is interdependent with value creation for society and the environment.  

For example, the global baseline might describe how companies should disclose the impact of climate-related risks and opportunities, and, for each identified risk and opportunity, the impact on its financial performance. This could include capital allocation plans, supply chain innovation or investments in technology or new business areas.  

The new board would begin with climate. Its work would be expected to move with pace to consider other sustainability-related issues important for enterprise value. 

This investor focus on enterprise value is where the IFRS Foundation can contribute most. While the proposed board would work on sustainability-related disclosure standards, its work would be complementary to the work of the IASB. Sustainability-related factors are already connected in the financial statements. Investors are interested in information about sustainability irrespective of its location within the financial statements or in broader reporting.  

Our approach to global standards is market and demand led. The Foundation provides a setting where investors, regulators, companies, academics and standard-setters from around the world can work and problem solve together.  

This work follows a transparent and inclusive due process that is used as a benchmark for other standard-setting organisations. The process is overseen by the Trustees, who are in turn accountable to a Monitoring Board of public authorities. Its membership includes IOSCO, the European Commission, the US Securities and Exchange Commission and others.  

The Monitoring Board fulfils a key role in our governance arrangements, as it provides important linkage to many of the key public authorities around the world. Moreover, whilst the Foundation is responsible for the production of IFRS Standards, individual jurisdictions retain the right to choose whether and how to incorporate the new standard into their own requirements. 

These governance arrangements have evolved over time. The trustees are currently consulting on further amendments to the governance and constitutional arrangements to accommodate the new board. We welcome feedback and suggestions for further enhancements. The comment period is open until 29 July 2021. 

If the future is jurisdictional and international standards, the key question is how this can be reconciled. 

The approach advocated by IOSCO and others is to establish a global baseline of sustainability-related disclosure standards to meet investor needs, which would be made available for use by jurisdictions as a base for public policy needs. We’ve established a working group to map out how this could work in practice.  

Close 

This approach would provide global comparability for investors in a way that allows jurisdictions to combine the global standards with their own additional requirements. 

To make this work will require political will, compromise and flexibility from all parties—including the IFRS Foundation. Success is by no means certain, but if you want global sustainability related disclosures for investors, this offers a path. 

Source: ifrs.org

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