30 September 2020

IPE: ‘Breakthrough’ as IFRS body proposes sustainability standards board

IFRS Foundation, the organisation behind financial reporting standards used worldwide, has launched a consultation to assess appetite for global sustainability reporting standards and what role, if any, it might play in the development of any such standards.

One option outlined in the consultation paper – and presented as the foundation trustees’ favourite – is for the Foundation to create a sustainability standards board.

The new “Sustainability Standards Board” – given the acronym SSB – would operate alongside the International Accounting Standards Board (IASB) under the same three-tier governance structure as the IFRS Foundation’s.

Its objective would be to develop and maintain a global set of sustainability-reporting standards initially focussed on climate-risk, and the standard-setting would make use of existing sustainability frameworks and standards.

According to the Foundation trustees’ consultation paper, the IASB, which sets financial reporting standards, and the SSB would “benefit from the increasing interconnectedness between financial reporting and sustainability reporting”.

In the paper, the Foundation trustees make clear they had provisionally chosen to further develop the SSB option on the condition that it would meet certain requirements for success.

These include: achieving sufficient support from public authorities and market participants; working with regional initiatives to achieve global consistency and reduce complexity in the reporting landscape; and “ensuring the current mission of the IFRS Foundation is not compromised”.

Erkki Liikanen, chair of the IFRS Foundation Trustees, said the consultation was being launched because “calls for standardisation and comparability of reporting on sustainability and climate-change issues continue to grow as these matters become increasingly important to capital markets”.

‘Major breakthrough’  

There have been several recent calls for the IFRS Foundation to become involved in the area of sustainability reporting, including one this summer from Dutch institutional investor group Eumedion.

“It is a big step towards fulfilling the urgent investors’ need for consistent and comparable sustainability information at a global level”

Rients Abma, executive director at Eumedion

Rients Abma, executive director at Eumedion, today said what had been outlined by the Foundation was “fully aligned” with Eumedion’s IFRS and sustainability reporting standards" href="https://en.eumedion.nl/clientdata/217/media/clientimages/Position-paper-standard-setter-non-financial-reporting.pdf?v=200706115028" target="_blank" rel="noopener noreferrer">position paper calling for the IFRS Foundation to expand its mission.

“We see it as a major breakthrough that the IFRS Foundation has now decided – in principle – to create a new Sustainability Standards Board under the ‘umbrella’ of the IFRS Foundation,” he said.

“It is a big step towards fulfilling the urgent investors’ need for consistent and comparable sustainability information at a global level,” he added. “With this step the Foundation also recognises interconnectedness between financial and non-financial reporting.

”The Foundation rightly underlines that the newly created Sustainability Standards Board should not ‘reinvent the wheel’, but should build upon the tremendous work of the current sustainability standards and frameworks of organisations such as the SASB, GRI, CDP, CDSB and IIRC,” Abma added.

The IFRS Foundation’s consultation comes shortly after Hans Hoogervorst, chair of the IASB, gave a speech in which he discussed how the principle-based nature of IFRS Standards meant companies may already need to reflect climate-related risks in their financial statements, but that this did not mean there was no additional need for separate sustainability reporting.

The IFRS Foundation’s work on sustainabiity reporting was complimentary to requirements in IFRS Standards and the IASB’s work on management commentary, he said.

Today’s consultation from the IFRS Foundation comes as a process is underway towards possible EU non-financial reporting standards. A taskforce under the auspices of the European Financial Reporting Advisory Group EFRAG press release" href="http://www.efrag.org/News/Project-442/Successful-launch-of-the-project-on-preparatory-work-for-the-elaborati" target="_blank" rel="noopener noreferrer">has begun its work to fulfil a European Commission EFRAG EU non-financial reporting standards mandate" href="https://www.ipe.com/news/ec-delivers-efrag-eu-non-financial-reporting-standards-mandate/10046690.article" target="_blank" rel="noopener noreferrer">mandate to deliver technical advice in relation to this.

Separately, but relatedly, SASB and the other non-financial reporting standard and framework-setters recently published a ESG corporate reporting solution" href="https://www.ipe.com/news/standard-setters-outline-vision-for-esg-corporate-reporting-solution/10047766.article" target="_blank" rel="noopener noreferrer">statement setting out their vision for “a comprehensive corporate reporting solution”.

IPE

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