Chair of the IOSCO Task Force on Sustainable Finance reconfirms that IOSCO stands ready to support global sustainability reporting standards

30 October 2020

Open response to the open letter from COP, Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) proposing avenues for Working together to meet the needs of the capital markets

Regulators   and   market   participants   increasingly   recognise   that  climate-related  and  
other sustainability impacts are material  to companies'  businesses and their future value
creation. A growing  number  of  companies  and  investors  are  adapting  their  business  and  
investment strategies  to  align  with  a  path  towards  net-zero  carbon  emissions.  And  it  is
 now  almost universally  accepted  that  failure  to  integrate  environmenta l,  social  and  
governance  (ESG) factors into investment  decisions constitutes a failure to meet the fiduciary
duty  to clients and beneficiaries.  A  good  flow  of  decision-useful  information  on  
sustainability factors  from  the corporate sector is therefore essential.

Securities   regulators   share  the  core  objectives   of   protecting   in vestors ,  maintammg  
 fair , efficient,   and   transparent   markets ,  and   reducing   systemic   risk.   
Sustainability   issues   in genera l,  and  climate-related  issues  in  particular ,  raise  
important  challenges  in  meeting  these core objectives.

The   IOSCO   Sustainable   Finance   Network   (SFN)   report ,   published   in   April   this   
year, underscored  IOSCO'  s  readiness  to  play  a  driving  role  in  this  area.  Our  report  
highlighted three main areas of concern:

•     multiple and diverse sustainability frameworks and standards

•     lack of common definitions of sustainable activities

•     greenwashing and other investor  protection cha llenges .

Our findings therefore align  with  the concerns you  raise around  the relia bili ty,
comparability and  quality  of  issuer s'  sustainability  disclosures  at  the  global  level.  
The  proliferation  of  - typically   voluntary   -   frameworks   and   standards   for  
sustainability   reporting   presents   a challenge to both the preparers and users of corporate
reports.

Issuers  face  confusion  as  to  which  standard  they  should  adopt.  And  for  investors  and  
other us ers,  the fragmented  reporting  landscape  leads  to  i ncomplete,  inconsistent  
information  that cannot easily  be compared  across companies -  potentially  undermining  the efficiency of asset
pricing , risk management and capital allocation.

Further   to   publication   of  the   report,   IOSCO   established   a   Board-level   Task   
Force  on Sustainable  Finance  (STF)  to  address  the  areas  for  improvement  identified  in  
the  report.  A dedicated  workstream  of  the Taskforce  has a specific focus on  improving  
securities  is suers' sustainability -relat ed  disclosures.   This   work   has   been   underway  
 since   June.   Reflecting IOSCO' s core  objectives,  the  group  is  committed  to  promoting  
transparency  in  markets  by identifying  the most decision-useful categories  of disclosures  for
investors  and other  market participants; and  by considering  how  IOSCO can influence the
direction of ongoing . industry initiatives in this area.

In   our   work,   we   are   considering   the   scope   for   improvement   m   
sustainability-related disclosures on two main dimensions:

•   Content.  Here,  the  focus  is  on  the  provision  of  information  that  meets  the  needs  
of global    capital    markets    and    supports    business ,   risk   and    investment    
decisions. Sustainability   is   a   global   challenge.   Capital   markets   need   a   flow   of
  reliable  , in ternationally-c onsis tent, comparable  and decision-useful  information  to
support asset pricing and capital allocation across their portfolios; and to help design and
develop the sustainable finance product s that end-investors  increasingly  need.

•   Governance,  due  process  and  the  public  interest.  To  uphold  the  integrity  of  capital
markets , the system  for corporate  reporting  must  be transparent, independent  and serve the
public  interest.  Our  recent  report  notes that the success of IFRS and  ISA standards reflects
certain  key attributes  including:  (i) public accountability and  the independence of its
respective standard  setting  bodies; (ii) rigorous, transparent  and  participatory  due process;
(iii) a clear  mission  statement  and  a defined  targeted  audience; (iv) assurance standards  
applying  to the information  publis hed; and (v) a robust  process  for selecting topics for new
standard setting that focus on specific accounting issues where enhanced comparability  would be
meaningful.

We are delighted  to see the progress that is being made on both dimensions....

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