IOSCO published its response to the IFRS consultation on sustainability reporting. IOSCO supports the proposal to establish a Sustainability Standards Board (SSB) under the IFRS Foundation, subject to Trustees’ consideration of how the "requirements for success" set out in the consultation paper are met. IOSCO believes that establishing a global system architecture for sustainability reporting under the IFRS Foundation could help to promote consistency and comparability across borders and reduce the risk of fragmentation. Robust sustainability reporting standards, interconnected with financial reporting standards, would also support audit and assurance, thus enhancing trust in sustainability disclosures and laying the foundations for global and mandatory corporate reporting on sustainability.
According to a report published in April 2020, IOSCO observed that the success of IFRS is based on certain key governance characteristics, including public accountability and the independence of its respective standard-setting bodies; rigorous, transparent and participatory due process; and assurance standards applying to the information published. Should the Trustees proceed with the proposal to introduce a Sustainability Standards Board, it will be critical that the IFRS Foundation maintains these features in its governance arrangements. IOSCO also notes the importance of securing the right expertise for developing sustainability reporting standards—including at the Trustee and Board levels—acknowledging that this expertise is distinct from traditional financial reporting expertise. It would be essential to secure appropriate funding and resourcing, with appropriate processes to safeguard the current and future funding of IASB. The Board should also be of sufficient size, with appropriate diversity in member backgrounds. Furthermore, the Board should aim to maintain geographic representation, which has been a strength of the IFRS Foundation and is outlined in the IFRS Foundation Constitution.
IOSCO notes that the IFRS Foundation should retain the main features of its due process, based on extensive outreach and engagement with key stakeholders. This may need to be extended to include wider users of non-financial information. Meeting these requirements will help to ensure that the IFRS Foundation can take on a role in setting sustainability reporting standards without compromising its existing mission and the high-quality, standard-setting process in IASB. The Trustees should ensure that their efforts build from the existing content. It will, therefore, be important that the Trustees explore interactions with other public and private sustainability initiatives underway internationally, including efforts to consider how existing principles, frameworks, and standards can be combined to form the basis for a comprehensive corporate reporting system. One such initiative involves an alliance of five sustainability reporting organizations. IOSCO notes that the alliance recently published a "prototype" climate-related financial disclosure standards. The prototype demonstrates how existing frameworks and standards could be used, together with the recommendations of FSB Task Force on Climate-related Financial Disclosures (TCFD), to provide a running start for the development of global standards for sustainability-related financial disclosures.
Keywords: International, Banking, Insurance, Securities, Climate Change Risk, ESG, TCFD Recommendations, Disclosures, Reporting, IFRS, Responses to Consultation, Sustainable Finance, IOSCO
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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