The International Financial Reporting Standards (IFRS) Foundation Trustees have announced three significant developments to provide the global financial markets with high-quality disclosures on climate and other sustainability issues. These developments constitute the formation of a new International Sustainability Standards Board (ISSB), the consolidation of Climate Disclosure Standards Board and Value Reporting Foundation into a new board by June 2022, and the publication of prototype climate and general disclosure requirements. Together, these developments fulfill the growing and urgent demand for streamlining and formalizing corporate sustainability disclosures.
The ISSB will develop IFRS Sustainability Disclosure Standards, including disclosure requirements that address companies’ impact on sustainability matters relevant to assessing enterprise value and making investment decisions. The ISSB standards will enable companies to provide comprehensive sustainability information for the global financial markets. The standards will be developed to facilitate compatibility with requirements that are jurisdiction-specific or aimed at a wider group of stakeholders. The ISSB will build on the work of existing investor-focused reporting initiatives to become the global standard-setter of sustainability disclosures for the financial markets. To achieve this goal, the IFRS Foundation has reached commitments with the Climate Disclosure Standards Board and the Value Reporting Foundation to consolidate their technical expertise, content, staff, and other resources with the IFRS Foundation. The technical standards and frameworks of the Climate Disclosure Standards Board and the Value Reporting Foundation, along with those of the Task Force on Climate-related Financial Disclosures (TCFD) and the Forum Stakeholder Capitalism Metrics, are intended to provide a basis for the technical work of the new board.
Recognizing the urgency and the desire to provide the ISSB with a solid foundation on which to start its work, the Trustees created the Technical Readiness Working Group. The working group has concluded its work on two prototype documents—one that focuses on climate-related disclosures that build on the TCFD recommendations and includes industry-specific disclosures and another that sets out general sustainability disclosures. The ISSB will consider the prototypes as part of its initial work program. The Trustees are at advanced stages in appointing a Chair and Vice-Chair(s) to the ISSB. The Trustees will commence shortly a search for the additional board positions, up to the full complement of 14 members. The ISSB’s work is expected to commence as soon as the Chair and Vice-Chair(s) have been appointed and to begin with public consultations to inform the ISSB’s work plan and on proposals informed by recommendations from the Technical Readiness Working Group. The G20 Leaders and the Financial Stability Board have both welcomed the IFRS Foundation’s work program to develop global baseline standards for sustainability disclosures.
In addition, the Basel Committee on Banking Supervision (BCBS), the Canadian Securities Administrators (CSA), and the UK government have also welcomed the establishment of ISSB. In parallel with the ISSB's work, BCBS will explore using Pillar 3 of the Basel framework to promote a common disclosure baseline for climate-related financial risks across internationally active banks. This work will consider the availability and reliability of sufficiently granular data for banks and their counterparties, and of defined risk metrics. Additionally, Ashley Alder, Chairman of IOSCO, welcomed the publication by the IFRS Foundation of the prototype for the Climate Disclosure standard to be finalized in 2022. IOSCO notified that, by the end of 2021, it will have published its detailed analysis of the disclosure issues facing both issuers and asset managers and its assessment of sustainability data and ratings. In 2022, it will focus on a careful assessment of the ISSB’s draft climate disclosure standard, in parallel with stakeholder consultations by the ISSB. IOSCO intends to endorse the standard before the end of 2022 if it is satisfied that the standard sets a practical and effective global baseline for climate disclosures to financial markets across the globe.
Keywords: International, Banking, Insurance, Securities, Sustainability Standards Board, ESG, COP26, Climate Change Risk, Disclosures, TCFD, Pillar 3, Basel, IOSCO, IFRS, HM Treasury, ISSB
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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