The Sustainable Finance Taskforce of IOSCO held two roundtables, with global stakeholders, on the IOSCO priorities to enhance the reliability, comparability, and consistency of sustainability-related disclosures and to collect views on the practical implementation of a global system architecture for these disclosures. Across the two sessions, there was strong support for the key elements of IOSCO’s vision for an International Sustainability Standards Board (ISSB) under the IFRS Foundation and a clear willingness among participants from all stakeholder constituencies to work collaboratively with IOSCO and the IFRS Foundation to deliver this vision. There was also broad-based agreement that, building on existing initiatives, the ISSB would be able to deliver high-quality international sustainability-related reporting standards to address the priority needs of capital market participants on a reasonable timeframe. The insights from these roundtables will be incorporated into IOSCO´s upcoming report on issuers´ sustainability disclosures, which is expected to be published in June 2021.
The following are the key highlights from the roundtables:
- Roundtable participants were united in their support for globally aligned reporting standards to promote comparability of sustainability-related disclosures across jurisdictions and to avoid market fragmentation. Many participants stressed that voluntary disclosure would not be enough and hence supported clear pathways toward mandatory reporting requirements aligned across jurisdictions, along with robust frameworks for audit and assurance.
- There was good support for taking as a starting point the climate-related financial disclosure prototype developed by the "group of five" leading sustainability reporting organizations, published in December 2020. This prototype builds from the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and other existing content.
- Participants noted the importance of the work of the newly formed IOSCO Technical Expert Group, in close cooperation with the IFRS Foundation Technical Working Group, to assess the key features of the prototype. Priority areas of focus suggested by participants included emphasis on quantitative metrics and standardization to promote consistency and comparability; clarity on how to report forward-looking metrics and on methodologies for scenario analysis; encouragement of a strong linkage between sustainability reporting and financial statements, including disclosure of key assumptions; a need for industry-specific standards and metrics to accommodate the different dependencies on natural, social, and human capital across different sectors of the economy; and promotion of digitization by developing a taxonomy for sustainability-related reporting in a structured electronic, machine-readable format.
- Feedback from participants underscored the need for a global architecture that is sufficiently flexible to accommodate a building blocks approach. There was support for IOSCO’s vision of a multi-stakeholder consultative committee under the IFRS Foundation to advise the ISSB and to promote interoperability with any sustainability reporting standards that extend beyond the common baseline of enterprise value oriented standards. However, participants stressed the importance of clearly articulating the purpose of such a committee as an advisory body to the ISSB and developing a structure and membership under the IFRS Foundation consistent with that purpose.
- The IFRS Foundation was encouraged to leverage existing advisory groups within its architecture that provide input to the standard setting process. In this way, the ISSB would benefit from the existing inclusive and multi-stakeholder due process already in place, including channels for consultation with stakeholders across regions. The proposed consultative committee should complement (not supersede) the existing advisory groups and outreach arrangements.
- Discussions noted that the design of ISSB standards should allow for interoperability, not only with jurisdiction-specific requirements that go beyond enterprise value creation, but also for the expansion of scope to other sustainability topics beyond climate and ongoing standards evolution to accommodate the dynamic materiality of sustainability topics over time.
Related Link: Press Release (PDF)
Keywords: International, Securities, International Sustainability Standards Board, Climate Change Risk, TCFD, Sustainable Finance, ESG, ISS, 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.
Previous ArticleAPRA to Finalize Capital Adequacy Standard Revisions by January 2022
Next ArticleEBA Publishes Data on Deposit Guarantee Schemes
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.