Scenes from COP26

The formation of the International Sustainability Standards Board has been widely welcomed by regulators and standard setters across the world as companies are put on notice that they should be prepared for reporting requirements to emerge as early as the end of 2022.

Klaas Knot, vice chair of the Financial Stability Board, said at the COP26 summit that the recommendations of the Task Force for Climate-related Disclosures have ‘gained enormous traction in the private and public sectors’ and that their ‘success has exceeded our expectations’, but the limits of what can be achieved by a voluntary framework have been reached.

‘The development of global minimum standards is the next level, and we welcome the formation of the ISSB,’ he said.

‘Get ready to start reporting at the end of 2022 or the beginning of 2023’

Where it's at

The ISSB will have a global and multi-location presence. According to the IFRS Foundation, all regions – the Americas, Asia-Oceania, Europe, the Middle East and Africa – will be covered. ‘Engagement with developing and emerging economies will be an important priority,’ it says.

Offices in Frankfurt (the seat of the board and the office of the chair) and in Montreal will be responsible for key functions supporting the new board and deeper co-operation with regional stakeholders. Offices in San Francisco and London will provide technical support and platforms for market engagement.

The IFRS Foundation says it is working with Frankfurt and Montreal to enable the ISSB to start work early in 2022. Further discussions will continue with proposals for offices from Beijing and Tokyo to finalise the new Board’s footprint in the Asia Oceania region.

Ashley Alder, chairman of the board of the International Organization of Securities Commissions (IOSCO), told the summit that the new ISSB standards would be subject to a process of oversight and technical assessment, similar to the process for IFRS.

‘Global standards don’t have automatic effect in national law, but IOSCO can act as a bridge,’ he said. ‘If we endorse the ISSB standards it will send a strong message to others. We see endorsement as the catalyst to getting the standards implemented quickly, and I’m confident we will get the job done, as we did with IFRS.’

Prepare now

Given that preparation work for the ISSB’s output is already well advanced, companies should begin their preparations as soon as possible by looking at the prototype standard published by the IFRS Foundation, he added, and ‘get ready to start reporting at the end of 2022 or the beginning of 2023.’

On Wednesday, Mark Carney, co-chair of the Glasgow Financial Alliance for Net Zero (GFANZ), told the summit that US$130 trillion in private capital had been raised through GFANZ from over 450 firms in 45 countries to transform the economy for net zero.

‘The money is here if the world wants to use it,’ he said, but he stressed that the ‘plumbing’ had to be in place to ensure the money was effectively targeted. The ISSB standards are seen as a key part of that process.

The new standards need to be ‘appropriate for emerging economies or there is a risk they will be excluded’

Mari Pangestu, managing director of development policy and partnerships at the World Bank said that adopting IFRS had allowed emerging economies to access capital, and the ISSB standards could have the same effect.

‘If we get this right,’ she said, ‘we will unlock pots of money, a large proportion of which will go to developing countries.’

But she warned that the new standards (and associated taxonomies and ESH methodologies) needed to be ‘appropriate and proportionate for emerging economies. It’s important that we look at their needs and support them in implementation or there is a risk they will be excluded.’

Ensuring quality

The European Commission has strongly welcomed alignment of sustainability standards, said Alexandra Jour-Schroeder, deputy director-general, DG FISMA at the EC, but she added that it was vital that the global baseline set by the ISSB’s standards should not be the lowest common denominator. ‘They need to be ambitious,’ she said. ‘The floor, and not the roof.’

Grant Vingoe, chair and CEO of the Ontario Securities Commission, predicted that there would be ‘a rapid change in the evolution of requirements’ from this point. ‘It will be important for us to build a strong supervisory programme,’ he added.

Satoshi Ikeda, chief sustainable finance officer at the Japan Financial Services Agency, said the agency had been anticipating the formation of the ISSB and was ‘very encouraged by developments so far.’

ACCA Council member Ayla Majid said that strong governance would be essential to make sure that the trillions available to combat climate change is used effectively. ‘Finance professionals have a critical role to play here, helping companies strengthen their reporting around climate change and supporting the work of the ISSB so that, at last, we will move quickly towards true global consistency and comparability in sustainability reporting.

‘This will be a great mobiliser for much needed climate capital.’