While global political leaders were struggling to reach agreement at the COP26 climate change conference, accounting standards-setters sealed a breakthrough: the creation of the International Sustainability Standards Board (ISSB) under the aegis of the IFRS Foundation.

Even better, the newly formed Value Reporting Council ­– a merger of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) ­– and the Climate Disclosure Standards Board will be folded into the ISSB. They have already worked on ‘technical readiness’ with the Task Force on Climate-Related Financial Disclosures (TCFD), the International Organization of Securities Commissions (IOSCO) and the World Economic Forum. So, the alphabet soup now looks more like consommé than thick broth, and standards (or at least exposure drafts) should start appearing next year.

With IFRS Standards required in more than 140 jurisdictions and permitted in many others, the International Accounting Standards Board’s new sister should have global traction. But…

…The first challenge is geographic. In the post-Trump US, Gary Gensler, who chairs the Securities Exchange Commission, is keen to see a step-change in corporate reporting on climate-related risks. Chiming with IFRS Standards and US GAAP, he believes that the information should be consistent, comparable and decision-useful to investors – the primary audience. But he has asked his own team to develop a mandatory climate-risk disclosure rule. It is to be hoped that the birthplace of the SASB will not try to reinvent the wheel, but the history of transatlantic convergence is patchy.

Materiality issues

The EU sees itself as a front-runner on climate action; witness its taxonomy (definitions matter) and the Corporate Sustainability Reporting Directive, updating previous non-financial reporting requirements. Its adoption of IFRS Standards goes through an endorsement process, and carve-outs have been rare. But it has a different approach to setting standards on sustainability: double materiality, which puts as much weight on the impact of the company on people and planet as it does on financial materiality.


Jane Fuller is a fellow of the CFA Society of the UK and senior fellow of the Centre for the Study of Financial Innovation

‘Disclosure of financially material sustainability is not sufficient to deliver full transparency on sustainability impacts’

This is not an investor-first model. Eric Hespenheide, interim CEO of the Global Reporting Initiative (GRI), welcomed the coming together of organisations focused on investors’ needs. But he added, rather sniffily: ‘Disclosure on a company’s financially material sustainability topics – while important from the context of helping markets to assess opportunities and risks – is not sufficient to deliver full transparency on sustainability impacts, as envisioned by the GRI Standards and embraced by the EU.’

Their cooperation will enable the EU to add a second pillar to the ISSB’s output at the endorsement stage.

Where’s the dynamism?

In one way, this is disappointing because last year the GRI signed a statement of intent to work together towards comprehensive corporate reporting with the SASB, the IIRC and the carbon disclosure bodies. It was envisaged that materiality would be ‘dynamic’ rather than dual, recognising the potential for a company’s external impacts to become financially material.

In another way, it is honest in crystallising the impossibility of fully reconciling the investor-first model with a multi-stakeholder approach. It speaks to the diversity of interests in a field steeped in public policy. And that is a business best left to politicians.

Further information

Read AB’s coverage of COP26 discussions and decisions