The Statement of Intent underscores the ‘groundswell of demand to understand the connection between sustainability topics and financial risk and opportunity’. Critical components of this groundswell of demand include a broadened perspective of the responsibility of business, along with intensified interest for more disclosure about risks and opportunities related to climate-change and other ESG components. Asset managers have become increasingly vocal on behalf of their investors about the need for increased disclosure.
The Statement also provides a timeline of activities and statements documenting the ‘growing appetite from regulators, policymakers and the accounting profession to respond to this demand’. Key among those include:
November 2019 — The International Federation of Accountants (IFAC) published a point of view that supported a global solution for standards to achieve relevant reliable and comparable narrative information and metrics.
December 2019 — Accountancy Europe set out an approach for a non-financial standards board (NFSB) under the International Financial Reporting Standards (IFRS) Foundation.
January 2020 — European Commission announced its proposal to develop non-financial reporting standards that consider internationally recognised standards and offer a model for what is ‘agreed at international level’.
April 2020 — The International Organisation of Securities Commissions (IOSCO) acknowledged the role that the driver of global capital markets regulation must play in this area: only by understanding financial and sustainability information together can investors and governments have the necessary insight into company performance.
June 2020 — IFRS Foundation Trustees agreed that their intention would be to conduct a public consultation about whether and how the Foundation should play a role in sustainability standard-setting.
July 2020 — Eumedion, an investor body, called for the IFRS Foundation to evolve to include a standard-setter for non-financial information.
On this front, the IFRS Foundation issued its IFRS Consultation Paper on Sustainability Reporting, also in September 2020. The Consultation Paper that was developed based on work by a Task Force the Foundation Trustees set up. It recommends creating a new Sustainability Standards Board (SSB) under the governance structure of the IFRS Foundation to develop global sustainability standards.
The IFRS Consultation Paper addresses a wide range of issues related to global reporting and the parties involved. Among the consultation questions posed was the task force’s recommendation that ‘the objective of the SSB would be to develop and maintain a global set of sustainability-reporting standards, initially focused on climate-related risks. Such standard-setting would make use of existing sustainability frameworks and standards …’
Following on from the issuance of the IFRS Consultation paper, the parties to the Statement of Intent also issued an Open Letter to Erik Thedéen, Director General of Finansinspektionen, Sweden, Chair of the Sustainable Finance Task Force of the International Organization of Securities Commissions (IOSCO). In the letter, the Statement of Intent and the proposed formation of a Sustainability Standards Board by the IFRS Foundation are identified as steps leading to a global architecture for comprehensive corporate reporting.
A ‘key element of this architecture is a conceptual framework for connected reporting, which should facilitate the critical interconnections between financial and sustainability information that is material for enterprise value creation’. This notion of a separate conceptual framework for connected reporting, in addition to conceptual frameworks for both financial reporting and for non-financial reporting, was highlighted as part of the ‘ultimate vision for interconnected standard setting for corporate reporting’, in the Accountancy Europe approach highlighted above.
Following consultation feedback, in March 2021, the IFRS Foundation Trustees announced their intention to produce a definitive proposal (including a road map with timeline) by the end of September 2021, and leading to an announcement on the establishment of a sustainability standards board at the meeting of the United Nations Climate Change.
A working group to accelerate convergence in global sustainability reporting standards focused on enterprise value has been set up. It will provide technical recommendations, including further development of a prototype built on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, as a potential basis for the new board to build on existing initiatives and develop standards for climate-related reporting and other sustainability topics. This includes working with standard-setter organisations of the Financial Stability Board’s TCFD, the Value Reporting Foundation (IIRC and SASB), CDSB, GRI, CDP and with World Economic Forum (WEF).