Blog Article

The IFRS Foundation and International Sustainability Standards

Thursday 18 February 2021

It looks like the IFRS Foundation will be adding an International Sustainability Standards Board to join the existing International Accounting Standards Board. In this article we briefly explore the IFRS Foundation’s plans regarding global sustainability standards. It is based on what they have published and stated publicly to date, combined with some of our own expectations. However, we should be clear that the proposals are still evolving and are likely to change. The IFRS Foundation Trustees[1] (Trustees) are considering a wide range of feedback as they continue to develop this proposal. We expect to hear more after the next Trustee’s meeting, happening in early March.

Why the IFRS Foundation

In October 2019 the Trustees on set up a task force on sustainability. Their mandate was to engage with a wide range of stakeholders involved in sustainability reporting to seek views on whether the IFRS Foundation should take a more active role in sustainability reporting. They spoke to investor and preparer communities, central banks, regulators, public policy makers, auditing firms and many others. The message they heard was:

"there is an urgent need to improve the consistency and comparability in sustainability reporting."

At the same time while there have been a range of fantastic initiatives in this area, the diversity of approaches and objectives of these initiatives is leading to fragmentation, confusion and difficulty. Sustainability is a world-wide concern; companies, investors, and all stakeholders, operate in an international environment and they need global solutions.

This is clearly where the IFRS Foundation believes it can have an impact. In the last 20 years, as a private not-for-profit foundation, it developed International Financial Reporting Standards that have been adopted in over 140 jurisdictions all around the world. It has done this based on a model of independence and collaboration that has won it almost universal recognition. Building on this success and its relationships with governments, regulators, national standard-setters and stakeholders more widely, it hopes to support enhanced sustainability by achieving global consistency and reducing complexity in sustainability reporting.

What’s the plan

The IFRS Foundation is proposing to establish an international sustainability standards board (which we will term “ISSB”) and become the overarching standard-setter in this area, working with existing initiatives and building on their work. The objective of the ISSB would be to develop and maintain a global set of sustainability-reporting standards initially focused on climate-related risks.

The ISSB would sit within the institutional and governance structures of the IFRS Foundation, running parallel to the existing International Accounting Standards Board (IASB). We expect there would be a technical staff to develop standards, and Board Members to oversight this development. The ISSB would leverage and adapt the existing standard-setting process, due process procedures and networks of the IFRS Foundation that produced internationally accepted accounting standards. The ISSB would, following the path worn by the IASB, promote the consistent use and application of the new sustainability-reporting standards and coordinate the international collaboration and cooperation among sustainability-reporting bodies, governments, regulators and other stakeholders to achieve convergence.

The Trustees state that they believe a relationship with the IASB would support the development of a framework for sustainability reporting which is coherent with and connected to financial reporting and the IASB’s own mission to serve investors and other primary users of financial statements.

The current proposal from the Trustees would have the ISSB initially focussing on climate-related standards. This is seen to be the most pressing concern for sustainability-reporting. However they would begin a process of consulting on other priorities for sustainability reporting and incorporate these into a broader standard setting agenda.

The time is now

The IFRS Foundation needs to move quickly, and they know this. They recently announced that it was their intention to produce a definitive proposal (including a road map with timeline) by the end of September 2021, and then announce the establishment of a sustainability standards board at the meeting of the United Nations Climate Change Conference COP26 in November 2021.

There are still a lot of questions around the proposal and hurdles they are going to have to address. But one thing does seem clear, momentum has shift dramatically in the last 12 months, sustainability standards and reporting are going to become ubiquitous. The question is will this be a global initiative led by the IFRS.

[1] The Trustees are like a board of directors, and are responsible for the governance and oversight of the IFRS Foundation and the International Accounting Standards Board (Board), however they are not involved in any technical matters relating to Standards.

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