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Blog Article

Wednesday 27 October 2021

In the week that host city Glasgow ramps up final preparations for the Conference of the Parties Number 26 (COP 26), doubts are already being raised, and expectations down-played, as to the positive outcomes of an event billed by some as the ‘last chance saloon’ for the climate.

Some recent headlines have not been too optimistic;

"New pledges for COP 26 fall far short of the net zero target"

"Global temperatures still set to rise more than 2 degrees"

"Global emissions to be 16% higher in 2030, UN warns"

There’s this on ESG focused spending...

"IEA warns spending on clean energy must triple to curb climate change"

…and on finance…

"Global finance industry sinks $119 billion into companies linked to deforestation"

On this evidence, any tangible result for the conference is, for now anyway, looking a little uncertain. However, you can always trust the accountancy profession to brighten up a room, and that might just be the case come November.

Why so?

Well, after what in "our world" appears to be a lightning speed of evolution, I think we can say, with near virtual certainty, that within the next fortnight the IFRS Foundation will confirm the formation of its International Sustainability Standards Board (ISSB).

Maybe it was a foregone conclusion all along? In any event, barring I’m not sure what, the IASB will have a new sustainability focused relative within the month.

So, how did we get to this point, and what are the expectations going forward with respect to the new board?

Well, as attendees on any of our recent ESG courses will be aware, reporting on sustainability issues has been around for over twenty years, and many frameworks have evolved over that period. The problem though has often been too many disparate frameworks focusing on an ever-evolving range of ‘sustainability’ issues. Plus, so far there’s only been limited mandatory requirements for this type of business reporting. As such, no one framework has come to the fore as the default, the standard, the ‘one and only’.

That situation should now ‘almost certainly’ begin to change with the ISSB’s creation marking the end of one phase - consultation, and the start of phase two – action.

All of this really has happened at pace. It was just over a year ago the IFRS Trustees published their consultation paper asking for responses to three main questions:

Is there a demand for global sustainability reporting standards? ("Yes")

Should the foundation play a role in developing such standards ("Yes")

And if so, what should that role be. ("Get on and develop them")

In the brackets above I’ve summarised, on balance, the answers provided by the near 600 respondents. Momentum for a global Sustainability Standards Board then gathered pace when IOSCO, the International Organisation of Securities Commissions announced its support for the initiative and an intention to work with the IFRS on developing a framework for future reporting. Then in March of this year, with the setting up of the ISSB Technical Readiness Working Group (TRWG), the Board surely signalled its intent to be ‘The Leader’ in ESG reporting standardisation.

According to the Board’s website the TRWG,

"is a group made up of existing bodies in the sustainability reporting area aimed at providing the potential new board with a ‘running start’ considering, among other things, how the board could build further on existing frameworks."

This description of the TRWG’s work is of importance for us to gain an understanding of where the IFRS Foundation is coming from and where the ISSB is headed in the near-term.

So, who are those existing bodies?

  • The Task Force on Climate-related Financial Disclosures (TCFD)
  • The Climate Disclosure Standards Board (CDSB)
  • The Value Reporting Foundation (which itself is a merger of the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB)).

For the phrase ‘running start’ we could maybe replace with, ‘let’s not reinvent the wheel’.

And for ‘existing frameworks’ might we suggest here the key 2020 publication entitled ‘Reporting on Enterprise Value, illustrated with a prototype climate-related financial disclosure standard, progress towards a comprehensive corporate reporting system’.

All the existing bodies above had input of some form to this document, based upon their own frameworks and ideas to date. Surely this is where the Board will begin its journey?

And what of that phrase, ‘progress towards a comprehensive corporate reporting system’?

The aim of those existing bodies (and therefore the ISSB also) is to have a system that is comprehensive and accepted – globally. That must mean then one ESG framework, one ESG system – presumably that being the ISSB’s?

Of course, we nearly made it with financial reporting – we got very close.

What then is the outlook for a single global ESG reporting system?

The FASB?

In March they published an educational paper entitled Intersection of Environmental, Social, and Governance Matters With Financial Accounting Standards. Some views from this document suggest that for the FASB (for now at least) some sustainability and/or ESG issues already overlap in existing FASB standards. So, not too conclusive as to what happens for them next?

And the EU?

The EU already has some level of mandatory non-financial ESG disclosure for certain larger entities. This is soon to be expanded to cover a far wider range of businesses, and for a wider range of ESG topics. And here’s the interesting thing. The EU communications relating to these reporting requirements refer to a need to have ‘standards that are globally aligned’, that ‘the proposals of the IFRS Foundation to create a new Sustainability Standards Board are relevant in this context’ and ‘the proposed EU sustainability reporting standards would build on and contribute to standardisation initiatives at global level’. It’s this last sentence that stands out. Are the EU intending to adopt the ISSB issued standards (in the same way it adopts IASB standards presently) or are they intending to develop their own?

If they are, then along with the FASB’s current uncertain position, we might be back to the situation with financial reporting, constantly trying to align, constantly trying to converge. And surely that outcome is not good for anyone?

ESG Prize Draw

We just wanted to remind you that our ESG Prize Draw closes at the end of October. Simply head down to the bottom of this page and you’ll see a little quiz. The first name drawn, at random, from the proverbial hat will win an invitation to attend one of our ‘ESG Reporting – Why You Need to Care’ virtual courses, worth £249.

As always, terms and conditions apply. Full terms and conditions can be found here but the key points are as follows:

  • Closing date for entries is 11:59pm 31st October, 2021.
  • Draw will take place on or before Nov 3rd and winner notified within 14 days following the draw.
  • Only one entry per person.
  • Correct answers are not required to be entered into the draw.

Prize Draw: What's in a Name?

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