ISSB PUSHES FOR ITS STANDARDS TO BE SUSTAINABILITY REPORTING GLOBAL BASELINE
April 13th, 2023An International Sustainability Standards Board (ISSB) symposium in Montréal, Canada, has heard how accounting standards experts are striving to build a “global baseline” of regulation based on ISSB standards, despite the contrasting guidance being developed worldwide.
Speaking at the event on Friday (Feb 17), Mark Carney, UN special envoy for climate action and finance, and former central bank governor for the UK and Canada, said of the baseline: “It’s critical. You need compatible information.”
Mr Carney stressed ongoing discussions between the ISSB and major jurisdictions, such as the EU (European Union), the USA and Japan, about the need for regulatory harmony. He highlighted the EU, which is opting for a ‘double materiality’ reporting system, adding the impact of business and industry on the environment and climate change to the ISSB single materiality focus on environmental impacts on corporations.
With the ISSB and the EU’s EFRAG (European Financial Reporting Advisory Group) seeking to ensure their materiality requirements are sufficiently close to allow for some mutual recognition (1), Mr Carney said: “It’s right that Europe has that approach but it’s only right that the global baseline is consistent,” with the ISSB as global single materiality reporting standard “allowing jurisdictions to add on” more requirements. With the ISSB planning to release its now finalised S1 and S2 standards by June, the European Commission has time to assess the final text of its standards, to be released by the same month, potentially boosting compatibility. This timeline meshes deliberations at the US Securities & Exchange Commission (SEC), which should release its (largely) single materiality-focused standard in Q2. (2)
Mr Carney hoped jurisdictions would “apply the core element of S1 and S2”, arguing it would be “exceptionally costly” for those that do not, having earlier predicted that “the ISSB baseline will be decisive” in allocation of capital.
Certainly, key countries have signalled they may adopt ISSB standards in their reporting legislation. The UK has already announced that ISSB standards “will form the central component of the UK’s Sustainability Disclosure Requirements”. (3)
And at the symposium, on a special session on the ‘global baseline’, Abigail Ng, executive director of markets policy and infrastructure, the Monetary Authority of Singapore (MAS), said the “Singapore government is looking at adopting the ISSB standards”.
ISSB vice-chair Sue Lloyd stressed how the ISSB had set up a working group , which involves, the USA, the EU, Japan, the UK, the US, Japan and IOSCO (the International Organization of Securities Commissions), and a sustainability standards forum staging public meetings: “People don’t want to be told what to do when they haven’t been part of what has been developed,” she said, saying such work increases the likelihood of jurisdictions being receptive to an ISSB baseline.
That is especially relevant in north America, given the US SEC is charting its own sustainability reporting path. Grant Vingoe, Ontario Securities Commission CEO, said this fact would impact how neighbouring Canada responds to the ISSB standards via the new Canadian Sustainability Standards Board (CSSB – operational from April – 2023). The CSSB “we will look at what the SEC does and at the ISSB – see how it fits together”, to ensure ISSB and SEC rules are “consistent or not inconsistent…to preserve our privileged position with US capital markets,” he said.
And there’s the rub, noted Martin Moloney, IOSCO secretary general: “There is a cold hearted and cold headed policy making process in each jurisdiction,” over whether to adopt ISSB standards as mandatory corporate reporting rules: “It would be great” if some countries “move quickly and fast” on legal adoption, “but it won’t be true for every jurisdiction around the world.” He said: “Countries have vastly different ambitions [over ISSB adoption]….Some jurisdictions will want to look for first mover advantage. Some jurisdictions will act extremely fast. The bulk of jurisdictions will come in after that.” Potential obstacles on timelines would be considering questions over the need for supplementary guidance, the development of skills, the funding supervisors and more.
And that is fine – as a rushed process is risky: “We don’t want people failing to get there, which will lead to disagreements or worse,” said Mr Moloney.
Ultimately, the goal, he said, “is to facilitate capital flows within and across countries”, through a common set of rules allowing analysts to assess the value of securities against sustainability considerations, wherever they are in the world – in Montreal. Frankfurt New York or Hong Kong, he said. And with climate issues especially being long term influences on profitability, analysts are having to grapple with complex calculations, which will be helped by solid comparable sustainability data: “It’s about transparency to look across the world and view the facts about a security you were trying to evaluate,” he said.
Singapore’s Abigail Ng, said such concerns were particularly acute in southeast Asia, which was especially vulnerable to economic losses from climate change (4) through extreme weather and rising sea levels. Researchers have said 35% of the region’s GDP could be lost as a result by 2050, especially farming, fishing and tourism. Exporting companies will also have to comply with sustainability-focused controls in major western markets. So, companies need to future proof themselves over sustainability, taking account also of their supply chains: “The ISSP global baseline is a critical first step towards achieving these goals,” she said. Even so, Singapore would not be hasty in enforcing ISSB standards, taking a careful and inclusive approach, not expecting full compliance on “day one”, rather to “get everyone on the train and leave no one behind”.
NOTES
1 – https://kpmg.com/xx/en/home/insights/2022/10/issb-interoperability-eu.html