Jurisdictions urged to avoid misalignment when integrating ISSB standards to avoid investor confusion and aid decision-making.
The CEO of the Global Reporting Initiative (GRI), Eelco van der Enden, has told ESG Investor that he would “not be surprised” if the final standalone standard-setting body follows in the footsteps of the Value Reporting Foundation and is eventually absorbed by the International Sustainability Standards Board (ISSB).
“This is undoubtedly a politically sensitive topic, as there are individuals on both sides of the argument, within the ISSB and the GRI, who don’t believe it’s a good idea for various reasons,” said van der Enden, noting that consolidation may eventually become “unavoidable”.
Last week, the Financial Stability Board also transferred responsibility for monitoring of the Task Force on Climate-related Disclosures (TCFD) to the IFRS Foundation following the publication of its inaugural ISSB standards.
“The mandate of the ISSB is primarily focused on investors and financial matters, while our mandate is multi-stakeholder, encompassing the impacts on investors as well,” he said, noting that given the difference in mandates, a change within the governance structure would be necessary for the GRI to be absorbed.
In the meantime, the GRI and the ISSB will continue to work together as “closely as possible”, he said.
“Our driving force is the establishment of a global baseline. We understand that it is impossible to run a profitable business in a dysfunctional society, and we both hold the same opinion on this matter.”
In March 2022, the GRI and IFRS announced a Memorandum of Understanding (MoU) whereby their respective standard-setting boards, the ISSB and the Global Sustainability Standards Board (GSSB), would seek to coordinate their work programmes and standard-setting activities.
According to van der Enden, the MoU will be extended, with the two organisations exploring the possibility of working “even more closely together” on biodiversity.
“We work closely together, sharing information on specific topics that the ISSB is currently addressing, such as biodiversity,” he said.
“We are actively exploring opportunities for joint projects in this field. It is our hope that before the end of the year, we will be able to announce something concrete in this regard.”
ISSB alignment “crucial”
Jurisdictions must avoid misalignment in integrating the ISSB’s inaugural standards to lower the cost of compliance and ensure sustainability reporting is decision-useful for investors, said van der Enden.
“The concern is that, without alignment, we will encounter misalignment, resulting in non-comparable data,” he said, noting that this would be “detrimental” for all stakeholders because it would make it impossible to assess sustainability reporting in a comparable manner.
“It’s absolutely crucial.”
According to van der Enden, the challenge to global alignment of the ISSB standards “lies in the political realm”.
“When politics comes into play, rationality is not always the guiding principle,” he said, adding that International Accounting Standards have set a global baseline for financial reporting, but it is equally important to establish such a baseline for sustainability reporting.
The ISSB’s standards were launched in June with the promise of delivering a comprehensive accounting-based framework for climate- and sustainability-related disclosures that provides global investors with consistent, verifiable and decision-useful information.
Now that IFRS S1 and IFRS S2 are issued, the ISSB will work with jurisdictions and companies to enable adoption. The first steps will include creating a Transition Implementation Group to support companies that apply the standards and launching capacity-building initiatives to support effective implementation.
IOSCO is conducting an independent assessment of the ISSB standards, with its approval necessary before individual national securities regulators can adopt the standards into their respective regulatory frameworks.