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ISSB Climate Standard Won’t Ignore Impact – IOSCO

Interoperability between reporting standards and across jurisdictions is key to establishing a global baseline, says Chair. 

The International Sustainability Standards Board’s (ISSB) proposed climate disclosure standard will provide investors with insight into companies’ environmental impacts, according to Ashley Alder, Chair of the International Organization of Securities Commissions (IOSCO). 

“Reporting a company’s impact on the environment is actually highly relevant to sustainability reporting through the lens of enterprise value, which is the lens through which the ISSB sustainability standards are being constructed,” Alder said, speaking at an event hosted by conference and virtual summit provider City and Financial yesterday. 

Launched at COP26, the IFRS Foundation’s ISSB aims to develop global standards for sustainability-related disclosures. The climate prototype draws on existing disclosure guidelines, such as the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) to ensure maximum adoption by policymakers globally. 

There have been concerns that the ISSB’s enterprise value approach, which focuses on how climate-related risks are impacting companies’ financial performance, will not sufficiently capture the impacts of companies and investors on the wider society and environment.  

Comparatively, the European Commission (EC) is developing sustainability reporting standards (ESRSs) focused on double materiality, with organisations required to account for both impacts on and impacts of the environment. The ESRSs will be used by corporates to meet their obligations under the forthcoming Corporate Sustainability Reporting Directive.  

Due to this divergence in approach, Alder acknowledged that the EC initially expressed concerns that achieving interoperability between the ISSB standards and ESRSs would be too challenging. “These concerns have largely faded because it’s clear impact can still be disclosed through the ISSB’s climate standard,” he noted. 

Ensuring global interoperability also depends on widescale adoption of the climate standard in Asia, Alder said.  

“With Asia accounting for over 50% of global greenhouse gas (GHG) emissions – and China alone for around 30% – it follows that, for the ISSB climate standard to be a global baseline, it has to be adopted across Asia,” he said. 

ISSB has plans to appoint a special adviser for its board based in Asia to ensure maximum engagement with both the regional economies and smaller companies, Alder noted. 

He said the ISSB climate standard remains “on track” to be finalised by the end of this year. 

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