September 27, 2022

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Global ESG standards come one step closer to reality

Investors could soon benefit from a global standard for sustainability disclosure, as The International Sustainability Standards Board publishes its first set of proposals on how it should look.

The proposal would see firms disclose “material information” about any sustainability exposures that would have a financial impact.

The data should be accessible to general readers of financial reports, and be comparable with other firms in the same sector or country, it said.

The ISSB, established at last year’s COP26 — and run by global accounting standard-setters, the International Financial Reporting Standards Foundation — is the most significant attempt to date to develop global standards for the information investors receive about environmental, governance, and social factors.

The group has received backing from the G20 group of advanced economies and the Financial Stability Board.

“Rarely do governments, policymakers and the private sector align behind a common cause. However, all agree on the importance of high-quality, globally comparable sustainability information for the capital markets. These proposals define what information to disclose, and where and how to disclose it,” said ISSB chair Emmanuel Faber.

The ISSB has published proposals on general sustainability-related disclosures as well as specific climate-related disclosures.

The board’s proposal builds on the work already done by other organisations such as the FSB’s Task Force on Climate Disclosures and the Sustainability Accounting Standards Board.

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The SASB’s framework is already used by many investment firms such as State Street and BlackRock as an industry-specific standard for ESG disclosures.

Rick Lacaille, global head of ESG initiatives at State Street told Financial News in February that “the idea of [SASB and ISSB] coming together is you get the credibility from both their domains and therefore wider acceptance by issuers.”

Many firms already use the task force’s methodology for disclosing climate risks. Starting in the 2022 tax year in the UK, 13,000 of the country’s largest firms will be required to provide climate disclosures based on the standards set out by the TCFD.

However, the TCFD does not provide the granular detail needed to make comparisons between different firms.

“TCFD was never a disclosure for accounting standards. It was a way of disclosing climate risk in the financial system. The ISSB standards will be more data centric,” Lacaille said. “ISSB is going to be a useful framework for comparing companies and issuers across borders. It will be of more use to more people, because it will cater for other financially material issues that are not just climate.”

The TCFD welcomed the ISSB’s 31 March proposal.

Mary Schapiro, head of the TCFD secretariat said: “By building on the TCFD’s framework, the ISSB’s climate proposals will create further consistency, comparability and reliability across climate disclosure so investors can make more informed financial decisions.”

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Many global organisations have been working closely with the ISSB in developing other standards such as those set down by the International Organisation of Securities Commissions, which sets global classifications in securities markets.

“IOSCO welcomes the publication of the ISSB’s two proposed…sustainability disclosure standards”, said Ashley Alder, chair of IOSCO. “We will review the proposals, with the objective to endorse them for use by our member jurisdictions. Endorsement by IOSCO can pave the way for adoption of the standards around the world, delivering much-needed consistency and comparability in sustainability-related information to the capital markets.”

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To contact the author of this story with feedback or news, email Jeremy Chan