Regulators will decide either late this year or early next year whether to endorse the International Sustainability Standards Board’s (ISSB) reporting standards, said Ashley Alder, chair of the International Organisation of Securities Commissions’ (IOSCO) board.
Speaking at the International Financial Reporting Standards Foundation (IFRS) conference. he said “By endorsing the standards, IOSCO would signal to its large membership of market regulators that they should examine how they might adopt the standards in their own jurisdictions.”
Alder added that he “firmly believed” the ISSB was “the most credible mechanism for creating a baseline for climate disclosure standards”.
He identified four key challenges to effective implementation of the new sustainability standards – data, interoperability, proportionality, and audit and assurance.
On the first, he noted the difficulty of obtaining reliable data from third parties or external parties to meet the new disclosure requirements. This problem was especially acute with “data or estimates for Scope 3 corporate value chain emissions”, he added.
On the issue of interoperability, Alder said that while the International Accounting Standards Board’s (IASB) global minimum baseline approach had the potential to transform sustainability reporting, it must achieve buy-in across Asia from which “half of global greenhouse gas emissions” emanate.
As for proportionality, Alder said that although smaller business entities might face challenges incorporating the new standards, regulators took the view that “any scaling and phasing should be limited and should not dilute the ambition of the standards.”
Last but not least, Alder advocated for the development of a credible assurance framework based on a degree of consistency that enabled markets to reliably price sustainability-related risks and opportunities and support capital allocation.
He also said that the relationship between sustainability disclosures and traditional financial statements has become increasingly important.
He suggested that the ISSB should work closely with the International Accounting Standards Board (IASB) to consider how preparers could be encouraged to develop the factors relevant to calculating enterprise value from a quantitative perspective, and to consider how that calculation might connect to traditional financial statements.
Alder added that the overall aspiration was to bridge the divide between conventional financial disclosures and ISSB sustainability disclosures centred on the concept of enterprise value, so that in combination they paint the full picture.
The endorsement from IOSCO comes at a pivotal moment as the ISSB is preparing for its inaugural meeting on 18 July in Frankfurt.
