The Foundation for International Financial Reporting Standards (IFRS Foundation) has officially announced the establishment of the International Sustainability Standards Board (ISSB), at the 2021 UN Climate Change Conference (COP26) in Glasgow. This event marks one of the most important developments in recent decades in the field of accounting and financial reporting, says Laura Ciobanu, Manager, Climate Change and Sustainability, EY Romania.
The ISSB’s mission will be to act swiftly to establish a comprehensive set of sustainability standards, to recognize the dynamic nature of materiality and the need for local adaptation of additional standards.
”Given that there are currently around 600 environmental, social and corporate governance (ESG) reporting standards, the ISSB intends to make the ESG reporting standards consistent and comparable by developing the basic requirements for globally, for sustainability reporting standards. The new board will operate in parallel with the International Accounting Standards Board (IASB) of the IFRS Foundation, the body that sets mandatory accounting standards for most listed companies in more than 140 jurisdictions,” says Laura Ciobanu.
At this time, two prototype reporting standards provide the ISSB with a good starting point. The first, the prototype standard for climate reporting, built on the recommendations of the Task Force on Publication of Climate Financial Reporting (TCFD), would require organizations to provide information to enable users to assess climate risks and opportunities in relation to governance, strategy and managing a company’s risks, as well as presenting indicators and targets related to climate risks and opportunities that ensure coherence and comparability across all markets.
The second, the prototype general requirements standard, provides guidance for reporting other important ESG issues that affect the value of the company.
According to a recent study by asset managers by the International Monetary Fund (IMF), the lack of climate data, especially prospective data, is considered the most pressing issue to be addressed to facilitate the investment associated with the transition to a green economy. In this context, the IMF calls on policy makers to “urgently strengthen the climate information architecture for both companies and investment funds” in order to harmonize investment flows with climate goals. The ISSB has the potential to become a key pillar of this architecture as well as providing relevant and useful ESG information in decision making.