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ISSB Rules Hailed for Bringing Data Clarity, Comparability

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The first fruits of the International Sustainability Standards Board’s (ISSB’s) 18 months of work hammering out a set reporting rules that could be applied globally has been welcomed by participants in the financial data and technology industries.

The body’s first two sets of disclosure standards, described as “ground-breaking” by the board’s chair Emmanuel Faber, have been hailed for providing a blueprint on how companies should communicate details about their sustainability-linked performance and risks.

The standards released Monday in London are intended to bring clarity and trust to – and improve the quality of – corporate sustainability disclosures. Experts said they will go some way to consolidating the multitude of often contradictory voluntary codes that presently guide disclosures. They will also enable investors to make better decisions when allocating capital to the companies and projects that can mitigate global warning and social ills.

“Investors and companies alike have been clamouring for clarity and comparability for years and having a global baseline that has been published will go a long way in providing that to the market,” Alexandra Mihailescu Cichon, executive vice president of sales and marketing at ESG data and research provider RepRisk, told ESG Insight. “It’s addressing a big need, and I’m glad that it’s public.”

Elizabeth King, president sustainable finance at Intercontinental Exchange (ICE), who attended the ISSB North America meeting at the New York Stock Exchange, echoed those sentiments.

“This is an important step forward in terms of stakeholders coalescing around a set of standards for disclosure,” King told ESG Insight. “Standards are important for transparency and transparency is important for healthy capital markets.”

Baseline rules

The IFRS Foundation-convened ISSB issued its S1 and S2 standards, focusing on its general disclosure framework and climate-specific standards, respectively. A Transition Implementation Group will be established to help companies incorporate the rules within their reporting procedures. And the board will continue to work with local regulators to help them formulate “incremental” disclosures that will supplement and work alongside S1 and S2 within their own jurisdictions.

Though S1 and S2 don’t cover the complete array of topics that companies will eventually have to tackle in their reports, the ISSB’s initial standards at least offer a robust set of baseline rules that go a long way towards bringing harmony to ESG reporting.

“Today represents the outcome of more than 18 months of intense work to deliver an inaugural set of sustainability disclosure standards for the global capital markets,” Faber said at a launch event in London. “The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner.

“We have consulted closely with the market to ensure the Standards are proportionate and will result in disclosures that are relevant for investment decision-making.”

Responding to Change

The ISSB emerged from the COP26 meeting in Glasgow, Scotland, in 2021. Its formation was a response to frustration expressed by corporates and investors over the opacity of ESG disclosure rules around the world. In the absence of an internationally agreed set of reporting standards, around 3,000 different voluntary codes have emerged in recent years with their own approaches towards using, presenting and incorporating data.

The inconsistencies the situation has created in company reports has made it difficult for investors to accurately compare one issuer or asset against another when building their portfolio and risk-management strategies.

S1 and S2 have been based on the reporting concepts of the IFRS Accounting Standards and SASB, and disclosures will be expected to be submitted along with financial reports. Already many companies issue supplemental sustainability and integrated reports with their financial reports. But they follow no common structure or format and often feature different metrics. S1 and S2 should help streamline that process to ensure all reports are based on the same sets of metrics.

RepRisk’s Mihailescu Cichon said the standards brought other benefits. By establishing that sustainability reports be submitted along with regular financial reports, the standards recognise the principle that ESG considerations are now core to a business’ everyday operations, she said. And, she added, the resulting transparency the standards should bring to capital markets would help to reduce greenwashing.

“We’ve seen over time how sustainability topics have moved from operating in a silo to being more integrated into company operations, strategy and governance,” she said. “That’s what you see here with the ISSB standards –there’s really this idea to fully integrate it into the financial reporting, which I think is a huge step forward.”

Wider Support

Outside of the data and tech industries, the ISSB has been congratulated by regulators and other semi-official bodies.

Importantly, it was described by the International Organisation of Securities Commissions (IOSCO) chair Jean-Paul Servais as marking “an important milestone for achieving globally consistent disclosures”.

Whether S1 and S2 become the global ESG reporting benchmarks that many expect will depend largely on IOSCO, which will weigh whether to recommend them for adoption by the world’s financial regulators. A statement from its Sustainability Task Force chair Rodrigo Buenaventura hinted at the impatience of market participants to get the standards on regulators’ rule books.

“Our assessment team is ready to go, our assessment criteria have already been published and our board is closely engaged,” Buenaventura said in a statement issued soon after the standards’ unveiling. “Mindful of the importance of reliable and robust sustainability information for financial markets around the world, we will make sure the assessment is done in a prompt, orderly, and thorough way.”

Financial Stability Board (FSB) chair Klaas Knot highlighted that eagerness: “I look forward to IOSCO’s consideration of endorsement of the standards. If so endorsed, the ISSB standards will strengthen the comparability, consistency and decision-usefulness of climate-related financial disclosures around the world.”

Reservations

The standards were not free of criticism. While the ISSB has created a materiality overlay that companies can first apply to establish whether all disclosure rules are material to their activities, there is no similar test for the potential impact they may have on the environment or society. Mihailescu Cichon is among those with reservations, arguing that a “double materiality” test is essential to pricing in corporate impacts and vouchsafing sustainable business.

ICE’s King, however, stressed that regulators would be expected to decide whether to add such provisions into their codes. The EU, for instance has done just that within its green Taxonomy and its pending Corporate Sustainability Due Diligence Directive.

“These are standards, not a regulatory decision,” King said. “Policymakers in jurisdictions may build upon that to achieve their own policy goals. The important thing here is that you have a standard baseline that hopefully world regulators will adopt, and if it’s desired, they can build on that for other policy reasons.”

ISSB Rules Hailed for Bringing Data Clarity, Comparability

The first fruits of the International Sustainability Standards Board’s (ISSB’s) 18 months of work hammering out a set reporting rules that could be applied globally has been welcomed by participants in the financial data and technology industries.

The body’s first two sets of disclosure standards, described as “ground-breaking” by the board’s chair Emmanuel Faber, have been hailed for providing a blueprint on how companies should communicate details about their sustainability-linked performance and risks.

The standards released Monday in London are intended to bring clarity and trust to – and improve the quality of – corporate sustainability disclosures. Experts said they will go some way to consolidating the multitude of often contradictory voluntary codes that presently guide disclosures. They will also enable investors to make better decisions when allocating capital to the companies and projects that can mitigate global warning and social ills.

“Investors and companies alike have been clamouring for clarity and comparability for years and having a global baseline that has been published will go a long way in providing that to the market,” Alexandra Mihailescu Cichon, chief commercial officer at ESG data science company RepRisk, told ESG Insight. “It’s addressing a big need, and I’m glad that it’s public.”

Elizabeth King, president sustainable finance at Intercontinental Exchange (ICE), echoed those sentiments.

“This is an important step forward in terms of coalescing around all stakeholders, coalescing around a set of standards for disclosure,” King told ESG Insight. “Standards are important for transparency and transparency is important for healthy capital markets.”

Baseline Rules

The IFRS Foundation-convened ISSB issued its S1 and S2 standards, focusing on its general disclosure framework and climate-specific standards, respectively. A Transition Implementation Group will be established to help companies incorporate the rules within their reporting procedures. And the board will continue to work with local regulators to help them formulate “incremental” disclosures that will supplement and work alongside S1 and S2 within their own jurisdictions.

Though S1 and S2 don’t cover the complete array of topics that companies will eventually have to tackle in their reports, the ISSB’s initial standards at least offer a robust set of baseline rules that go a long way towards bringing harmony to ESG reporting.

“Today represents the outcome of more than 18 months of intense work to deliver an inaugural set of sustainability disclosure standards for the global capital markets,” Faber said at a launch event in London. “The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner.

“We have consulted closely with the market to ensure the Standards are proportionate and will result in disclosures that are relevant for investment decision-making.”

Responding to Change

The ISSB emerged from the COP26 meeting in Glasgow, Scotland, in 2021. Its formation was a response to frustration expressed by corporates and investors over the opacity of ESG disclosure rules around the world. In the absence of an internationally agreed set of reporting standards, around 3,000 different voluntary codes have emerged in recent years with their own approaches towards using, presenting and incorporating data.

The inconsistencies the situation has created in company reports has made it difficult for investors to accurately compare one issuer or asset against another when building their portfolio and risk-management strategies.

S1 and S2 have been based on the reporting concepts of the IFRS Accounting Standards and SASB, and disclosures will be expected to be submitted along with financial reports. Already many companies issue supplemental sustainability and integrated reports with their financial reports. But they follow no common structure or format and often feature different metrics. S1 and S2 should help streamline that process to ensure all reports are based on the same sets of metrics.

RepRisk’s Mihailescu Cichon said the standards brought other benefits. By establishing that sustainability reports be submitted along with regular financial reports, the standards recognise the principle that ESG considerations are now core to a business’ everyday operations, she said. And, she added, the resulting transparency the standards should bring to capital markets would help to reduce greenwashing.

“We’ve seen over time how sustainability topics have moved from operating in a silo to being more integrated into company operations, strategy and governance,” she said. “That’s what you see here with the ISSB standards –there’s really this idea to fully integrate it into the financial reporting, which I think is a huge step forward.”

Wider Support

Outside of the data and tech industries, the ISSB has been congratulated by regulators and other semi-official bodies.

Importantly, it was described by the International Organisation of Securities Commissions (IOSCO) chair Jean-Paul Servais as marking “an important milestone for achieving globally consistent disclosures”.

Whether S1 and S2 become the global ESG reporting benchmarks that many expect will depend largely on IOSCO, which will weigh whether to recommend them for adoption by the world’s financial regulators. A statement from its Sustainability Task Force chair Rodrigo Buenaventura hinted at the impatience of market participants to get the standards on regulators’ rule books.

“Our assessment team is ready to go, our assessment criteria have already been published and our board is closely engaged,” Buenaventura said in a statement issued soon after the standards’ unveiling. “Mindful of the importance of reliable and robust sustainability information for financial markets around the world, we will make sure the assessment is done in a prompt, orderly, and thorough way.”

Financial Stability Board (FSB) chair Klaas Knot highlighted that eagerness: “I look forward to IOSCO’s consideration of endorsement of the standards. If so endorsed, the ISSB standards will strengthen the comparability, consistency and decision-usefulness of climate-related financial disclosures around the world.”

Reservations

The standards were not free of criticism. While the ISSB has created a materiality overlay that companies can first apply to establish whether all disclosure rules are material to their activities, there is no similar test for the potential impact they may have on the environment or society. Mihailescu Cichon is among those with reservations, arguing that a “double materiality” test is essential to pricing in corporate impacts and vouchsafing sustainable business.

ICE’s King, however, stressed that regulators would be expected to decide whether to add such provisions into their codes. The EU, for instance has done just that within its green Taxonomy and its pending Corporate Sustainability Due Diligence Directive.

“These are standards, not a regulatory decision,” King said. “Policymakers in jurisdictions may build upon that to achieve their own policy goals. The important thing here is that you have a standard baseline that hopefully world regulators will adopt, and if it’s desired, they can build on that for other policy reasons.”

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