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IFRS Foundation Considering Creating New Sustainability Standards Board

Chris Gaetano
Published Date:
Oct 1, 2020
In an effort to address the fragmented landscape of sustainability reporting, the IFRS Foundation, which oversees the International Accounting Standards Board, is considering the establishment of a new Sustainability Standards Board that would create and maintain standards in a manner similar to the financial reporting standards it already oversees.

"Notwithstanding differences in scope and motivation, all stakeholders share a common message: there is an urgent need to improve the consistency and comparability in sustainability reporting. A set of comparable and consistent standards will allow businesses to build public trust through greater transparency of their sustainability initiatives, which will be helpful to investors and an even broader audience in a context in which society is demanding initiatives to combat climate change," said the consultation paper the foundation released.

The paper said that maintaining the status quo is not acceptable, but also that just supporting existing initiaitves (such as that recently undertaken by major sustainability framework organizations) "carries an equal risk of causing fragmentation and adding to the complexity—by adding another voice to the discussion, rather than creating a global framework for consistent standard-setting." With this in mind, the IFRS Foundation said that the formation of a new board represented the best option at the time.

Such a board, said the paper, would initially be focused entirely on climate change risk, but left open the possibility that, as time goes on, expanding its focus into other areas of sustainability reporting. It would operate alongside the IASB, and the two boards would benefit from the increasing interconnectedness between financial reporting and sustainability reporting.

In weighing how such a board would approach materiality, the paper considered the multi-stakeholder approach used by organizations like the Global Reporting Initiative, but said taking this on would substantially increase the project's complexity, which in turn could potentially impact or delay the adoption of the standards. Instead, then, this theoretical new board would take a similar approach to the Sustainability Accounting Standards Board and so "focus its efforts on the sustainability information most relevant to investors and other market participants." 

The foundation felt it was particularly suited for this task given its past experience in developing international financial standards, which it said it could leverage in developing sustainability standards as well. Further, it pointed out that any credible sustainability accounting system needs external assurance, but doing so is challenged by the lack of a consistent global framework as well as the difficulties of setting out qualitative sustainability-related disclosure requirements. The IFRS Foundation pointed out that they have extensive experience in crafting financial reporting standards with auditability in mind, which it felt further bolstered its case.

The paper noted that, should the Foundation establish this new board, there would still be many hurdles to overcome, including getting sufficient support from public authorities and market stakeholders, working with regional initiatives to achieve global consistency and reduce complexity in sustainability reporting, ensuring an adequate governance structure, achieving appropriate technical expertise for board members, staff and trustees, getting proper funding, building synergy with the financial reporting process, and ensuring the current mission of the IFRS Foundation and the IASB are not compromised. Still, Erkki Liikanen, Chair of the IFRS Foundation Trustees, felt that, despite this, the idea was worth at least exploring.

"Calls for standardisation and comparability of reporting on sustainability and climate-change issues continue to grow as these matters become increasingly important to capital markets. We therefore seek to assess whether there is demand for global sustainability standards and whether the IFRS Foundation should play a role in developing such standards," he said.

The consultation is open for comment until 31 December 2020.

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