New climate and sustainability disclosure rules are on track for issuance by the end of this year’s second quarter, International Sustainability Standards Board (ISSB) Chair Emmanuel Faber affirmed.
The board plans to complete redeliberations in February, he said on Jan. 24, 2023. After that, the ISSB will be balloted, a process that enables standard-setters to take a final look at the draft standards one last time before they are published.
Redeliberations have been based on the more than one thousand comment letter responses that the board received on IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, and S2, Climate-related Disclosures, which were issued in March 2022 for public comment.
The standards are being developed to provide a global baseline of financial reporting disclosure rules for reporting environmental, social and governance (ESG) related issues. Among other recent decisions, the board agreed to provide companies with an exemption for commercially sensitive information; and to require companies to disclose how international climate agreements, including those on a national level, inform their climate-related targets. (See ESG Disclosure Rules to Include Exemption for Commercially Sensitive Information in the Jan. 24, 2023, edition of Accounting & Compliance Alert.)
The new issuance date is later than one announced last year by the board. Initially, the issuance date had been set for the end of 2022. Still, with the new timeline the process toward the development of the standards moved very quickly – literally under a year, including proposals.
An Unusual Board?
Overall, events surrounding the ESG board happened quickly and somewhat differently than is done in the U.S. and by its sister board the IASB, the developer of international financial reporting standards (IFRSs).
Specifically, when the ISSB was established in November 2021, it was just a name. A month later, Faber, former CEO of food products company Danone, was appointed ISSB chair, and two months later Sue Lloyd, then vice chair of the IASB, was appointed.
Next, both the climate and sustainability proposals were issued although only Faber and Lloyd were on the board at the time. The issuance of the proposals came with the promise that redeliberations would take place with a quorum of board members. That quorum was met in July 2022, and the full 14 members seated by August with the appointment of a second vice chair Jingdong Hua, a former World Bank vice president.
In general, ISSB meetings differ slightly from others in that at the start of discussions Faber hits a bell and meetings end in literal applause by the board. Especially memorable was its October meeting in Montreal which started with a presentation by elders from First Nations indigenous tribes of Canada, who gave a short speech that included a drum beat, chant and jig related to land acknowledgement. After that, the board started discussions about its agenda priorities.
In general the board, chairs, and vice chairs come across as passionate about ESG-related matters and highly committed.
Pushing for International Regulatory Endorsement
Currently, the ISSB has been stressing its goal that international regulators will move to endorse the disclosure standards for mandatory and voluntary use worldwide.
The board has been holding ongoing conversations with the International Organization of Securities Commissions (IOSCO) seeking endorsement of the disclosure rules as “fit for purpose and good for global capital markets,” Lloyd said in a podcast. “That endorsement discussion is really an important one.”
IOSCO is a worldwide association of national securities regulatory commissions, including the U.S. SEC which is an active member of the board. One of the primary functions of the IOSCO Board is to review major securities regulatory issues and to develop appropriate policy responses.
“Now we know that many jurisdictions will require to adopt our standards and that’s fantastic but we’re also very interested in voluntary applications of our standards for the fact that investors and companies want our standards to be used around the world which is really important to us,” said Lloyd. “So market engagement that facilitates the choice to use the ISSB standards around the world is really important and we are busy establishing our market engagement, our strategy and working really closely with investors to get the support for our standards.”
That companies voluntarily adopt the rules is important, Faber also added. “Voluntary adoption will of course lower the cost for regulators to go into mandatory adoption and of course mandatory adoption is obviously creating a level playing field, and will probably drive further voluntary adoption in other jurisdictions,” he said. “So that is a totally new space – this dual approach of voluntary and mandatory adoption has never been tried before.”
This article originally appeared in the Jan. 25, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
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