There’s been a good deal of activity so far at the COP27 climate change summit in Egypt. Our clients should be aware of one development in particular: The International Sustainability Standards Board (ISSB) announced its global ‘Partnership Framework,’ as the next step toward implementing global disclosure standards.
According to the announcement: “The framework is designed to support preparers, investors and other capital market stakeholders as they prepare to use IFRS Sustainability Disclosure Standards.”
The baseline is intended to help companies assess and transparently report on sustainability-related risks and opportunities and shift capital allocation towards more sustainable investments. In addition, it should build more resilient capital markets while minimizing greenwashing and potentially lowering transaction costs.
Speaking at COP27, Emmanuel Faber, Chair of the ISSB, said, “As we’ve heard from stakeholders here at COP27, the need for climate-related financial disclosures is increasingly urgent. We are working collaboratively towards the implementation of effective sustainability disclosures for capital markets, which will empower market participants with the right information to support better economic and investment decision making.”
The CDP, a non-profit that helps 20,000 companies around the world disclose their environmental impacts, announced at COP27 that it would use the ISSB standard. The alignment with CDP to incorporate the IFRS S2 Climate-related disclosure requirements is crucial to reducing market fragmentation and building a global baseline.
Harmonizing the ISSB standard with the many other standards and regulations in use around the world is a top priority for global regulators but will not be easy. The European Union (EU) is expected to finalize its ESG disclosure rules for 50,000 companies in 27 countries by June 2023, with some key differences in how materiality is defined. Faber told reporters at COP27 that there is a strong commitment to aligning the standards. The ISSB expects to roll out the framework between now and 2027.
So, what does this mean for corporate leaders regulated in the US and abroad?
The ISSB engages with global regulatory jurisdictions and consults with the International Organization of Securities Commissioners, (IOSCO) of which the U.S. Securities and Exchange Commission (SEC) is a participating member. Working towards an endorsement, by IOSCO of the ISSB standards, is helping create significant momentum as more jurisdictions undertake work to consider how to incorporate the ISSB’s baseline standards into their domestic reporting systems.
Companies today need both the will and the skill to meet the ESG challenge, including upcoming standards like the ISSB and those passed by the EU. Developing and implementing the right ESG strategy and reporting mechanisms will strengthen engagement with investors, customers, employees, policy makers and other stakeholders. It will also broaden your potential investor pool.
DFIN helps clients navigate this rapidly changing world of impact accounting and sustainable finance. We create accurate, transparent and automated processes across the enterprise, assuring that you are well-prepared to meet today’s and tomorrow’s compliance requirements.
Using AI technology and data-driven insights, DFIN also helps clients measure the financial impact of ESG, identify risks and opportunities and strengthen decision making.
With deep expertise in financial and regulatory reporting, DFIN can help your company get a handle on its sustainability journey.