The International Financial Reporting Standards Foundation (IFRS) announced that it has launched a consultation paper aiming to assess demand for global sustainability reporting standards, and to determine the foundation’s role in the development of such standards, if warranted.
The IFRS Foundation is a not-for-profit, public interest organisation established to develop a single set of high-quality, understandable, enforceable and globally accepted accounting standards, known as the IFRS Standards, and to promote and facilitate adoption of the standards. The foundation aims to enhance transparency, efficiency and accountability through standardized reporting to financial markets around the world.
As ESG issues gain prominence in the investing and business worlds, many companies and investors have expressed interest in further adopting sustainability strategies These efforts, however, can be impeded without reliable data. In fact, the lack of consistent, universal metrics to measure companies’ environmental, social and governance performance is often cited as the key obstacle for investors in integrating ESG in their investment process, and to companies’ ability to compare their performance to peers.
Over the past few months, several initiatives have been launched to address this issue, including the recent release of a new set of universal ESG metrics and disclosures by the WEF and the Big Four accounting firms, as well as a collaboration announced between leading sustainability reporting organizations SASB and GRI to create clarity and compatibility on sustainability disclosure.
In its new consultation paper, the IFRS is seeking stakeholder input on the need for global sustainability standards and gauging support for the Foundation to play a role in the development of such standards. According to IFRS, the paper also sets out possible ways the foundation might broaden its current focus on financial reporting to contribute to the development of global sustainability standards, and using its experience in international standard-setting, its well-established and supported standard-setting processes and its governance structure.
One of the options presented in the paper includes the establishment of a new sustainability standards board, operating alongside the International Accounting Standards Board under the same three-tier governance structure, building on existing developments and collaborating with other bodies and initiatives in sustainability, focusing initially on climate-related matters.
Erkki Liikanen, Chair of the IFRS Foundation Trustees, said:
“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.”