The global standardization of ESG and, more broadly, sustainability related disclosure requirements may arrive sooner than anyone could have expected. A recent Financial Times article entitled “New Body to Oversee Global Sustainability Disclosure Standards” (paywall) announces that, in response to investors increasing focus on sustainability and the growing need for clearer standardized company disclosures, the IFRS Foundation, the current administrators of the International Accounting Standards Board, are in the process of forming their newest brainchild: the International Sustainability Standards Board (“ISSB”).
The ISSB aims to “create a single set of [sustainability disclosure] standards ‘to meet investors’ information needs’”. This development should be a breath of fresh air for investors, as this sector of the market has lacked any sort of disclosure standardization since its initial development. This lack of standardization has led to disparate reporting and analytics from companies, which investors have found frustrating while attempting to utilize disclosures from multiple companies to make investment decisions. In a way, this lack of standardization has begun to stall the growth of the ESG market, or at the least the speed with which dollars have entered the market.
While this is an optimistic step in the right direction, widespread adoption and impact of any new standards will take years. The ISSB is slated to kick off in 2022, but true impacts won’t be felt by investors until national and regional regulators adopt and enforce the ISSB’s standards. The ISSB is attempting to speed up its global impact, though, by strategically placing offices around the world. Initially, offices will be located within Germany, Canada, Great Britain and the United States, while discussions are ongoing for presences within China and Japan, as well.
No matter how quickly the ISSB’s standards are adopted, the eventual consolidation of disclosure standards is a necessary development for the market to truly begin to rely upon sustainability related disclosures. Consolidation will come quickly, as the Climate Disclosure Standards Board and the Value Reporting Foundation (which have worked tirelessly to improve sustainability disclosures for years) are planning to merge with the ISSB sometime in 2022. The ISSB will also have a form of disclosure standards to work from, as the IFRS Foundation has itself published prototypes touching on climate-related and other sustainability disclosures in the past. These prototypes were created by a broad swath of market participants, another sign that sustainability leaders are acutely aware of their need to consolidate for survival and long-term effectiveness.
We will be sure to keep you updated on the ISSB’s formation and development as we push closer to its inception next year.
As a member of the Investment Team, Brendan’s practice is primarily focused on finance-related transactions, specifically within the areas of private equity, mezzanine finance and venture capital. Brendan’s practice also ...
Ed's practice is focused on swaps, derivatives, general corporate matters, and advising clients on various types of debt and equity capital market activities (e.g., security private placements, loans and revolving credit ...
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