3 Takeaways from the First IFRS Sustainability Symposium

The ISSB was launched as a new IFRS body in 2021 at COP26 to meet the growing demand from global investors for “high-quality, transparent, reliable and comparable reporting by companies on climate and other environmental, social and governance (ESG) matters.” The new ISSB standards represent a concerted effort to create a global baseline for sustainability disclosures that harmonizes and builds on existing approaches like the Task Force on Climate-Related Financial Disclosure (TCFD) and the Sustainability Accounting Standards Board (SASB). The ISSB received over 1,400 comments last year on the proposed standards – you can read Cervest’s comment here.

With the standards set to be finalized halfway through 2023, the first ever IFRS Sustainability Symposium offered an opportunity to express the promises and challenges of a new global baseline for climate-related disclosures. Here are my top takeaways from the event:

For the past seven years, the TCFD has served as the implicit global baseline for climate-related disclosures. Today, over 4,000 companies from over 100 countries support the TCFD recommendations. In his keynote address at the symposium, Mark Carney, former head of the Bank of Canada and the Bank of England and a key architect of the TCFD, celebrated this progress while also admitting that voluntary adoption of climate disclosure standards has reached its limits. And indeed, the TCFD recommendations have served as the basis for dozens of new reporting regulations in jurisdictions around the world in recent years.

We can think about the forthcoming ISSB standards as TCFD 2.0. The new climate standards build on TCFD architecture and incorporate lessons learned. The ISSB has also consulted regulators throughout the process, and the International Organization of Securities Commissions–which represents regulators in 130 jurisdictions–is set to review the final standard with an eye toward endorsing them for adoption among its membership. A global baseline for climate disclosure standards would go a long way in alleviating the burden on global companies and giving investors access to decision-useful and comparable information.

As ISSB Chair Emmanual Faber discussed in his opening remarks, a common global language is critical to surfacing the climate risks and opportunities that businesses and societies face. Only then can capital be effectively allocated to address them. With the ISSB’s broad base of support–from investors, TCFD architects, and regulators–the new ISSB standards are gearing up to be decisive in how cross-border capital is allocated in the years to come.

Companies continue to find scenario analysis to be a challenging disclosure to implement – which is why the ISSB is bringing renewed focus to it. Disclosure of company resilience under different climate scenarios has consistently been the most underreported TCFD recommendation. Yet scenario analysis may well be the most constructive exercise for companies to undertake. It’s a fundamental step toward preparing business models to be resilient to the impacts of climate change.

The ISSB has confirmed that companies will be required to undertake scenario analysis under the new standards. Along with that requirement, the ISSB also plans to provide further guidance to support companies at every stage of the disclosure journey by leveraging TCFD guidance, specifying which climate scenarios a company should use based on its industry and geographical exposure, and providing information on other publicly available scenarios and resources. At a minimum, companies will need to provide qualitative scenario analysis. As scenario analysis becomes more of a competitive priority, more scenarios and analytical tools tailored to business sectors are likely to emerge. The challenge will be ensuring comparability and transparency as more sophisticated and quantitative approaches are developed.

To develop a truly global baseline of standards, the ISSB has been intentional about building a team that reflects diverse experiences and has consulted stakeholders widely in the development of the standards. A new vice chair will focus exclusively on the needs of emerging and developing economies and SMEs, and one panel at the symposium centered these experiences to surface both the challenges and opportunities that they face.

As highlighted by the panelists, developing economies and SMEs have a major opportunity to use new global standards to their advantage. Climate mitigation and adaptation are severely underfunded in these economies – a common global standard can help level the playing field and bridge one of the significant data gaps that hinders the flow of global capital to these countries. For SMEs, new digital ecosystems are emerging to aggregate local-level transaction data from small businesses and farmers to lenders and investors seeking to scale their impact financing.

Companies at every level across emerging markets can find new avenues to grow their businesses through proactive engagement with global sustainability standards–especially since global investors have already made significant sustainable financing commitments and are looking to fulfill them.

The first IFRS symposium underscored the progress the world has made toward global architecture that supports the integration of climate risks into decision-making. The final ISSB climate standards are set to be released mid-2023 with an effective date of 2024.

Whether the standards fulfill the ISSB’s mission to set a truly global baseline will depend on government efforts to adopt the standards or align their regulations and how effectively ISSB can support organizations to develop the necessary capacity. It’s a narrow path to keep the world on track with the goals of the Paris Agreement, but common global standards are foundational to keeping the goal alive.

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