Message from the CEO, Nina Schindler
Over the past few years, consumers, investors and other stakeholders have been demanding greater transparency and accountability from companies in terms of their environmental, social and governance (ESG) practices. For this reason, high-level international political bodies – such as the G7, the G20, the International Organization of Securities Commissions (IOSCO), the Financial Stability Board (FSB) and others – urged the establishment of the International Sustainability Standards Board (ISSB) to set a comprehensive global baseline for sustainability-related disclosures.
Committed to supporting the transition toward a more sustainable economy and to tackling climate change, cooperative banks welcome the work of the ISSB to develop disclosures on climate and other sustainability issues applicable worldwide. The EACB has made strides by actively participating in public consultations on draft IFRS Sustainability Standards and encouraging the international sustainability standard-setting process. As responsible economic actors, cooperative banks in Europe give foremost importance to sustainability reporting in order to demonstrate their commitment to the three ESG pillars, while generating and maintaining the trust of their stakeholders.
The international sustainability reporting framework is being developed in parallel with the well-advanced efforts to establish the EFRAG’s European corporate sustainability standards (ESRS) at the European level, which will be mandatory for more than fifty thousand of companies in the EU. Ensuring that the European ESG disclosures and the global baseline of sustainability-related standards are aligned is a matter of the utmost priority for the EACB. Comprehensive and reliable data on sustainability-related risks and opportunities that is comparable across countries and industries would enable investors to make informed decisions and promote a level playing field across markets.
3 Questions to Sue LLOYD, Vice-Chair, International Sustainability Standards Board (ISSB)
Sue Lloyd's appointment as Vice-Chair of the International Sustainability Standards Board (ISSB), effective 1 March 2022, was announced in January 2022. She served as a member of the International Accounting Standards Board (IASB) from 2014 and as IASB Vice-Chair from 2016. She also served as Chair of the IFRS Interpretations Committee from 2017. In addition to her IASB responsibilities, she played a leading role in the establishment of the ISSB from 2020, including as a member of the Technical Readiness Working Group, which was created by the Trustees to give the ISSB a running start.
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- In your first year in the role of Vice-Chair of the International Sustainability Standards Board, what are the big trends in sustainability reporting at the global level that you have identified? What are the challenges that you expect in the coming months?
First of all, setting the scene, the ISSB was set up to meet information needs of investors globally. The IFRS Foundation had become aware of an increasing demand from investors for information to better understand how sustainability factors are affecting companies.
Historically, what has happened in practice is a plethora of ideas for how reporting of this information should occur and a huge variety of the kinds of information that is being provided in the market. But this information is sometimes inconsistent and lacks comparability. That's why a decision was made to create the ISSB following demand from our stakeholders globally, to provide high-quality information that would be globally comparable. And we were delighted to be supported by the regulatory community including the G7, the G20, the Financial Stability Board and IOSCO.
It's clear from our work over the last year that companies are keen to provide information that is useful in global capital markets to inform investment decisions. So, the ISSB is seeking to ensure that companies can communicate with their investors, providing decision-useful information about sustainability-related risks and opportunities. We're also very focused on the efficiency of the reporting system.
Since the creation of the ISSB, I have been very encouraged by the rapid progress we are making in conversations with jurisdictional authorities. There is a real drive to push forward and bring this kind of reporting to maturity. While we are about to publish our first two standards to establish the global baseline the reality is that we are all still at the beginning of the journey for sustainability reporting. Looking forward our focus will move to encouraging the adoption and use of our Standards by companies and countries and supporting those implementing our Standards by focusing on capacity building.
- What progress has been made so far in aligning the global baseline and ensuring interoperability with jurisdictional initiatives?
In building the ISSB Standards we focused on providing companies with an efficient and effective reporting system that provides a clear, identifiable, set of information that meets investors’ needs on a globally comparable basis.
It is critical that our Standards can be applied in developing and developed economies and by both large and smaller companies. This is why we have embedded proportionality into our Standards, alongside the launch of separate initiatives focused on capacity building.
We are aware that many are interested in information about sustainability - not only investors but other stakeholders - and that there may be particular jurisdictional information needs. This is why we have taken a “building blocks” approach to our Standards. We have designed our Standards working with representatives from jurisdictions to obtain support for the global baseline and so that our Standards can be used in conjunction with jurisdictional requirements or with other frameworks designed to provide information that meets the needs of stakeholders beyond investors.
In this regard our work with the EU is important. We have been working with the European Commission and EFRAG toward a shared objective to maximise interoperability of our respective standards and align on key climate disclosures when possible, to reduce reporting burdens. The objective of this work is to enable our stakeholders to meet the requirements of both ESRS and the ISSB Standards in an efficient manner reducing duplication in reporting.
- Looking ahead, what are the major deliverables envisaged by the ISSB for 2023 and the beginning of 2024?
In February, we finalised decisions on the technical content of our first two Standards (IFRS S1 for general sustainability-related disclosures and IFRS S2 for climate-related disclosures). S1 and S2 are now going through a thorough drafting and formal ‘balloting’ approval process ahead of their issuance towards the end of June and will be immediately available for use, although, jurisdictional authorities will opine on when they require companies to apply these Standards.
As we are entering into a new phase of work with the first two ISSB Standards soon being available, we are moving our focus to supporting implementation of the Standards, and to supporting regulatory adoption and voluntary application of our Standards by companies.
We know that sustainability disclosures are new for many companies around the world, which is why we are introducing programmes to support companies that are just beginning to report on this information.
At COP27 we launched an initial Partnership Framework with support from around 30 partner organisations. This framework is designed to support preparers, investors and other capital market stakeholders as they prepare to use our Standards.
We know that there is a lot of education and training required for companies, for regulators, for audit firms, and also for investors, on how to prepare this information and how to use the information that will result from the ISSB Standards.
We also announced a consultation in May, to ask our stakeholders which areas they see as most important for us to focus our work on in the next couple of years. We have identified four topics as potential priority areas for our work. But we want to know whether you agree these topics are a priority and which of these you think is the most important.
The four topics that we have identified are three sustainability topics to build out our specific sustainability disclosures beyond climate - 1) biodiversity, ecosystems and ecosystem services, 2) human capital, 3) human rights, and 4) a possible project to move forward with more connected or integrated reporting, bringing the financial statements and sustainability reporting closer together (for example, building on concepts of Integrated Thinking).
So, it is up to our stakeholders which areas we prioritise next.
Second Opinion from Hirotaka HIDESHIMA, Counsellor on Global Strategy, the Norinchukin Bank
Hirotaka Hideshima joined the Norinchukin Bank in April 2021, after having worked for the Bank of Japan for 32 years. Hirotaka became a member of the Taskforce on Nature-related Financial Disclosures (TNFD) in November 2022. The Norinchukin Bank is an associate member of the EACB. Furthermore, he is currently a member of the EACB General Assembly.
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As ISSB Vice Chair Lloyd points out, the ISSB just started its agenda consultation on 4 May, and one of the potential projects for the ISSB’s next two-year work plan is biodiversity, ecosystems and ecosystem services (BEES). In its request for information, the ISSB points out that issues related to BEES have drawn increasing attention from investors. It also points out that research by the World Economic Forum indicates that US$44 trillion of economic value generation - more than half of the world’s GDP - is directly dependent on nature and the ecosystem services it provides.
The Taskforce on Nature-related Financial Disclosures (TNFD) was launched in June 2021 and has published four versions of its beta framework for market consultation, most recently in March 2023. It is planning to release version 1.0 of the full framework for market adoption in September 2023. A market-led approach, combined with input from leading science and data bodies, means the TNFD framework is scientifically rigorous and easy to adopt for both businesses and financial institutions. TNFD is creating an integrated framework that builds on existing standards, metrics and data.
The ISSB announced on 14 December 2022 that “consistent with its approach of building upon the work of market-led initiatives grounded in current-best practice and thinking, the ISSB will consider the work of the Taskforce for Nature-related Financial Disclosure (TNFD) and other existing nature-related standards and disclosures where they relate to the information needs of investors. This will include considering the TNFD’s recent work on the intersection of climate and biodiversity disclosures in scoping the ISSB’s research on complementing its climate-related disclosures to address disclosures related to natural ecosystems.”
The G20 Chair’s Summary and Outcome Document for the G20 Finance Ministers and Central Bank Governors Meeting in February 2023 stated: “Sustainable finance is critical in achieving sustainable, resilient, inclusive and equitable economic growth which meets the needs of the present without compromising the ability of future generations to meet their own needs. Towards achieving this goal and also in promoting orderly, just, and affordable transitions, we will take action to enable enhanced financing for SDGs, including and beyond climate, in line with the G20 Sustainable Finance Roadmap. Building on public and private initiatives, we ask the Sustainable Finance Working Group to develop an analytical framework for enabling finance for SDGs, with initial focus on nature-related data and reporting and social impact investing, taking country circumstances into consideration”. The G20 Sustainability Finance Working Group (SFWG) has reported to the Ministers and Governors that they “will work on developing an Analytical Framework for SDG-aligned Finance to complement the SFWG Roadmap by:
- Conducting a stocktaking analysis of the measures taken so far to identify and report nature- and biodiversity-related risks and opportunities, including how the issue has been approached in practice, and the initiatives presently underway (e.g., by TNFD). Based on the stocktaking analysis, the SFWG will make recommendations to the stakeholders on how to improve data and reporting on nature-related information in the future, keeping in mind country-specific circumstances.
- Conducting a stocktaking analysis of social impact investing with a focus on investment instruments (e.g., impact investment bonds) and, as appropriate, make recommendations to governments and international organisations/networks on how to scale up the adoption of social impact investment instruments.”
The G20 Chair’s Summary and Outcome Document also stated that they “look forward to the early finalisation of standards by the International Sustainability Standards Board (ISSB) for climate-related financial disclosures, and its work beyond climate”.