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New International Reporting Standards Aim to Bring Clarity to ESG Disclosures

In a move that stakeholders are applauding as a vital step forward for ESG reporting, the International Sustainability Standards Board (ISSB) has issued long-awaited standards to provide a global baseline for sustainability disclosure requirements. The new standards could temper mounting frustrations among companies, regulators, investors and the public at large regarding the uncertainties and inconsistencies with sustainability data tracking and reporting.

As an arm of the International Financial Reporting Standards Foundation (IFRS), the ISSB noted the standards were developed to ensure companies could include sustainability-related information with financial statements in the same reporting package. The first standard, IFRS S1, provides disclosure requirements “designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term.” The second standard, IFRS S2, sets out specific climate-related disclosures and is designed to be used with the first.

So, what makes the new standards so necessary? In praising their release, Jean-François van Boxmeer, chair of the European Round Table for Industry and chair of Vodafone Group, stressed that inconsistent rules among different jurisdictions leads to “double reporting for [financial statement] preparers and, consequently, unnecessary additional costs and reduced validity and comparability for users.”

Other proponents touted the potential economic benefits of shifting to a more universal approach to ESG reporting. Woochong Um, managing director general of the Asian Development Bank, said the new standards “have the potential to enhance Asian capital markets through attracting more investment and boosting private sector development in Asia.” Erkki Liikanen, chair of the IFRS Foundation Trustees, maintained the ISSB standards will “provide investors with globally comparable sustainability-related disclosures that have the potential to move market prices, without constraining jurisdictions from requiring additional disclosures.” In a statement, the U.K. Financial Conduct Authority said the information disclosed in accordance with the new standards “will inform companies’ own decisions and capital allocation by investors and lenders; feed data services; underpin instrument and product design; and steer corporate decision making.”

And why should we believe the ISSB’s ESG disclosure standards will gain traction where similar projects have failed in the past? Importantly, key governance authorities around the world signaled their support for the new standards. Not surprisingly, they included the IFRS Foundation Monitoring Board, which counts officials from the International Organization of Securities Commissions, the U.S. Securities and Exchange Commission and the Financial Services Agency of Japan and among its members.

Even China appears to be on board with the new standards after allowing the ISSB to open an office in Beijing last month. With one of the world’s largest polluters in the fold, you can be sure the ISSB’s efforts have actual momentum behind them.

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