ISSB Continues Standards Alignment Push
The final version of the board’s Inaugural Jurisdictional Guide should be finalised by mid-year, with the core objective of reducing fragmentation.
The International Sustainability Standards Board’s (ISSB) has published a preview version of its upcoming Inaugural Jurisdictional Guide, aiming to assist jurisdictions in their adoption of IFRS 1 and IFRS 2.
The preview builds on the International Organization of Securities Commissions’ endorsement of IFRS S1 on general requirements for disclosure of sustainability-related financial information, and of IFRS S2 on climate-related disclosures. It also builds on the jurisdictional journey towards implementing IFRS S1 and IFRS S2 Adoption Guide overview published last July.
The guide’s overall goal is to promote globally consistent and comparable climate and other sustainability-related disclosures for capital markets, while taking into account country-specific considerations. It is also intended to reduce fragmentation and variation in the way the ISSB standards are being adopted and used.
“The best course of action the ISSB can take is one of patience and flexibility,” said Eric Pan, President and CEO of the Investment Company Institute – a global association of regulated funds. “Widespread use of the ISSB standards could facilitate global interoperability, mitigate reporting burdens on entities, and ultimately provide global investors with greater comparability and confidence in the reported information.”
The ISSB is one of the two standard-setting bodies within the International Financial Reporting Standards (IFRS) Foundation, alongside the International Accounting Standards Board. The IFRS Foundation plans to finalise the guide by the end of H1 this year, which will then supersede the preview.
Overcoming implementation obstacles
In the preview document, the ISSB flagged a common desire among policymakers, regulators and investors globally to address the fragmented landscape of voluntary sustainability-related standards and requirements – which adds cost, complexity and risk to entities and investors.
As such, the ISSB has offered some measures to assist jurisdictions in overcoming implementation challenges and facilitate timely and consistent adoption of its standards – including through the inaugural jurisdiction guide.
The board acknowledged the costs and challenges incurred by entities when incorporating IFRS S1 and S2, which vary depending on their state of preparedness and other entity- and jurisdiction-specific circumstances. It included proportionality mechanisms for IFRS S1 and IFRS S2, and provided transition reliefs for some disclosure requirements in the first reporting period, which began on or after 1 January this year.
In addition, the guide flagged that some jurisdictions may need to implement other legislations or regulations before they can effectively adopt or use the ISSB Standards.
Last year, international law film Allen & Overy highlighted that even with the ISSB Standards serving as a baseline, jurisdictional reporting requirements needed to be adapted for local needs. It noted, however, that divergence could be minimised if more jurisdictions were convinced of the need to optimise interoperability and ensure a high degree of alignment with the standards.
International alignment
Alongside the preview, the IFRS Foundation released a global list of ongoing and completed jurisdictional sustainability consultations publicly available to augment stakeholders’ awareness.
There are currently six open consultations, including three in China, which are open for comment until 29 February. Ongoing consultations also exist in Australia, Nigeria and Malaysia, and are all set to close next month. The EU, UK, Hong Kong and Singapore are among the countries that have previous consulted on sustainability-related disclosures.
“There are 14 different countries at one stage or another in the adoption process, and these countries actually represent 18% of the global large-cap universe, as measured by the MSCI All-Country World Index,” said Jay Eisenhardt, Senior Sustainable Investing Product Manager at Northern Trust Asset Management. “If we take the US out of that calculation, those 14 countries jump to about 50% of the global market cap – meaning roughly half the [world] is in the process of adopting IFRS S1 and IFRS S2 to some degree.”
From an investor standpoint, Eisenhardt argued, this is a watershed moment that is much needed to establish a consistent framework and language on sustainability reporting across the globe.
The IFRS Foundation expects to review its jurisdictional guide within three years of its finalisation.
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