The International Sustainability Standards Board’s (ISSB) Human Capital and Biodiversity, Ecosystems and Ecosystem Services (BEES) research has revealed a stark divide: while investors could be said to treat human capital almost as a known variable, BEES remains a mosaic of patchy data and unmapped, sector-specific minefields.
And as risky as it is to distil headline findings from partially completed research, it is hard to avoid those conclusions as the ISSB draws a line under phase 1 of its research into the two topics and embarks on the second phase of its voyage of discovery following its April meeting round.
The ISSB launched the two research efforts last year following the completion of its first consultation on agenda priorities.
Phase 1 of the board’s work set out to understand investor needs regarding BEES and human capital risks’ impact on entities, while exploring how to meet those needs. Findings revealed investors remain in early stages of making effective use of BEES information.
The relevance of BEES data hinges on sector- and location-specificity, and it is precisely this that poses a major challenge for the board as it considers what to do next.
Core findings
But even where BEES information is disclosed, there is a lack of consistency and comparability, although regulators are increasingly stepping in to improve disclosure quality.
All of these findings contrast with the board’s understanding of the link between human capital management and value creation, which is already relatively well-established. Nonetheless, investors do complain that human capital disclosures are inconsistent and lack comparability.
The nature and impact of human capital risks and opportunities also vary significantly by industry and regional circumstances. One example is the way entities often manage and disclose issues differently for their own workforce compared to their value chain.
Interoperability
Amid these findings, it’s important to remember that the board is not starting from scratch. This is an area where other standard setters and reporting frameworks are engaged – one example is the Global Reporting Initiative – and these generally align with the ISSB’s sustainability rulebook.
However, these frameworks can also demand more specific, detailed disclosures regarding strategy, metrics, and targets for both BEES and human capital, as well as catering for different stakeholder groups and informational needs.
Put simply, this is a dynamic, evolving landscape and, given the ISSB’s commitment to interoperability, updates to these other frameworks could inform its thinking as its research and potential standard-setting progress.
Next steps, phase 2
Phase 1 focused on understanding ‘Why is this information needed?’ and ‘Can entities provide it?’, while phase 2 will combine these findings for staff to determine if developing a standard is necessary and feasible.
This second phase will also consider the specifics that need to be disclosed, while balancing the necessity for information with the feasibility of data gathering and standardisation. Ultimately, the board faces multiple trade-offs, such as its claim of limited resources and the likely complexity of the issues it plans to tackle.
Investor wishlist
Curiously, April’s board discussion revealed some overlap between these sentiments and the views of Jonathan Bailey, Neuberger Berman’s global head of ESG and impact investing. In fact, the ISSB’s joint vice-chair, Jingdong Hua, specifically name-checked Bailey during the meeting.
Last year, it was Bailey who advised the ISSB against a standalone, cross-cutting standard on biodiversity. Instead, he recommended integrating biodiversity considerations into the existing SASB literature, noting challenges unique to BEES and weaknesses in existing BEES metrics.
Of course, nothing so far guarantees imminent standard-setting activity, if any. Staff and the board are clear that they might instead develop guidance and educational material, collaborate with other reporting frameworks, or even take no action.
But despite staff developing a flashy matrix (see paragraph 13 of Agenda Paper 3A), and on top of extensive discussions on BEES (nine times) and human capital (10 times) over the past year, no new requirements have appeared in the marketplace. The next phase, staff suggest, will be “a matter of months, not years”.
The latest digital edition of IPE’s magazine is now available
No comments yet