A group of leading global investors together managing some $53trn in assets have welcomed the release by the IFRS Sustainability Disclosure Standards of two exposure drafts addressing general sustainability and climate-change disclosures.
In a letter addressed to the chair and vice chair of the International Sustainability Standards Board (ISSB), the investors praise the board’s “responsiveness to meeting investor needs for improved sustainability-related disclosures,” as well as the “industry-based” approach underpinning the draft rules.
The investors are all members of the Sustainability Accounting Standards Board’s (SASB) investor consultative body, the Investor Advisory Group (IAG).
The group’s chair, Richard Manley, said: “Task Force for Climate-Related Financial Disclosure (TCFD) and the SASB Standards-based sustainability disclosures have, over time, become preferred by many investors because they enable investors to better assess how companies are managing [today’s] risks and opportunities.
“We are very encouraged to see the ISSB responding to investor needs by building their proposals so firmly on the TCFD Recommendations and SASB Standards, and commend them for the speed with which they delivered these initial proposals for consultation.”
Manley is also head of sustainable investing with Canada Pension Plan Investments, which manages some $539bn worth of retirement assets on behalf of 21 million Canadians.
The intervention from the IAG comes just days after G7 finance ministers and central bankers gave their blessing to the ISSB’s bid to set a global baseline in sustainability reporting.
IAG members have previously called for a new approach to sustainability disclosures based on SASB Standards and the recommendations of the Task Force on Climate-related Financial Disclosure.
The ISSB released the two draft sustainability standards in March.
The first of the two exposure drafts – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information – sets out the broad requirements for disclosing sustainability-related financial information to primary users of financial statements.
The second of the two standards, IFRS S2, Climate-related disclosures, describes the requirements for identifying, measuring and disclosing climate-related risks and opportunities.
The board expects to redeliberate the proposed requirements and public comments from August onward, before publishing the final standards by year end.
Thumbs up for lean on TCFD recommendations
Meanwhile, the IAG letter also supports the ISSB’s decision to explicitly fall back on SASB Standards “as priority guidance for preparers in fulfilling the requirements of IFRS S1 and the inclusion of the climate-related elements of SASB Standards as authoritative components of IFRS S2.”
In a web presentation earlier this month, ISSB vice chair Sue Lloyd said proposals were built on four standard content elements: governance, strategy, risk management, metrics and targets.
These four elements are themselves based on the TCFD’s requirements.
Lloyd explained: “[W]e expect to use that [approach] across a suite of our standards.”
In their letter, IAG members also said they were “especially encouraged” to see IFRS S1 “leveraging the organizing structure of the TCFD recommendations and the use of SASB Standards as implementation guidance.”
They added: “We strongly support this approach, which enables the ISSB to cover a broad range of sustainability topics from its inception, exceeding market expectations that it would initially focus solely on climate.”
The group’s vice chair, Carine Smith Ihenacho, the governance and compliance lead at Norges Bank Investment Management, said she was heartened by the “industry-based approach” underpinning the new standards.
She said: “A global baseline of standards through which companies can communicate their management of the sustainability-related risks and opportunities most relevant to their operating environment, and most likely to impact financial performance, is essential for investors with global portfolios.”
The ISSB is expected to announce the appointment of its new members shortly.