ThinkTWENTY20

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It's Blur O'clock on Blur Day

During 2021, ESG reporting joined the mainstream for standards setting in the corporate reporting realm. An incredible array of major changes has taken place.

As we previously reported, the International Financial Reporting Standards (IFRS) Foundation announced, in November, the formation of the International Sustainability Standards Board (ISSB), to issue global standards for sustainability reporting. Early prototype climate and general sustainability standards were also released. Chair of the IFRS Foundation Trustees Erkki Liikanen asserted that “sustainability, and in particular climate, is the defining issue of our time,” and that capital markets can make an important contribution to reaching net zero. “But that can only happen when sustainability information is produced with the same rigour, assurance of quality and global comparability as financial information.”

The International Organization of Securities Commissions (IOSCO) has been particularly notable in its support of these efforts. The Chair of the IOSCO Board, Ashley Alder, issued a call to arms: “IOSCO’s endorsement of international financial reporting standards 20 years ago paved the way for our members to adopt those standards domestically. We can do this again for sustainable finance disclosure standards.”

At the same time, the European Financial Reporting Advisory Group (EFRAG) began initial work on the development of sustainability reporting standards for Europe. Like the IFRS Foundation, it is creating a second, sustainability pillar within its governance structure, along with financial reporting. In September, it published preliminary climate standards.

In April, the EU adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), as part of a sustainable finance package. XBRL International reported that “the proposal introduces mandatory digital sustainability reporting, aiming over time to bring it on par with financial reporting. It will extend the European Single Electronic Format (ESEF) to sustainability disclosures, and also envisages making these available through the new European Single Access Point (ESAP)”.

XBRL International also led the release of the SASB Standards XBRL Taxonomy. XBRL taxonomies which provide the definitions that connect reporting requirements with digital tags. “In this case, the SASB taxonomy enables machine-readable XBRL disclosures according to the SASB standards, one of the more widely used sets of sustainability-related standards worldwide.”

In June, the Sustainability Accounting Standards Board (SASB) merged with the International Integrated Reporting Council to form the Value Reporting Foundation. The Value Reporting Foundation and the Climate Disclosure Standards Board (CDSB) will merge into the IFRS Foundation, consolidating resources to support the launch of the ISSB.

Businesses and investors had long called for simplification of the corporate reporting landscape, and this merger was an important milestone on that path. By joining forces, IIRC and SASB created a global organization with the user base, relationships and intellectual capital to help streamline and shape the field. The creation of the ISSB will facilitate the vision of embedding sustainability disclosure in core capital market infrastructure, and of connecting sustainability disclosure and financial disclosure to provide a comprehensive view of business performance, will become a reality. Hopefully, generally accepted integrated reporting is closer to becoming a reality.

Janine Guillot, CEO of the Value Reporting Foundation, recently stated that “In addition to bringing the SASB Standards, Integrated Reporting Framework and Integrated Thinking Principles to the IFRS Foundation and the ISSB, the VRF is bringing our networks, relationships and market engagement expertise. And because the ISSB’s standards will build on existing frameworks and standards, efforts you put into sustainability disclosure now — including using and engaging with SASB Standards, Integrated Reporting and TCFD reporting — will help you implement the ISSB’s standards in the future.”

Like so many things happening these days, this transformation is happening far more quickly than we ever anticipated. This is a significant culture shift.