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New body to oversee global sustainability disclosure standards

The body responsible for international accounting standards has announced it will create a new board to develop sustainability disclosure requirements to try to tackle greenwashing by companies.

The IFRS Foundation said at the COP26 climate conference on Wednesday that it would form the International Sustainability Standards Board (ISSB), which will be tasked with creating a single set of standards “to meet investors’ information needs”.

Investors are increasingly focused on sustainability and want clearer standardised information from companies on environmental, social and governance risks, which affect the value of their businesses, the foundation said.

The ISSB, set to begin working in 2022, will aim to help investors and regulators by creating baseline sustainability disclosure standards so that information is comparable across industries and financial markets.

“To properly assess . . . opportunities and risks [related to sustainability and climate change], investors require high-quality, transparent and globally comparable sustainability disclosures that are compatible with the financial statements,” said Erkki Liikanen, chair of the IFRS Foundation Trustees. “Establishing the ISSB . . . will provide the foundations to achieve this goal.”

Widespread adoption of any new standards is likely to take time because companies would be required to comply only once they are adopted by national regulators. This could happen quicker if the International Organization of Securities Commissions, an umbrella group of financial markets regulators, backs the new standards.

Veronica Poole, global corporate reporting leader at Deloitte, said: “To be effective, the standards will need to be brought into regulation around the world, together with associated enforcement, monitoring, governance and controls, assurance, and training.”

“Worldwide adoption of the ISSB standards is needed to achieve true harmonisation, to replace the alphabet soup of voluntary standards and frameworks,” she said.

The Climate Disclosure Standards Board and the Value Reporting Foundation, which have worked to improve sustainability disclosure for investors, have backed the ISSB and committed to merge with the new board by June next year.

The ISSB’s board will be based in Frankfurt and the body will also have offices in Montreal, London and San Francisco, allowing it to secure funding from governments and businesses in several countries. Discussions to secure a presence in Beijing and Tokyo are continuing, the IFRS Foundation said.

The ISSB will sit alongside the IFRS’s International Accounting Standards Board, which will continue to oversee the standards governing financial statements.

The IFRS Foundation has also published prototypes covering climate-related and other sustainability disclosures, which the ISSB will consider and intends to consult on next year.

Video: The make-or-break issues facing the COP26 climate summit

A number of groups contributed to the prototypes, including the Task Force on Climate-related Financial Disclosures, the World Economic Forum and the International Organization of Securities Commissions.

Separate efforts are under way to build an assurance framework to ensure companies’ non-financial sustainability disclosures comply with the new standards. Audits currently focus on financial information in companies’ accounts.

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