By Amy Leisinger, J.D.
The Investment Company Institute has provided comments in response to the IFRS Foundation’s paper contemplating the creation of a sustainability standards board (SSB) to develop globally accepted sustainability reporting standards building on existing frameworks. Development and broad adoption of standards are crucial for fund managers to access to comparable and comprehensive sustainability-related information to work on behalf of retail investors, the organization explained.
Need for clear standards. In its letter, the ICI agreed with the IFRS Foundation’s statement noting that "there is an urgent need to improve the consistency and comparability of sustainability reporting." However, the organization explained, information provided is often is fragmented and inconsistent as a result of competing disclosure frameworks. Clear direction is necessary for investors and could serve to achieve efficient allocation of capital. Still, the ICI cautioned, "financial materiality" and "double materiality" require two different analyses. Financial materiality looks "outside-in" at impacts on business, while "double materiality" considers an "inside-out" look at environmental and social sustainability with a broader set of stakeholders.
"SSB efforts should focus on the financial materiality lens," the ICI stated.
Existing standards. Standards should focus on material sustainability information not reflected in financial accounts and leverage existing global standards that have broad investor support (particularly those of the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD)). The foundation should look to SASB and TCFD, as they are well-developed and have broad support. However, the ICI stated, a global framework should consider a broad range of sustainability factors, including beyond TCFD’s recommendations on climate-related disclosures. There is an opportunity for SSB efforts to create comparability across TCFD-related disclosure requirements in various jurisdictions, the organization explained.
The standards should also create a balanced funding model to ensure an SSB’s independence, avoid undue influence of third parties, and ensure coordination among international regulators to facilitate cohesive baseline disclosures. To achieve its goals, a standard must be based on where there is global consensus, the ICI stated. To improve comparability and reduce complexity, the IFRS Foundation needs to build on existing disclosure frameworks to offer global consistency, it explained.
However, the ICI opined, mandatory third-party assurance would be premature. Given the ongoing development of sustainability standards and related disclosures, conditions are not yet ripe for mandatory third-party assurance. The ICI stated that it supports future consideration of assurance but concluded that this decision is not appropriate until standards have matured, and cost-benefit dynamics are ascertained.