Friday, August 05, 2022

Global CFOs, institutional investors express support for proposed IFRS sustainability disclosure standards

By Lene Powell, J.D.

A group of 86 chief financial officers at major companies around the world signed a statement of support for proposed IFRS Sustainability Disclosure Standards, while making recommendations for further development.

Aimed at standardizing disclosures by providing a global baseline, the proposals set forth requirements for the disclosure of material information about a company’s significant sustainability-related risks and opportunities.

Also responding to the IFRS proposals, a group of institutional investors including the HSBC Bank (UK) Pension Scheme supported a global alignment of standards, but urged the IFRS Foundation to broaden investment factors to include “double materiality,” referring to a company’s impact on the environment and society.

The group statements were highlighted by Accounting for Sustainability (A4S), an organization established by HRH The Prince of Wales to inspire action by finance leaders to drive a fundamental shift towards resilient business models and a sustainable economy.

Proposed sustainability disclosure standards. In March, the International Sustainability Standards Board (ISSB) launched a consultation on two proposed IFRS Sustainability Disclosure Standards:
According to ISSB, the proposals were developed in response to requests from G20 leaders, the International Organization of Securities Commissions (IOSCO) and others for enhanced information from companies on sustainability-related risks and opportunities. The proposals build upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements derived from SASB Standards.

The consultation period closed on July 29, 2022.

CFOs statement. In a letter submitted by the A4S CFO Leadership Network, the CFOs said they welcome the ISSB’s consultation on the first two IFRS Sustainability Disclosure Standards. The signatories included officials at major financial institutions such as Bank of America and HSBC as well as officials at global companies including Salesforce and Intel.

The CFOs believe the ISSB is well-suited to establish a comprehensive baseline which will enhance compatibility and interoperability. And in turn, a comprehensive baseline would enable consistent and comparable information to assess an entity’s performance and value.

“The disclosure of robust, comparable and decision-useful information is vital to address climate, and other environmental and social, risks and opportunities,” the officials wrote. “As CFOs from a wide range of sectors, we recognize that sustainability disclosures are most effective when they inform decision making—providing comparable, relevant information to investors and other stakeholders.”

The CFOs shared recommendations for further development of the standards:
  • Align with relevant existing and emerging sustainability reporting standards to promote harmonization and convergence;
  • Consider the dynamic, industry-specific nature of materiality and provide clarity around the assessment of users’ expectations on what constitutes enterprise value;
  • Have clear definitions and guidelines that enable preparers to report in a transparent, consistent and comparable manner;
  • Recognize that reporting is a means to an end, not an end in itself;
  • Connect to financial reporting standards and promote integrated thinking as illustrated through frameworks such as the Integrated Reporting Framework;
  • Address the broad set of environmental, social and economic issues that materially impact decision making.
Institutional investors urge more info on impact. A group of asset owners and investors convened by A4S also released a statement in response to the IFRS proposals. The signatories to the statement included HSBC Bank (UK) Pension Scheme, Tesco PLC Pension Scheme, and Church of England Pension Board, among others.

While the group generally supports global alignment of sustainability disclosure standards, the signatories urged ISSB to adopt a “double-materiality” approach and include more information about companies’ impact.

“As asset owners and investors, convened by A4S, we support the call for global alignment as the ISSB develops its standards. As investors in the real economy, we need decision-useful data that considers both environmental and social impacts on a company as well as the company’s impact on the environment and society,” the group stated. “This double-materiality approach will give investors earlier insights into likely financial and business impacts, and provide the information we need to deliver on our own net zero and broader sustainability commitments. We call on the IFRS Foundation to strengthen their inclusion of factors beyond those narrowly impacting enterprise value.”