As part of the work of the ISSB to develop the IFRS Sustainability Disclosure Standards (due to be published in 2023) it was decided in its session on 13 December 2022 in Montreal how to describe sustainability in a broader context.
It was clarified “that a company’s ability to deliver value for its investors is inextricably linked to the stakeholders it works with and serves, the society it operates in, and the natural resources it draws on” (as stated by IFRS).
Sustainability described in S1
The work relates to the Integrated Reporting Framework. The ISSB’s General Sustainbility-related Disclosure Standard (S1) will include a definition of “Sustainability” as the “ability for a company to sustainably maintain resources and relationships with and manage its dependencies and impacts within its whole business ecosystem over the short, medium and long term”.
Managing these dependencies and impacts relates to the challenge of managing sustainability-related trade-offs by companies, as described by Rob Bauer in a recent article on “The future of responsible investing”. Diligently checking all portfolio companies is a costly task.
Explain to investors
Companies are expected to explain to investors how they are working “sustainably” within their “business ecosystem” and also refer to the risks and opportunities. Investors need to know whether companies work in a responsible way and in case of costs and damage whether they compensate adequately and develop plans to reduce negative impacts. Key for companies will be to explain their approach to dealing with trade-off situations.
Enhancements of S2
The ISSB is also planning to research on incremental enhancements in connection with the Climate-related Disclosures Standard (S2) including references to natural ecosytems and social as well as human capital aspects of the climate resilience transition (just transition).
Climate and Biodiversity Disclosures
The work of the Taskforce for Nature-related Financial Disclosures (TNFD) adn other nature-related standards will be considered by ISSB as it relates to “information needs of investors”, including TNFD’s recent work on climate and biodiversity disclosures.
The ISSB also appointed two Special Advisers, Karin Kemper and Geordie Hungerford, to provide strategic counsel on issues relating to natural ecosystems and just transition.
Addressing delegates at COP15, Emmanuel Faber, Chair of the ISSB: “The ISSB was created to change the current fragmented ESG disclosure landscape into a global common, consistent language of sustainability-related financial disclosures. Our clarification of the fundamental articulation between financial value creation and sustainability, borrowed from concepts in the Integrated Reporting Framework, will ground our standard-setting work and make clear that while our focus is on information for investors, financial value creation is affected by the proper preservation, development and regeneration of all the resources and relationships (including natural and human) needed for a company to achieve its goals.”
Karin Kemper: “The ISSB is bound to play a fundamental role in helping address climate change and nature loss, decreasing systemic risk for the planet, the global economy and the financial system. It will fill a public-interest gap and provide investors with practical and globally applicable parameters. I look forward to working with Emmanuel to help integrate natural ecosystem topics into the ISSB’s work and lift this important aspect into the evolving global sustainability disclosure standards. This moment is especially timely, given the expectation that COP15 will result in the post-2020 Global Biodiversity Framework, and require innovative follow-up linking biodiversity, economics and finance.”
Geordie Hungerford said: “I am honoured to be appointed a Special Adviser to the ISSB Chair. With recognition under the United Nations Declaration on the Rights of Indigenous Peoples and stewardship of so much of the Earth’s biodiversity, Indigenous peoples from around the world bring an important perspective on the ISSB’s sustainability disclosure work and on factors affecting enterprise value. I look forward to working with the Chair to facilitate dialogue and inclusion. Haii’ cho/Thank you.”
ISSB reported also that based on feedback from investors and other market participants, it agreed to propose four projects for prioritisation in its upcoming consultation on agenda priorities:
- biodiversity, ecosystems and ecosystem services;
- human capital;
- human rights; and
- connectivity in reporting with the IASB.
“The first three projects are broader in scope than the research the ISSB has agreed to undertake on incremental enhancements that complement S2 in relation to natural ecosystems and the human capital aspects of the climate resilience transition (“just transition”). The connectivity in reporting project would involve working with the IASB to build on management commentary and the Integrated Reporting Framework”, as stated by ISSB in their news updates.
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