Better information enables better decision-making

1. The Role of the IFRS Foundation & Dual-Board Architecture

At the heart of the IFRS Foundation is the belief that the provision of rigorous, reliable and comparable information enables informed economic decisions. This in turn promotes the proper functioning of capital markets, building trust, resilience, efficiency, transparency and accountability.

This belief formed the backbone of the International Accounting Standards Board (IASB). The same belief sits at the core of the International Sustainability Standards Board (ISSB), and it has a very similar goal.

In the first two decades of its existence, the IFRS Foundation (through its independent standard-setting board, the IASB) transformed the global landscape of financial information by introducing IFRS Accounting Standards. The Standards have become the de facto global language of financial statements – trusted by investors worldwide and required for use by more than 140 jurisdictions.

Today, economic and investment decisions are increasingly incorporating sustainability information. There is strong international demand for high-quality, globally comparable information from companies on sustainability-related risks and opportunities. Responding to the need for such information, in 2021 the IFRS Foundation established the ISSB as a sister board to the IASB – responsible for developing a truly global baseline of sustainability disclosures to further inform economic and investment decisions.

Globally there is also a desire for change to support important transitions to address risks such as climate change. And more broadly, to achieve the public policy changes that governments desire, the financial markets have a crucial role to play. This was reflected in the commitments made about private sector investment at COP26 – notably, the Glasgow Financial Alliance for Net Zero (GFANZ).

2. Filling the Information Gap Using Accounting Methodology

The IASB notes in its conceptual framework that while the objective of its work is to meet the information needs of investors, lenders and other creditors, others may also find the information useful. In my former role on the IASB, parties beyond primary users were actively interested in financial statement disclosures – for example, prudential regulators maintain a keen interest in the reporting of expected credit losses as a complement to prudential capital requirements.

However, in the case of the ISSB, the level of interest is higher given the current state of reporting on sustainability matters. Essentially, many diverse stakeholders are relying on the ISSB’s work to fill an urgent information gap. The accountancy profession has a crucial part to play in ensuring this information gap is met.

In establishing our requirements, we looked to build on methods and systems established by accountants to ensure sustainability information is provided with the same rigour as financial information.

The nascent nature of sustainability reporting means that some of the very important factors that are necessary to support high quality reporting are still developing and being put in place – such as determining the appropriate level of assurance and ensuring that the appropriate supporting requirements are in place to support assurance. Whilst assurance requirements are determined at a jurisdictional level, the ISSB is working closely with the International Auditing and Assurance Standards Board (IAASB) and others to ensure its Standards are assurable, resulting in high-quality information to users.

3. Rapid Rate of Progress & Recent Board Decisions

The ISSB was established only a year ago (November 2021). The rapid rate of progress maintained over the last twelve months, in keeping with urgent demands from global stakeholders, means that we are already making decisions to refine our standards and produce foundational work, with the intention of finalising our first Standards in 2023.

We follow a truly transparent and inclusive standard-setting process and encourage stakeholders to follow board meetings or listen to the official podcast. At our most recent board meeting, several significant decisions were approved: