ISSB (International Sustainability Standards Board) recently celebrated their one-year anniversary on Thursday 3 November. Lindsey Stewart, director of investment stewardship research at Morningstar, shares a few thoughts.
It’s rare – possibly unprecedented – to see international standard-setting undertaken at this pace. (For comparison, the IASB’s insurance contracts standard, IFRS 17, took over twenty years to finalise in 2021, and still only becomes effective in 2023.) However, notwithstanding the speed of progress, the ISSB will need to quickly resolve some key issues revealed in feedback to their first two draft standards in order to hit their revised deadline of finalising the standards ‘as early as possible in 2023’.
The ISSB’s October decision to confirm mandatory disclosures of ‘Scope 3’ greenhouse gas emissions (i.e. indirect emissions within a company’s value chain) helps give some certainty to users and preparers of corporate sustainability reporting. But there remain many important matters to resolve, particularly on materiality, transition plans and targets, scalability (ensuring that the standards are fit for purpose for all sizes of company to apply), and questions around ‘financed and facilitated’ emissions that most impact the financial services sector. There’s also the critical question of how to maintain a ‘global baseline’ of interoperable standards when regulators such as the United States SEC and the European Commission appear to be headed in different directions to the ISSB in some of these key areas.
Although there is widespread backing from global securities regulators for the work the ISSB is doing, it remains to be seen whether these standards will become mandatory reporting requirements in the world’s major capital markets. Aside from that, even if the ISSB hits its ‘early 2023’ deadline to finalise its first two standards, this implies an effective date for the first two standards of January 2025 under the usual standard-setting conventions, with the first full-year company reports issued under the new standards then appearing in early 2026. While acknowledging that the ISSB is moving forward as fast as it can, this still leaves the world reliant on a patchwork of voluntary reporting frameworks for another three years, which is less than ideal.
The ISSB certainly has its work cut out – its second year surely won’t be dull.
Lindsey Stewart is Morningstar’s Director of Investment Stewardship Research. His focus is ESG and investment stewardship, although he also has deep expertise in financial and corporate reporting, stakeholder engagement, corporate investor relations, and investor perspectives on audit and assurance. He has worked as an advisor in the UK, continental Europe and North America for both Big Four and independent firms, as well as in the regulatory standard-setting arena.
Lindsey is an experienced commentator and can discuss the role of engagement and stewardship within the climate transition and as we approach COP27. He has recently released research into Proxy Voting, Climate Disclosures and Divergent Views to ESG Reporting.
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