More than 450 asset managers and pension funds responded to a consultation on standardised reporting
Some of the world’s biggest pension funds and institutional investors are backing the International Financial Reporting Standards Foundation’s (IFRS) proposal for standardised sustainability reporting.
Last September, the IFRS, which oversees the International Accounting Standards Board (IASB), published a consultation paper on sustainability reporting to assess demand for global standards, and how the foundation might contribute to developing them.
The paper said there is growing demand from regulators, public policymakers, auditing firms and other service providers for a consistent set of sustainable reporting standards. This is being driven by changing consumer behaviour and a heightened focus on environmental, social and governance (ESG) issues.
The IFRS believes a set of comparable standards will allow businesses to build public trust through greater transparency of their sustainability initiatives and help investors make better informed decisions.
The consultation closed on 31 December, and the IFRS has received over 450 comment letters from a range of stakeholder groups, including institutional investors, pension funds and regulators.
APG Asset Management said there is a need for a global set of internationally recognised sustainability reporting standards and a single set of standards would make data comparison easier for investors.
It said in its letter: “The current situation with various competing standards is sub-optimal for investors as data cannot be compared across companies reporting against different standards, or not reporting at all. A single set of standards is necessary to create a comparable set of data across companies.”
California State Teachers’ Retirement System (CalSTRS), the second largest US pension fund, said global sustainability standards must address the needs of investors and leverage existing sustainability standards.
It said: “As the primary users of company disclosures, global sustainability standards must focus on the needs of investors and other market participants.
“Financial and sustainability disclosures are critical as they provide the underlying basis for investors, the providers of capital, to make informed investment and voting decisions that drive sustainable economic growth.”
Alberta Investment Management Corporation (AIMCo) said for sustainability standards to be meaningful, the standards body will require global collaboration.
Its letter said: “IFRS accounting standards are already present in 140 jurisdictions yet not all jurisdictions approach sustainability with the same lens. AIMCo believes that it will be important to ensure that the standards created are principles-based and consider both jurisdictional differences and different user needs, such as governments, central banks, regulators, investors and civil institutions.”
Sustainability Standards Board
In its paper, the IFRS said it wanted to create a Sustainability Standards Board (SSB) that would operate alongside the existing IASB, which sets the IFRS standards, and under the same three-tier governance structure of the IFRS.
This board would build on the existing work and developments in the field of sustainability, focusing on climate-related risks. Rather than compete with existing regional or national initiatives, it is expected to collaborate with organisations and bodies that are working in this field.
Norges Bank Investment Management (NBIM), which manages Norway’s $1.15tn Government Pension Fund Global (GPFG), the world’s largest sovereign wealth fund, welcomed the proposal to set up an SSB.
NBIM’s chief corporate governance officer Carine Smith Ihenacho and head of sustainability Wilhelm Mohn, who both signed the letter, said: “The core building block in this should be a set of industry-specific standards for financially material information, with investors as the primary audience. We believe it is such standards that an SSB could develop, mirroring the IASB’s focus on serving investors.”
However, they warned that the interests of a broader set of stakeholders may be better catered for by other institutions.
“Measuring and reporting social and environmental impacts is in many cases a normative exercise and can therefore be even more challenging to standardise at a global level than matters of financial relevance.
“The rapidly evolving nature of many environmental and social issues also requires flexibility and room for development that codification in fixed and mandatory reporting standards would not allow for.”
Caisse de dépôt et placement du Québec (CDPQ) said an SSB would help capitalise on the current momentum and accelerate the integration of ESG factors in business operations.
Its letter said: “The creation of an SSB is also an opportunity to consolidate resources used, and expertise developed, by existing initiatives and establish a single set of standards under a single governance structure. This would aid in capitalizing on existing thought leadership and experience and ensure a more efficient standard-setting process.
CDPQ also said the governance structure of the Foundation uniquely positions it to establish an SSB. “Indeed, the three-tier governance structure of the Foundation would ensure an SSB’s independence, global representation and accountability to public interest,” it added.
The European Fund and Asset Management Association (EFAMA) said it is important that investors are represented on the board.
It said: “Currently, we find that the inadequate representation of investors within the IFRS Foundation is a key obstacle to the Foundation’s role in setting sustainability reporting standards.
“Investors’ representation across the foundation’s structure is a pre-condition to achieving further consistency and global comparability in sustainability reporting, and the SSB’s work would greatly benefit from their input and expertise. This should be carefully reflected in the allocation of seats within the SSB.”Last Updated: 8 January 2021