G7 prods ISSB to tackle more than climate standards

Finance ministers and central bank governors from G7 countries are asking the recently established International Sustainability Standards Board to go beyond climate change disclosures to set standards in other areas related to nature and social issues.

In a wide-ranging communique — issued during a Friday meeting in Germany of international finance and banking leaders that covers topics such as support for Ukraine, macroeconomic stability, global health, digitalization, climate and the environment — the G7 officials expressed their support for the ISSB and its recently announced path to a “global baseline” of sustainability disclosures (see story).

The International Financial Reporting Standards Foundation, which also oversees the International Accounting Standards Board, launched the ISSB during the United Nations’ COP26 climate change conference last November as a way of bringing together the various standard-setters in the area of environmental, social and governance reporting as ESG funds grow in popularity among investors and in response to the climate crisis.

Since then, the ISSB has proposed two standards on general sustainability and specific climate-related disclosures in exposure drafts. The board is still in the process of forming, but so far has named a chair, vice-chair and special advisor, with the other board members expected to be named later this year. However, its remit seems to be rapidly expanding.

“The G7 welcomes the inauguration of the International Sustainability Standards Board (ISSB) and its progress of work on the global baseline of sustainability reporting standards,” said the G7 communique. “We welcome the ISSB ‘path to global baseline’ statement of [May 18, 2022] and call on all relevant stakeholders to participate in the ongoing consultation on the proposed standards. We urge the ISSB and national and regional standard-setters as well as other reporting initiatives to actively cooperate in the process of elaborating the baseline with the aim of reaching standards that can be implemented globally.”

The global baseline concept is vague for now, but it seems like it will take into account at least some of the existing ESG standards from the Sustainability Accounting Standards Board and the International Integrated Reporting Council (which are both now part of the Value Reporting Foundation after a merger last year) and the Climate Disclosure Standards Board, which are all being “consolidated” into the ISSB by the end of June.

The ISSB said Wednesday the global baseline would build upon, incorporate and protect the heritage of the existing investor-focused sustainability disclosure standards, including those of the Task Force on Climate-related Financial Disclosures, the Climate Disclosure Standards Board, SASB standards, Integrated Reporting and the World Economic Forum’s metrics. 

The G7 expressed their support for this upcoming global baseline and urged national and regional standard-setters to start getting ready for it, while also seeming to expand the mission of the still nascent ISSB to tackle social issues and other unspecified nature-related sustainability standards besides climate change disclosures. 

“The baseline should be practical, flexible and proportionate and ultimately suitable for small- and medium-size enterprises and enable jurisdictions to implement the baseline and a more extensive approach to supplement the baseline,” said the G7 communique. “We encourage countries to prepare or continue to prepare the ground for usage of the baseline, aim to ensure interoperability of national and regional standards and the global baseline in order to minimize fragmentation of reporting requirements, reduce reporting burdens, and enable the availability of consistent sustainability information for users. We encourage the ISSB to continue its work on sustainability reporting standards beyond climate, such as nature and social issues.”

The ISSB plans to work with authorities in various parts of the world to enable that to happen. “We are encouraged by the G7’s endorsement of our work to deliver a global baseline of sustainability disclosures for the capital markets,” said ISSB chair Emmanuel Faber in a statement. “We reaffirm our commitment to work in close cooperation with jurisdictions and market participants, both on development and adoption of the global baseline and its interoperability with broader jurisdictional requirements.”