Momentum towards the creation of a comprehensive, holistic, global system for disclosure continues to build. Announcements from the IFRS Foundation’s strategic direction for sustainability reporting and the publication of EFRAG’s (European Financial Reporting Advisory Group) final reports are the latest developments signalling the urgent demand for convergence and consistency in reporting. Both have identified the important role integrated reporting has to play.
The IIRC is clear that connectivity of information across the value creation chain, communicating the interdependencies between financial and other key drivers of value through a comprehensive strategy and business model, is crucial if reporting is going to drive sustainable development and successful business. We continue to advocate for this in all our interactions with EFRAG and the IFRS Foundation.
On 8 March, the IFRS Foundation Trustees, supported by a statement from the IOSCO board, announced their decision to create a new Sustainability Standards Board. The statement came after extensive support from the market was voiced via a formal consultation in 2020.
The IFRS Foundation will increase the scope of its mandate to cover sustainability-related information focusing on enterprise value creation, with final plans expected ahead of COP26 in November. IFRS announced its plans will have an:
By working with standard-setters from key jurisdictions, standards issued by the new board would provide a globally consistent and comparable reporting baseline, while also providing flexibility for coordination on reporting requirements that capture wider sustainability impacts.
Subsequently, on 22 March, the IFRS Foundation appointed the IIRC to a new working group tasked with accelerating the convergence in global sustainability reporting standards and providing technical expertise. The working group will consist of: IASB, IOSCO (observer), TCFD, the Value Reporting Foundation (IIRC and SASB post-merger), CDSB and the World Economic Forum, while also working closely with CDP and GRI.
In parallel to these developments, EFRAG has published reports to the European Commission on the development of EU sustainability-related disclosures.
EFRAG recognizes the importance of integrated reporting, stating, “All dimensions of corporate reporting need to be interconnected under an integrated approach. Since it is considered paramount to position sustainability reporting on an equal footing with financial reporting the principles of integrated reporting need to be applied to structure the appropriate connectivity between the two.”
The first report describes 54 proposals taking a principle-based and stakeholder inclusive approach to sustainability standard setting in the European Union. The proposals highlight a roadmap and architecture for building EU standards that coordinate with existing and developing bodies for robust corporate reporting on a global scale.
The importance of connectivity of information is engrained in the report, with it highlighted as one of six key concepts in guidelines for EU standard setting.
The second report outlines the reforms required to EFRAG’s due process and governance structure in developing EU sustainability standards.
EFRAG stated that a building block approach will be required and that convergence and collaboration with existing initiatives will be vital, referencing the work initiated by CDP, CDSB, GRI, IIRC and SASB towards convergence.
The IIRC supports the emphasis placed on global alignment for reporting and fostering coherence and consistency between the EU and global initiatives. Employing the building block approach outlined in the reports and utilizing the expertise of current global initiatives will provide a robust and efficient response to pressing matters of climate change and fostering global adoption.
Commenting on these developments, Charles Tilley, IIRC CEO stated, “Both the IFRS Foundation and EFRAG have responded to the urgent need for a comprehensive corporate reporting system that delivers evidence-based, market-informed and transparent data to support long-term value creation. Both institutions have recognized the vital work of the International Integrated Reporting Council and we look forward to collaborating closely on the development of a comprehensive reporting system.”