Over the years, investors and companies have watched the much-talked-about “alphabet soup” thicken. The array of environmental, social and governance (ESG) reporting standards, frameworks and ratings trying to shape how companies measure and disclose their sustainability performance has created fragmentation in reporting and much confusion.

It is no wonder, then, why the announcement made by Erkki Liikanen, Chair of the International Financial Reporting Standards (IFRS) Foundation Trustees, at COP26 on 3 November 2021 attracted a lot of attention from around the world. He announced the formation of the International Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of sustainability-related disclosure standards for the financial markets, which would bring clarity to sustainability reporting. It will be up to each jurisdiction to decide whether and how to incorporate the global baseline into their own requirements. The board will also consolidate two investor-focused international sustainability standard setters, the Value Reporting Foundation (VRF), and the Climate Disclosure Standards Board (CDSB), Liikanen told the audience in Glasgow.

The next month, Emmanuel Faber was appointed the board’s inaugural Chair, leading the development of ESG reporting standards that inform global capital allocations, market prices and cost of capital. “Over the past several decades, global capital markets shaped a period of unprecedented change. The transition to a climate-resilient economy, within socially acceptable boundaries, will not happen without the necessary tools for markets to create further systemic change. This will happen through a shift of capital allocation, informed by a shared understanding of what is at stake for companies in this transition. Providing consistent language for this dialogue is our mission at the ISSB,” says Faber, who took on his new role in January.

A long-time advocate of sustainable business, Faber is the former chief executive officer of food products company Danone, and is well-known for driving a number of sustainable initiatives during his tenure there. These include implementing voluntary reporting of “carbon adjusted” earnings per share, which is a profitability metric that accounted for the offset cost of Danone’s entire carbon footprint. The company was recognized as a global environmental leader, becoming one of only 10 companies with a “triple A” score in 2020 by Carbon Disclosure Project, the international nonprofit that helps companies and cities disclose their environmental impact.

“It is truly a great privilege to have been appointed as the Chair of the ISSB. Throughout my career as a CEO, I placed sustainability at the heart of business strategy,” says Faber. “I did this not just because I think it is necessary for society and the environment, but because first and foremost, I trust it benefits the long-term success and resilience of the company.”

From prototype to proposals

The ISSB is moving quickly with its ambitious work plan. At the end of March, it published its first two proposed standards for public consultation. One sets out general sustainability-related disclosure requirements, and the other specifies climate-related disclosure requirements. Faber calls on all stakeholders to get involved and comment on the proposals.

“I strongly encourage readers to review these and provide us with your thoughts,” says Faber. “This feedback will help to ensure our standards are of the highest quality and are such that their adoption will allow companies to report in a cost-effective manner and investors to make capital allocation decisions on their basis.” The 120-day consultation period ends 29 July. The ISSB aims to issue the final standards by the end of the year, subject to the feedback.

The exposure drafts are built on the prototype climate and general disclosure requirements, which were also announced during COP26, and developed by the Technical Readiness Working Group (TRWG), a group formed by the IFRS Foundation Trustees to provide a running start for the ISSB. Representatives of the CDSB, the International Accounting Standards Board (IASB), the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the VRF and the World Economic Forum had worked together to come up with the prototypes.

Faber says the work done by the TRWG was invaluable and brought together various frameworks and standards. “It gave us a very solid base on which to start our work. Feedback from the market was clear: don’t start from scratch, build on what already exists. The TRWG enabled us to do that and gave us strong momentum that allowed us to produce our draft proposals in the first quarter of this year.” He adds that the CDSB Framework and TCFD recommendations are incorporated into the draft climate-related disclosures standard and the industry-based requirements are based on Sustainability Accounting Standards Board (SASB) Standards. “Ultimately, SASB Standards will evolve into IFRS Sustainability Disclosure Standards.” The incorporation of the VRF, bringing with it the International Integrated Reporting Framework and SASB Standards, will take place by the end of June.

Another key focus for this year is the search for the remaining 12 members of the ISSB, says Faber. Following his appointment, Sue Lloyd, previously IASB’s vice-chair, was named Vice-Chair of the new board. “It is encouraging to see the quality of applicants we have been receiving,” says Faber, adding that the board is approaching the appointments in stages, with initial nominations being announced soon. “This is to ensure we have a quorum of board members in place and ready to deliberate on the feedback received through our consultation, and finalize the first two IFRS Sustainability Disclosure Standards.”

The board is taking a “climate first, not climate only” approach for its strategic direction, recognizing the urgent issue of climate change. This has led to observers questioning how the ISSB will tackle the challenge of moving into the other areas of ESG. Faber believes a consultative process focused on meeting the needs of the global markets will reveal what the next steps should be. The board will launch a public consultation on its future standard-setting priorities later this year, he says. “This is a fundamental tenet of the IFRS Foundation and will clearly continue to be the case as we look to our next areas of work. I have my own views based on my experience as a CEO, and based on what the climate standard is likely to naturally request as a follow up, but ultimately, it’s for the board to deliberate on this and we’ll look to our network of stakeholders to guide us through consultation.”

“The transition to a climate-resilient economy, within socially acceptable boundaries, will not happen without the necessary tools for markets to create further systemic change. This will happen through a shift of capital allocation, informed by a shared understanding of what is at stake for companies in this transition.”

Complementing the IASB

The ISSB sits alongside the IASB, with both boards overseen by the IFRS Foundation Trustees. While both are independent, the two boards will work closely with each other, ensuring compatibility between IFRS accounting standards and the ISSB’s standards.

With IFRS standards now adopted by 166 jurisdictions, the ambition is for ISSB’s standards to have similar success. To have that, the ISSB can learn a lot from the IASB, including on overcoming the challenges of achieving convergence. With the IFRS accounting standards, for example, it took decades to come up with a set of accounting rules that are largely converged. “This is the core motivation behind the creation of the ISSB, and why so many believe that the IFRS Foundation is the right organization to take on the task of creating global sustainability disclosure requirements aimed at the capital markets,” says Faber. “Our objective is to develop standards that result in more consistent, complete, comparable and verifiable sustainability-related financial information. To do this, we will also look to the mechanisms and lessons learned through the IASB’s work.”

Faber adds that it is working closely with other international organizations and countries to incorporate the global baseline into jurisdictional requirements. “Indeed, we developed our proposals in response to requests from G20 leaders, the International Organization of Securities Commissions, investors, and others for enhanced information from companies on sustainability-related matters,” he says. The support of these bodies, he notes, paves the way for future adoption of the new standards.

Faber also highlights that companies can choose to apply the standards on a voluntary basis, which has been the case for SASB Standards, as well as CDSB Framework and TCFD recommendations. “I expect our standards to be taken up by investors and companies globally before many securities regulators mandate them. Interestingly, this is what made the SASB industry-based standards a market-proven solution for more than 1,500 companies, among which is more than half of the largest listed companies in the world.”

Faber believes that the interoperability of the new standards is crucial for creating a global baseline. He points out that while the ISSB will work with the IASB to consider interactions with IFRSs, it will also seek to ensure that IFRS Sustainability Disclosure Standards can be applied by companies that use other Generally Accepted Accounting Principles (GAAP), such as the United States GAAP. “Having said that, with accounting standards and sustainability standards for investors being developed under the same roof (albeit by different boards), we are in a unique position. A defining goal of the IFRS Foundation is to develop requirements that result in disclosures that are holistic and integrated to give investors a complete understanding,” he says. “As such, the IFRS Foundation is encouraging companies to adopt the International Integrated Reporting Framework, which is currently used by businesses globally to drive connectivity between different strands of disclosure, to communicate a concise and comprehensive understanding of how a business creates value over time.”

Ultimately, the principles and concepts of the International Integrated Reporting Framework and the IASB’s Management Commentary, he adds, will provide the basis for connectivity between accounting requirements and sustainability disclosure requirements.

“Investors taking part in major capital markets hubs like Hong Kong will be able to access the same sustainability-related financial information as they would in any other market, facilitating the global flow of capital.”

A new standard of sustainability

Emmanuel Faber founded and chairs several international organizations and initiatives, including the One Planet Business for Biodiversity coalition and the G7 Business for Inclusive Growth coalition.

The role of accountants

Speaking on Hong Kong, Faber says the city undoubtedly has a leading role to play in the transition to a sustainable global economy. “Major steps have already been taken that place Hong Kong at the forefront of this work. The work to mandate disclosures aligned with TCFD across all relevant sectors by 2025 is already underway. I was delighted to see at COP26 the Green and Sustainable Finance Cross-Agency Steering Group reaffirm its commitment to strengthening Hong Kong’s financial ecosystem for a greener and more sustainable future,” says Faber, referring to the steering group established by the Hong Kong Monetary Authority and the Securities and Futures Commission to accelerate the growth of green and sustainable finance in Hong Kong.

The city has much to gain from the IFRS Sustainability Disclosure Standards when they are finalized, notes Faber. “Companies today face an alphabet soup of standards and are coming face to face with the risk of multiple reporting requirements. Our mission is to support all market participants in reducing this fragmentation burden and barrier,” he says. “Thus, investors taking part in major capital markets hubs like Hong Kong will be able to access the same sustainability-related financial information as they would in any other market, facilitating the global flow of capital. Meanwhile, companies listed in Hong Kong will not be required to service an unnecessary reporting burden.”

Faber points out that what inevitably comes out of the patchwork of different reporting standards is “greenwashing.” The development of the global sustainability standards seeks to respond to ever-growing concerns of companies exaggerating the sustainability of their products or practices to boost their appeal to ethical investors. “It has prevented investors from engaging in a meaningful dialogue with companies about their sustainability risks and opportunities based on solid, factual, measurable, comparable metrics and language. They therefore can’t make appropriate judgements informing their capital allocations,” he adds.

The accounting profession, Faber believes, has an important role to play in countering greenwashing. “Leading institutions like the Hong Kong Institute of CPAs are essential in helping to build capacity in this space, and accountants will need to develop skills in applying judgement to these new areas [of ESG],” he says. “By utilizing the core skills of accountants, we can ensure sustainability information is consistent, comparable and verifiable. When this information is available, we will begin to see sustainability information moving market prices and impacting investor behaviour on a global scale.”

“By utilizing the core skills of accountants, we can ensure sustainability information is consistent, comparable and verifiable. When this information is available, we will begin to see sustainability information moving market prices and impacting investor behaviour on a global scale.”

Key to success

Faber says the success of his board will depend on the technical expertise of his colleagues at the IFRS Foundation, as well as the board’s soon-to-be colleagues at CDSB and VRF. “The expertise of our advisory bodies and the rigorous due process and transparency of the IFRS Foundation are integral. But it is this continued collaboration that will drive us forward, and in the right direction,” he adds.

Collaboration and the exchange of ideas with all jurisdictions will also be important. With this in mind, Faber points out that the ISSB announced last month that it had established a working group of representatives from several jurisdictions to discuss compatibility between the ISSB’s exposure drafts and ongoing jurisdictional initiatives on sustainability disclosures. It will also discuss how those jurisdictions can build upon the global baseline according to their needs. “We will create a new advisory body – the Sustainability Standards Advisory Forum – during the next quarter to facilitate regular dialogue with a broad set of jurisdictions,” he says.

Also critical, of course, will be the leadership skills and drive of the board’s chair, who is an avid rock climber in his spare time. Faber says rock climbing requires many of the same skills he needs in his working life – and to finally meet the strong demand for global sustainability standards: “mental focus, commitment, the accurate judgement of risk and a sense of responsibility for the collective.”


The Institute has launched an online survey to collect stakeholder feedback on the ISSB’s exposure drafts on its proposed standards on general sustainability-related disclosures and climate-related disclosures. The survey includes questions that specifically cater for the Hong Kong context. The results of the survey will be used by the Institute to develop its response to the ISSB. The survey is open until 13 June.

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