Introductory remarks delivered by ISSB chair Emmanuel Faber during the ECON committee meeting of 31 August, as part of an exchange of views between the European Parliament and the IFRS Foundation's two standards setting boards: IASB and ISSB.
Thank you, all of you for being with us here. It's my honour and pleasure to update you with what is happening at the ISSB.
Let me start with the connection with what Andreas [Barckow] has just said. We are starting from the strong foundation of the IFRS Foundation and their standards and there is both a symmetry and a connectivity between the governance of standard setting under the IFRS foundation of both IASB and ISSB and the standard themselves, which go into financial statements on one side and sustainability disclosures on the other and that are serving the foundational remit and mission of the IFRS Foundation, which is the common good of well-functioning capital markets.
So we are here to serve the needs of capital markets participants in a connected manner with IASB. This is where we originate our materiality definition to what actually matters for capital markets, in the roots of IAS 1 and 8 of the IASB.
Where do we go from that basis?
The way we are looking at our mission is that sustainable development is a global issue and we started, consistent with the result of the consultation that was led by the IFRS foundation in 2020, with climate - but not climate only.
If there is one global topic, it is of course climate.
The second observation, and you know that probably better than anybody else, is that jurisdictions are making progress on this agenda of sustainability, including and starting with climate for many of them. I just want to fully acknowledge that the EU is, of course, the most advanced and has the most comprehensive set of proposals today.
I want to say that, while this is obviously creating complexities for the global baseline, we need that leadership from the EU and I would just commend everyone that's been taking a role in delivering what the CSRD is now proposing.
The reason I think that there is a good reason for us being here, is that capital markets today are the most global and interconnected ally and enabler of the jurisdictional policies in the matter of sustainable development and climate. Capital Markets are, by essence, the natural fundamental way of funding the transition. Businesses will need to go through more resilient economic, social and environmental models. And this is where we believe, and that's our theory of change, that well guided and well-informed capital markets can perform that as a catalyst for jurisdictional policies. And there is no global jurisdiction policy when it comes to those sustainable topics. This is where we can serve as an enabler with the global reach of the IFRS Foundation and capital markets. Of course, it is a limited remit, w what capital markets can do, but I think a very important part of the equation.
In that context, The ISSB mission today is to build a comprehensive global baseline of sustainability standards that start with climate, but not only about climate, upon which we expect jurisdictions to be able to build whatever matters to their policy objectives. That's the building block approach in the global baseline that we've been discussing and advocating for.
One aspect I wanted to mention about that global baseline is that we understand that companies can report on a multi-stakeholder basis, not only to capital providers. In an effort to offer possible options to build solutions, we have signed a strategic cooperation agreement with GRI in the very first three months of ISSB's existence so that any company that wants, or that needs, to report on a multi-stakeholder basis has a seamless suite of solutions of disclosures that are in the remit of investor materiality and disclosures that are in the remit of the GRI materiality - let's call it impact materiality.
I also want to mention that our job is beyond standard setting. The fact that so many jurisdictions are now working on these important matters and the fact that our mission is to reduce fragmentation mean that we have a huge momentum in engaging with jurisdictions about what they do today. Everyone is inventing the language, and so we've created a specific platform to engage with actively committed jurisdictions on these topics. The EU is a founding member of this jurisdictional working group, with the US, China, Japan and the UK, which serves as a platform for dialogue about alignment opportunities, priorities and exchanges about governance and organization of those jurisdictions. We will extend that to a broader remit of jurisdictions with a Sustainability Standard Advisory Forum, which will be formed in the next several weeks to encompass not five or six but 15 or 16 jurisdictions with strong oversight and observation by IOSCO, which is obviously an extremely important part of our other strategy.
In addition to that we have opened a bilateral dialogue process with FISMA and EFRAG that has gained speed and that has been very active in recent weeks. We literally have discussions at least once a week and sometimes even more which, given the CSRD timing for a final technical advice, is much needed if we want to align as much as possible the CSRD and the global baseline.
Let me finish by reviewing briefly the future of our work.
First of all, the finalization of S1, which is the foundation of our requirements, and S2 which is climate. Looking for the IOSCO endorsement, we believe we will probably need the final decisions to be made around the end of this year. And then, next year in terms of finalization of the text ready for adoption.
Secondly, as part of our global baseline strategy, we're going to present, at COP 27 in November, a quite ambitious capacity building strategy to make sure that what we propose is both meeting the needs of sophisticated investors and corporates in jurisdictions like Europe, but also being able to embark in India, Nigeria and many other countries. When it comes to climate, it's absolutely necessary that we are able to have [emerging economies] as part of the equation. Therefore, capacity building, progressivity and proportionality will be critical to help them gradually get to where our standards are going to be, from day one.
Another point I want to mention is the internationalization of the sector-specific standards that we inherited from the Value Reporting Foundation and SASB through their consolidation in the IFRS Foundation. These standards were born in the US and have been internationalized but they need much further work, through due process and consultation, to be able to provide a whole suite of sector-specific disclosures for the global baseline. And that of course could hopefully match with some of the work that's going to happen in the next couple of years in Europe.
Two more things. One is that the board of ISSB is going to work on what is next after climate I the coming weeks. And I have to say I want to share very candidly here that we announced that we are going to be going through a consultation for the next part of the agenda. But we don't want to go for a consultation on topics that are obviously follow-ups on the current work that we're doing here. We do not have the luxury of time to do this. So the delineation between what is truly an entirely new topic that the ISSB could handle will go through a due process consultation. But a number of topics are going to be seen as immediate enablers of the climate topic that we have started to cover. And I just want to name here one or two. They are just my guess nothing more obviously. We're going to read deeply into the results of the of the consultation on S1 and S2 but I would assume, for instance, that we shouldn't spend 24 months discussing whether water is going to be an important follow up on climate, whether just transition has a lot of workers implications and supply chain implications from a social standpoint.
So whether these are new areas or immediate follow up on our work on which we would start to discuss is part of what the ISSB will need to decide in the next couple of weeks.
I'm finishing on this point because obviously, we are seeing the progress made in Europe, and we commend you for it, and we just want to be as timely as possible to make sure that Europe is able both to integrate as much as possible what we are doing according to the CSRD and on the other side, contribute to the global baseline as much as possible.
This is an edited transcript by Corporate Disclosures, and may not match word for word the spoken speech.