3 November 2022

There is love in the air

Efforts to bring the international and European sustainability standards closer together seem to have landed on a three-column spreadsheet table, an 'interoperability table'.

The concept was introduced by ISSB vice chair Sue Lloyd at The Good Governance Academy's 8th Colloquium. In column A would be the disclosures only for ISSB, in column B disclosures relevant to both ISSB and ESRS, and in column C – you guessed it - disclosures only for ESRS.

Lloyd pointed toa number of decisions taken by the ISSB during their meetings in October and November as testament of the ISSB "hard work to see where we can improve interoperability".

Many of the decisions were done either to bring the ISSB standards closer to Europe's standards or to make it clear how a company could bridge the gap, she explained.

Taking the example of the use of scenario analysis in climate resilience disclosures and the provision of guidance on which scenario to choose, which was voted for this week, Lloyd said: "Europe, as I understand it, will require companies to do a scenario analysis that uses a Paris-aligned scenario because that's really important from a public policy perspective in Europe [...] we have pointed out that it would be relevant if a company is operating in a jurisdiction that is subject to regulation reflecting Paris-aligned commitments, that would mean that scenario would be relevant for investors. By making that observation, it means that a company that is in Europe could comply with both the ISSB disclosures and EFRAG using that same scenario."

She added: "Those decisions were all done early in our deliberations to ensure that Europe is aware of our decisions, and so they can take them into consideration in their discussions to give us the greatest chance of getting aligned."

While the ISSB is focused on meeting investors information needs, Lloyd said: "If you look at the climate proposals of Europe and the climate proposals in our exposure draft, in fact, there's a huge commonality in the information that investors are interested in and those of broader stakeholder needs. So, in meeting investor needs, we also do anticipate that we will be meeting broader needs as well."

The ISSB is making decisions focusing on meeting investment information needs and then looking at other standard setters with broader remits, looking at where there are opportunities to align the common information "where we do have joint interest a common interest in meeting investor needs", she said.

"What we're then trying to do is take this opportunity to get the words as closely aligned as possible so that we don't have a disconnect and then we're also trying to make sure that we can allow others to build extra information on, to meet broader needs," she said. "That's also why we're working on this idea of an interoperability table because if we are able to ultimately step back once we've both got our words and say now we would be happy to say to you that you could consider this disclosure to meet both sets of requirements. I think that could take some of the tension out of the system in terms of how comfortable people could be to repurpose the disclosures for both needs."

Also speaking at the Colloquium, following Lloyd intervention, EFRAG Sustainability Reporting Board's (SRB) incoming chair, Patrick de Cambourg, reiterated that it was important to not create conditions for multiple reportings.

"That would be the very wrong approach in the EU and at the global level," he said, before highlighting some of the changes to the draft proposals that the SRB had tentatively approved in order to build interoperability with the ISSB.
"It is two-way traffic, we know that whatever we do is carefully looked at and discussed at ISSB level and we do the same," he said. "Of course, we have a difference in timeline, because we will have to deliver [our proposed standards to the EU commission] in less than a fortnight. But, of course, there is always room for discussions after that."

EFRAG SRB is moving forward "in full consciousness and willingness", De Cambourg said.

"The consciousness of what is happening at the international level and also willingness to contribute to that global view," he concluded. "The goal has been from the very beginning, and [still] is, to build on and contribute to global progress. So we hope that that works. We try in the EU to play our part."