On June 28, 2021, the International Organization of Securities Commissions (IOSCO) reiterated its support for the International Sustainability Standards Board (ISSB)1 proposed by the International Financial Reporting Standards Foundation (IFRS Foundation), noted the prior engagement by IOSCO and the IFRS Foundation and expressed IOSCO’s vision for the ISSB stating:

An important aspect of IOSCO’s work has been engagement with the International Financial Reporting Standards (IFRS) Foundation’s efforts to develop a common set of global sustainability standards to help meet investor needs and to set a sound baseline for jurisdictions to consider when setting or implementing their sustainability-related disclosure requirements. The IFRS is seeking to establish an International Sustainability Standards Board (ISSB) to sit alongside the International Accounting Standards Board (IASB), and [our June 28, 2021] Report elaborates on IOSCO’s vision and expectations for an ISSB. The G7 Finance Ministers and Central Bank Governors recently welcomed the IFRS Foundation’s programme of work to develop a “baseline standard under robust governance and public oversight, built from the TCFD framework and the work of sustainability standard-setters.”

IOSCO plans to consider potential endorsement of future standards issued by the ISSB to use for cross-border – and potentially also domestic – purposes to guide issuers’ sustainability-related reporting in their jurisdictions. Potential endorsement will require that IOSCO’s expectations regarding strong governance and decision-useful content are satisfied.

But not everyone is as enthusiastic about the proposed ISSB or its intended sustainability standards.

On July 1, 2021, US Securities and Exchange Commission (SEC) Commissioner Hester M. Peirce issued a statement directly challenging the proposed ISSB and also released a comment letter (as an appendix to her statement) arguing that the ISSB’s proposed sustainability standards "would (i) improperly equate sustainability standards with financial reporting standards, (ii) undermine the [IFRS] Foundation’s current important, investor-centered work, and (iii) raise serious governance concerns.”

Commissioner Peirce’s comment letter describes financial and sustainability reporting as “fundamentally different” and notes that:

The singular focus of financial reporting—to paint an accurate financial picture of a company for investors—lends itself to objective, auditable, quantifiable, and comparable metrics. Assets, liabilities, revenue, and expenses can be measured, reported, and audited. Preparing and auditing a company’s financial statements entails judgment and there are cross-jurisdictional differences in accounting standards, but the purpose of financial reporting is not up for debate.

And that in contrast:

[N]ot only is the term “sustainability” imprecise, but the objective of sustainability standard-setting and sustainability reporting is not universally agreed upon and is not consistent over time.

Commissioner Peirce also notes that (citations omitted):

Sustainability standards are unlikely to foster the same degree of accuracy, comparability, objectivity, and reliability across the reporting of a wide range of issuers that financial reporting standards do. Although sustainability standards at times may touch on economics, they are not fundamentally about economic decision-making. Indeed, whereas the IASB is charged with developing standards for use in “economic” decision-making, “economic” is conspicuously absent from the ISSB’s mandate …

The ISSB’s standards will speak to more than just enterprise value and economics. The Foundation acknowledges that the ISSB’s focus will shift over time from investors to the larger set of stakeholders. The latest proposal initially limits the ISSB’s mandate to “information that is material to the decisions of investors and other participants in the world’s capital markets.” However, the trustees also adopt a wide-ranging view of investors’ needs, which could lead to mission creep. Moreover, the articulated objective of the ISSB includes the goal to “connect with multi-stakeholder sustainability reporting,” which further underscores that the board intends to serve the needs of constituencies other than investors.

Also on June 30, 2021, a newly formed consortium,2 Banking for Impact, announced the formation of a Banking for Impact Working Group and released a related Vision Paper.

Of course, it is more than a little ironic that an effort intended (at least in part) to harmonize a number of competing sustainability reporting standards may be galvanizing others and growing the number of standards with which the ISSB’s intended sustainability standards will have to compete.



1 Described in our June 25, 2021, Legal Update “Setting Standards for the Standard-Setters: Recent Developments in the IFRS Foundation's Sustainability Reporting Project.

2 The consortium includes several global banks, the Impact Institute and Harvard Business School, which had launched its Impact Weighted Accounts Initiative in 2019.