A decade ago, to call the landscape for environmental, social and governance-related reporting “fractured” would have been a vast understatement — but international regulators say that more and more jurisdictions are coming to recognize the importance of developing a single global standard.
Until very recently, the world was awash in frameworks and standards from organizations both large and small hailing from all possible sectors of the economy, from nonprofits to government bodies to regulatory coalitions and more. These dozens and dozens of different paradigms created an environment where information was difficult to verify and compare with others.
While people recognized the utility of a global standard, predictions remained mixed as to whether this would actually happen. Fast forward just a few years, however, and suddenly the idea doesn’t seem so out there. Between the initiative from five global organizations to harmonize their different frameworks to the formation of the International Sustainability Standards Board, the world is starting to recognize that a global standard for ESG reporting is actually possible.
This has given new life to the drive towards a global sustainability standard akin to International Financial Reporting Standards. Speakers at the inaugural symposium of the International Sustainability Standards Board, held in Quebec last week, discussed how jurisdictions that previously may have been skeptical about a global standard have since come to embrace the idea.
Abigail Ng, executive director of markets policy and infrastructure with the Monetary Authority of Singapore, said that Southern Asia has become particularly interested in sustainability reporting because the region is uniquely vulnerable to the effects of climate change.
“When I talk to corporates and explain to directors why it is important, it can be existential for them. I usually will give them a few facts about how Asia and Southeast Asia in particular will be impacted. At the end of the day, the facts show the region is among the most vulnerable in the world to physical climate transition risks … . This will really impact your business quite soon. So as regulators, we must ensure that investors out there and capital providers are getting the correct and timely information from the companies in the region so they can accurately price in risks in a way aligned with capital markets,” she said.
A global baseline standard, she said, is a critical first step to achieving these goals, which is why, according to Ng, there is a whole government effort in Singapore to adopt ISSB standards. This would mean mandatory sustainability reporting using ISSB standards for listed companies on the Singapore Exchange, which has already implemented a roadmap to mandatory reporting using the standards of the UN’s Task Force on Climate-Related Financial Disclosures.
“We have started this journey before the ISSB standards came up with [drafts] but with TCFD as a baseplate, there is no better time to start companies on this journey,” she said.
Bernardita Piedrabuena Keymer, commissioner of Chile’s Comisión para el Mercado Financiero, reported similar enthusiasm for a global standard there as well. She said the country has been increasing its focus on corporate social responsibility, especially when it comes to governance matters, since at least 2015. For instance, companies must now report on their gender, nationality, age and seniority of employees and managers, as well as their gendered wage gap. This both drives, and is driven by, increased investor interest in ESG matters. This has led to demand for more information, which led Chile to begin exploring the idea of a single metric allowing more comparability between industries and companies.
This led, in 2021, to a new rule requiring public companies to disclose ESG metrics, with implementation dates being earlier for large entities and later for smaller ones. In essence, said Keymer, said the drive to ESG was not about limiting capital flows but increasing them — with more investors demanding information on ESG metrics, embracing a global standard could drive more money into the country. The main driver for the government, she said, was a more open economy and for investors to be able to finance their priorities.
“We know this is a long process and we must create the ability in issuers and in our commissions [to implement it] but we hope this will be useful for investors. … So we need to adopt a standard that investors are looking for in order to get more resources to invest in our economy. We cannot survive without foreign investors in our country. That was one of our main drives,” she said.
Grant Vingoe, CEO of the Ontario Securities Commission, reported a similar demand for impactful ESG information enabled by a common baseline standard. He echoed Keymer’s view that making a transition to a global ESG standard could attract investment capital due to the rising demand for information. He noted that Canada’s economy has an especially intense focus on natural resources, the extraction of which in a sustainable way will require capital from investors who want to know more about the environmental and social impacts of these operations.
“What we’ve seen is tremendous demand, represented by trillions of dollars of institutional assets, for comparable, impactful information … . Those disclosures are central to the investment process by our largest investors. So, we’re incredibly supportive of a global baseline from that standpoint,” he said.
Much work is already being done to promote the idea of a global baseline. Sue Lloyd, the vice chair of the ISSB and the moderator of the panel, noted that they have been working with multiple jurisdictions to address their concerns about ISSB standards, especially where they concern local contexts. She noted that they intend to take a “building block” approach similar to IFRS, in that while there is the global standard, local authorities can add additional measures to fit their particular circumstances.
Ontario’s Vingoe noted that a similar thing is already happening in Canada. He said the Independent Review Committee on Standard-Setting in Canada recently approved the creation of the Canadian Sustainability Standards Board which will effectively act as a local equivalent to the ISSB and consider the suitability of its standards for Canada and, if necessary, propose changes that would better suit it to that country’s local circumstances.
“We want to ensure that the standards, as they’re eventually promulgated by the Canadian SSB and also by [the Ontario Securities Commission] and other securities regulators in Canada incorporate principles of proportionality and cost and burden to cover most of the emitters in Canada. … If we want to have vibrant capital markets and more entrance from junior issuers, we must make sure the rules are well adapted to this sector,” he said.
Regardless, though, the sustainability standards will be held to the same expectation of quality that financial standards are today, as while they may have different focuses, they remain largely the same in their goals: to provide capital markets with decision-useful information, according to Martin Maloney, secretary general of the International Organization for Securities Commissions.
“When you back to when we approved IFRS standards ourselves, we were very focused on cross-border issuance and how global markets can be served by IFRS standards and that is still the same question we are asking today. … Our ambition is a marketplace where the analysts working can look at the sustainability implications of securities and try to figure out how that should affect the price. The reason this is important is we want investors to drive this process. We want views of investors to be taken into account, and this is not always obvious, since we have had to focus on asset managers, but it is not them who make the market but the investors,” he said.
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