The IFRS Foundation is a not-for-profit organisation responsible for developing a single set of high-quality global accounting standards, known as IFRS Standards, which are used by more than 140 jurisdictions. The trustees of the foundation published a consultation paper in September 2020 to assess the demand for global sustainability standards and the role the foundation might play in this. The consultation is open for comment until 31 December 2020.

Veronica Poole, partner and global IFRS and corporate reporting leader at Deloitte, answers questions on the importance of an international set of sustainability standards, what the current standards landscape looks like and what potential steps the IFRS Foundation could take to help address the lack of global standards.

Is there a need for a global set of internationally recognised sustainability reporting standards?

Yes – unequivocally. This is a critical step if we are to meet the UN Sustainable Development Goals (SDGs) and to give ourselves a fighting chance to address climate change. Reliable, consistent and comparable finance information is essential to direct capital to sustainable enterprise and to make our markets resilient and efficient.

Why are there so many sustainability standards at present? 

In the absence of global standards, many market-led initiatives have put forward many possible solutions, demonstrating innovation and trying to fill the void. This is an essential part of the evolutionary process and the growing recognition of the importance of these issues to businesses and investors.

How has the proliferation of voluntary sustainability standards and tools hindered reporting?

Proliferation has hindered comparability. This has led to cherry-picking and inconsistent reporting practices (period to period, and between companies) in relation not only to what is reported, but also the way key sustainability metrics are defined and measured. In some cases, it has acted as an excuse for businesses not to report.

The IFRS consultation paper says that "research by the Task Force has revealed that a wide range of voluntary frameworks and standards are in use". What are the main 'standards' out there now, and how do they interrelate?

While there are many initiatives at global and national levels, the five that can be described as leading sustainability standard-setters and frameworks are CDP; the Climate Disclosure Standards Board; the Global Reporting Initiative; the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB). IIRC and SASB have announced they will merge to become the Value Reporting Foundation in 2021. The Task Force on Climate-related Financial Disclosures (TCFD) recommendations are also widely recognised and supported. The five organisations published a ‘Statement of intent’ in September 2020, which demonstrates the complementary nature of their existing standards and frameworks. They show how these could form a starting point for the technical content for a new global sustainability standard-setter. They have also committed to working with the IFRS Foundation and International Organization of Securities Commissions (IOSCO) to bring about global sustainability standards.

What is the position of global regulators on a set of standards?

IOSCO, in an open letter published in October 2020 to the five standard-setters, clearly states that it can and is willing to play the role of an accelerator in the same way that it did 20 years ago for financial reporting standards. Collaboration between IOSCO, the IFRS Foundation and the leading sustainability standard-setters can provide the key ingredients of the solution for capital markets.

How will the IFRS Foundation's work improve reporting standards? And why is the IFRS well placed to help?

In order to achieve acceptance of any reporting requirements, we need a standard-setting approach that is based on the principles of independence, transparency, public accountability and thorough due process. We also need rigorous, independent oversight and appropriate links to public authorities to give the standards the process and the legitimacy that allows them to be brought into regulation or legislation. The IFRS Foundation has a successful track record with financial reporting, and structures that deliver these attributes.

The IFRS consultation paper reports that "a set of comparable and consistent standards will allow businesses to build public trust through greater transparency of their sustainability initiatives". Can you explain how this would build public trust?

Standards facilitate comparable and consistent information of high quality. Reporting on sustainability information following a global standard requires an appropriate level of governance and controls, as we have for financial information. Boards will need to have confidence in the quality and integrity of the information, as well as its ability to withstand external scrutiny. The result is improved quality and trust in that information.

According to the consultation, what will the impact on directors' responsibilities be?

The fiduciary duties of directors already include the need to act in good faith to promote the success of the company for the benefit of its members as a whole, while having regard to the interests of other stakeholders, the long term, and maintaining high standards of business conduct. Standards facilitate reporting of how directors have discharged these broader duties.

How would a set of global sustainability standards impact the investment community?

It will provide investors with comparable information that will enable them to make better-informed decisions and direct capital to long-term and resilient business. Furthermore, the expectations of savers and beneficiaries are changing. They increasingly expect investments made on their behalf to be consistent with long-term societal goals, both in regard to negative impacts arising from companies (‘reduce harm’) and positive impacts on people and the planet (such as in line with the SDGs). Standards will help differentiate companies who are genuinely embracing this agenda.

Would a global set of recognised sustainability reporting standards render 'greenwashing' irrelevant, or would there still be potential for this to happen?

About the expert

Veronica Poole is a partner at Deloitte, and global IFRS and corporate reporting leader. 

She is responsible for IFRS accounting quality, chairs Deloitte’s Global IFRS Leadership team and is a member of the Deloitte Global Audit Quality Board.

She is a member of the Deloitte Global Societal Impact Council focused on Deloitte’s purpose and impact in society. She drives change in the accounting profession, including reporting of environmental, social and governance and climate. She facilitates harmonisation efforts by leading sustainability standard-setters to advance the goal of a comprehensive corporate reporting system and chaired the Accountancy Europe Task Force on the Cogito paper on interconnected corporate reporting standard setting.
Standards help to address the risk of greenwashing, especially where they are connected to financial information. It is important to understand how strategies and commitments to address climate change have been reflected in financial statements, including cash flow projections, key judgements and estimates that underpin recognition of assets and liabilities.
How does the consultation link to the work of the IOSCO Task Force on Sustainable Finance?

The IFRS Foundation consultation provides a model for the governance architecture that is needed for sustainability standards. It responds to the aims of the Task Force to achieve greater quality and comparability in relevant sustainability information.

How do the IFRS's plans take into account the accessibility of information for broader stakeholders?

Reporting on sustainability topics that are relevant to investors would go a long way towards meeting the needs of stakeholders more broadly. However, this will be only one part of the comprehensive corporate reporting system that we need. The world has ambitious policy objectives, both on climate change and in relation to the SDGs. To support these policy objectives and to respond to the needs of stakeholders more broadly, companies will also need to report on their broader impacts on people, the planet and the economy more broadly.

One of the consultation's suggested actions is to set up a Sustainability Standards Board (SSB). What are the pros and cons of this?

There is an overwhelming need for definitive global sustainability standards. The IFRS Foundation offers the quickest way to close the information gap in global capital markets and a coherent approach to connect sustainability and financial reporting standards. It also has legitimacy, authority and relationships with government and other capital market authorities around the world, which facilitate the adoption of standards.

How would the IFRS SSB and the IFRS International Accounting Standards Board work together?

To ensure a connected approach, there needs to be an overarching conceptual framework for connected reporting. The International <IR> Framework issued by the IIRC can provide an excellent basis for this.

How could the IFRS use its relationships with stakeholders to aid the adoption and consistent application of SSB standards globally?

The IFRS Foundation has robust due process to ensure appropriate stakeholder engagement and input into the development of standards. It also has established relationships. Both of these factors facilitate acceptance and adoption of the standards in a way that can support the broader corporate reporting ecosystem, including corporate governance and assurance.

What do you expect the outcome of the consultation to be?

Sustainability disclosures are now critical for investors and other stakeholders. We mustn’t miss this opportunity. It took 20 years to achieve what we have with financial reporting standards today – we don’t have 20 years this time to address climate change.