Interview with ISSB member Jenny Bofinger-Schuster

BOFINGER-SCHUSTER Adopting a truly global baseline of sustainability standards means learning a very new language for companies, investors, and regulators. In order to be truly inclusive, our responsibility starts with setting adequate and pragmatic proportionality and scalability mechanisms in our standards, and continues with proactively supporting education, training and capacity building related to the use of those standards. We can learn a lot from our colleagues at the IASB, who have been very successful in creating global accounting standards, and yet our work is different because our colleagues from accounting can rely much more on existing standards.

BOFINGER-SCHUSTER In applying the ISSB standards, companies will need to use judgements to identify and prepare disclosure about possible and uncertain future events, and they will have to make estimates when they cannot measure metrics directly. Alongside our standards, we will also be developing guidance to help companies in preparing and presenting this information effectively so it’s useful to investors in making decisions. It may be that these disclosures will help companies make decisions on adjusting to future risk, although the IFRS standards are focused on providing investors with better information so they can make better decisions.

In addition, I am convinced that the new standard will also accelerate the interplay between finance and sustainability departments, which will not only improve the quality of information disclosed, but also lead to a better understanding of ESG risks and opportunities throughout the company. This might of course also affect companies’ internal decision-making processes – for the better.

BOFINGER-SCHUSTER Our goal is to create a truly global baseline that covers all regions and all companies that communicate with their investors about sustainability. This is obviously an ambitious goal and requires strong engagement, experience, and global reach. We are therefore strategically expanding our global coverage.

The ISSB collaborates with global and regional partners and operates a multi-location model to ensure proximity and market relevance across the world. Engagement with developing and emerging economies is an important priority for the ISSB.

We are establishing partnerships globally to support the implementation of our standards. For example, we have established a collaborative approach with the EU to ensure our standards can be applied together effectively. In China, the IFRS Foundation has signed a Memorandum of Understanding (MoU) with the Ministry of Finance China to establish a Beijing office of the IFRS Foundation as part of the IFRS Foundation’s commitment to establish a multi-location setup for the ISSB.

Our Sustainability Standards Advisory Forum (SSAF) also plays a key role. Thirteen representatives of jurisdictions and regions around the world have been appointed to the SSAF, which will provide the ISSB with technical advice to contribute to standard-setting work. The representatives are from Brazil, Canada, China, India, Japan, Mexico, Saudi Arabia, South Korea, Switzerland, and the UK, and are joined by individuals from bodies representing Africa, the European Union, and Latin America.

The ISSB’s work is backed by the G7, the G20, IOSCO, the Financial Stability Board, African Finance Ministers and by Finance Ministers and Central Bank Governors from over 40 jurisdictions.

All of this will help us reach many countries in a disciplined way, and I sometimes catch myself looking to our colleagues at the IASB and their impressive number of 144 countries using their IFRS accounting standards, and then I start to dream of what we can achieve.

BOFINGER-SCHUSTER Overall, we are receiving strong feedback from all around the world and from all stakeholders. When we published the draft of our first two standards, we received 1,400 letters with comments, all of which we have considered as we continue to develop the standards.

The reason for that tremendous reaction is the strong demand for high-quality, globally comparable information from companies on sustainability-related risks and opportunities.

Today, companies are faced with a huge array of reporting standards and frameworks, which is not only inefficient but also frustrating. This is often called “the alphabet soup” as there are countless acronyms around.

Our standards are intended to overcome this and to be useful for decision-making – by providing the right information in the right way to support investors and facilitate international comparability to attract capital.

BOFINGER-SCHUSTER We have made final decisions on all the technical content of the initial standards, based on the feedback we received during extensive consultation last year. With the substance of the standards now fully agreed, we unanimously approved entering the thorough drafting and formal ‘balloting’ process of the standards before they are expected to be issued at the end of the second quarter of 2023.

We also agreed that the initial IFRS Sustainability Disclosure Standards, S1 and S2, will be effective from January 2024. Given that sustainability disclosure is new for many companies globally, we will also introduce programs that support them in applying the standards as market infrastructure and capacity is expanded.

S1 covers “General Requirements for Disclosure of Sustainability-related Financial Information” and requires, for example, the disclosure of material information about sustainability-related risks and opportunities, as well as sets out general reporting requirements.

S2 for “Climate-related Disclosures” covers the disclosure of material information about climate-related risks and opportunities and requires, for example, information – when material – about physical risks such as floods, transition risks such as regulatory changes, and climate-related opportunities such as new technologies; and sets out disclosure for transition planning, climate resilience, and Scope 1, 2 and 3 emissions.

BOFINGER-SCHUSTER Most companies are already coming to grips with ESG topics in order to understand the risks and opportunities that the increased focus on sustainability will bring to their future.

I strongly believe that if you cover ESG in a strategic way – and I’m now speaking as a strategy consultant, which I’ve been for more than a decade – then you will also recognize the value of data and information. It’s the foundation for really understanding your risks and opportunities, and it’s key to your decision-making.

That being said, I would like to encourage companies to apply existing market-accepted frameworks and standards. Personally, I’m a big fan of the TCFD (Task Force on Climate Related Financial Disclosures) as it provides holistic coverage of governance, strategy, risk management, and metrics and targets. Our ISSB standards do build upon this framework.