Sue Lloyd was appointed Vice-Chair of the International Sustainability Standards Board (ISSB) earlier this year and took up her new post on 1 March 2022. She recently spoke with Nigel Sleigh-Johnson, ICAEW’s Director of Audit and Corporate Reporting, and Eddy James, External Adviser on Corporate Reporting (Contractor) about the challenges that lie ahead as the ISSB seeks to answer the growing call for high-quality and comparable disclosures on climate-related and other sustainability matters.
Lloyd explained the importance of improving the reporting of sustainability matters: “Corporate reporting is changing, with investors and other capital market participants asking for more information about companies’ sustainability-related risks and opportunities to help them assess enterprise value and make informed investment decisions. But if that information is to be really useful, it needs to be prepared with the same rigour as information in the financial statements. Our aim is to produce a comprehensive and high-quality suite of sustainability disclosure standards that can be used by market participants around the world.”
Lloyd went on to emphasise the contribution the new ISSB standards could play in the transition to a low-carbon economy: “Requiring companies to make sustainability-related financial disclosures about governance, strategy, risk management and metrics and targets means that boards will have to talk about these issues, and this should enable them to make the connections between addressing sustainability issues and building this into business planning. That in itself should be a catalyst for changing organisational behaviour.”
The ISSB is well placed to achieve its goals, according to Lloyd: “Sustainability is a subject that everyone is interested in right now, meaning there’s real momentum behind this project. We’ve received support from public authorities and market participants around the world, including the G20, the International Organization of Securities Commissions and the Financial Stability Board. Having their support provides a real catalyst for jurisdictional adoption.”
The ISSB has been able to hit the ground running by building on the work of and consolidating existing international bodies – such as the Climate Disclosure Standards Board and the Value Reporting Foundation – into the International Financial Reporting Standards Foundation. As Lloyd explains: “We’ve benefited hugely from the work that these organisations have done in the past and the experience that their staff members bring to the table. Rather than having to start from a blank page, we have been able to build on their existing materials. This has been incredibly helpful when developing the two exposure drafts that we issued recently on general sustainability-related disclosures and climate-related disclosures.”
While the aim is to issue the ISSB’s first standards later this year, Lloyd noted the importance of not rushing the projects unduly: “We need to ensure that we give ourselves enough time to properly assess the feedback that we receive on our proposals, including on when the effective date of the new standards should be. We want to do things on a timely basis, but we must always listen carefully to the views of stakeholders and jurisdictions. We can only succeed if the solutions we come up with are acceptable to them. We are building a global baseline so it is worth spending the time to make sure we get it right. The quality of what we produce matters.”
Sustainability reporting is, of course, about more than just the climate crisis. Lloyd explains that the ISSB will be looking at other topics in due course: “While finalising our two initial standards is our priority, we have lots more to think about in the months ahead. Later this year, we will be consulting on what our priorities should be going forward, with topics such as biodiversity and water-risk – among others – candidates for inclusion on the agenda. We’ll also be thinking about how to develop industry-based requirements, building on the work of the Sustainability Accounting Standards Board and working closely with the International Accounting Standards Board on its management commentary project.
A longer version of this interview will appear in the July 2022 edition of By All Accounts, the Financial Reporting Faculty’s biannual magazine.
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