Chair of the IFRS Foundation Trustees discusses path to global sustainability standards

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Jun 29, 2021

At a CFA Institute symposium on June 29, 2021, Erkki Liikanen, Chair of the IFRS Foundation Trustees, talked about the Foundation’s work to meet the information needs of investors and other capital market participants regarding sustainability-related information.

Mr. Liikanen began his speech with a strong statement:

There is a path to global sus­tain­abil­ity standards if we, on the one hand, can create a global baseline of sus­tain­abil­ity-re­lated dis­clo­sures to fa­cil­i­tate com­pa­ra­bil­ity for in­vest­ment decision making and, on the other, work with ju­ris­dic­tions to ensure com­pat­i­bil­ity between this global baseline and their own ini­tia­tives.

He then explained that while gov­ern­ments can establish policy frame­works, it is the investors that price in­vest­ment capital based on how those policies will impact companies in the long term. This in turn provides companies with an incentive to embrace sus­tain­able business models. Whether this process works smoothly depends on high-qual­ity, globally com­pa­ra­ble in­for­ma­tion on which investors can assess sus­tain­abil­ity risks and make informed decisions.

Mr. Liikanen then explained that this is the place where an in­vestor-fo­cused international stan­dard-set­ter such as the IFRS Foun­da­tion comes in.

Firstly, the IFRS Foun­da­tion's approach to global standards is market and demand led. The Foun­da­tion provides a setting where investors, reg­u­la­tors, companies, academics and stan­dard-set­ters from around the world can work and solve problems together. This work follows a trans­par­ent and inclusive due process that has evolved and proven valuable over time.

And secondly, the IFRS Foun­da­tion's ex­pe­ri­ence in international stan­dard-set­ting can help to overcome a situation where many ini­tia­tives attempt to improve com­pa­ra­bil­ity, but their numbers have led to greater diversity. The major players in the field, including the TCFD, the VRF and the CDSB, affirm that con­sol­i­da­tion is required and have welcomed the IFRS Foun­da­tion's proposals to establish a new International Sus­tain­abil­ity Standards Board within the gov­er­nance structure of the IFRS Foun­da­tion. Mr. Liikanen declared:

Our shared ambition is to introduce a global baseline of standards for sus­tain­abil­ity-re­lated dis­clo­sures which are focused on meeting the in­for­ma­tion needs of investors globally when assessing en­ter­prise value. En­ter­prise value is a key concept, designed to capture expected value creation for investors in the short, medium and long term, and is in­ter­de­pen­dent with value creation for society and the en­vi­ron­ment.

Mr. Liikanen then turned to the question of how ju­ris­dic­tional and international standards can be rec­on­ciled. He noted that the approach advocated by IOSCO and others is to establish a global baseline of sus­tain­abil­ity-re­lated dis­clo­sure standards to meet investor needs, which would be made available for use by ju­ris­dic­tions as a base for public policy needs. This approach would provide global com­pa­ra­bil­ity for investors in a way that allows ju­ris­dic­tions to combine the global standards with their own ad­di­tional re­quire­ments. He concluded his speech by stating:

To make this work will require political will, com­pro­mise and flex­i­bil­ity from all parties — including the IFRS Foun­da­tion. Success is by no means certain, but if you want global sus­tain­abil­ity-re­lated dis­clo­sures for investors, this offers a path.

For further information, refer to full text of Mr Liikanen's speech on the IASB website.

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