Annual ECON exchange of views with representatives of the IFRS Foundation

  • IFRS Foundation (blue) Image
  • European Union Image

31 Aug, 2022

After a two-year suspension due to Covid-19, the annual exchanges of views between the Committee on Economic and Monetary Affairs (ECON) of the European Parliament and representatives of the IFRS Foundation were resumed this afternoon. Erkki Liikanen, Chairman of the IFRS Foundation Trustees, IASB Chairman Andreas Barckow and ISSB Chairman Emmanuel Faber stood ready to answer questions of the Parliamentarians.

Mr Liikanen introduced the session and explained how, as a result of the IFRS Foundation's five-year strategy review, the establishment of the ISSB came about given the overwhelming response to the Foundation's consultation on whether an international standard-setting body on sustainability reporting was needed and whether it should be hosted within the governance structure of the IFRS Foundation. Therefore, the Foundation now has two standard-setting bodies: The International Accounting Standards Board (IASB) and the Internation Sustainability Standards Board (ISSB).

Mr Barckow then explained about the recent agenda consultation of the IASB, which, as one result, led to adding a project on climate related risks to the maintenance pipeline of the Board. He noted that while constituents might expect this to be a topic to be more within the remit of the ISSB, connectivity was highly important and the IASB was most interested in making sure that the information produced under ISSB standards ties in seamlessly with the information produced under IASB requirements.

Mr Faber then spoke about the global importance of climate matters and why a global baseline is so important. He noted the progress on sustainability reporting in many jurisdictions and especially the EU and admitted that this creates complexities when trying to develop global standards, but stressed that the ISSB is very active in engaging with and listening to jurisdictional initiatives and values their input and cooperation.

Questions then mostly focused on the newly established ISSB and its interaction with the EU developments. The following topics were discussed:

  • Cooperation with the EU initiative. There clearly is cooperation and it has increased to at least weekly exchanges after the trilogue agreement on the  CSRD. The standards on climate are very close in substance, but "the worst is being close without being identical". ESRS might be included in the ISSB hierarchy as a source of guidance if a topic has not yet been covered by the ISSB. The lack of time is a problem when trying to to develop a global baseline while the building blocks are already being developed.
  • Materiality. The discussion about single and double materiality is more in the narrative than in reality. The two concepts are not mutually exclusive, rather two pillars of of the same principle. There is an overlap between them and the larger the overlap, the easier the life for companies will be. Cooperations such as the one with GRI are aimed exactly at trying to ensure the concepts do not lead to conflicts.
  • Will ISSB developments respect EU sovereignty and will they hamper EU progress? The EU is fully sovereign and the ISSB has no say in what the EU considers to be the best for the EU. However, global alignment is a prize worth waiting for a little (rather in terms of weeks than years). Also, the ISSB will follow a slightly different review process on its exposure drafts and will focus on the most critical issues while leaving others aside for the moment. Critical issues are considered those where other jurisdictions have already developed viable solutions. However, a global solution must be truly global - leaving important, but slower somewhat jurisdictions out would mean that "all is lost" on the idea of a global baseline.
  • IFRS Foundation Governance and cooperation between IASB and ISSB. The ISSB was placed as a sister board to the IASB under the auspices of the IFRS Foundation exactly because of the transparent, trusted and well-established governance of the Foundation. And while the Boards will operate independently, they will make sure that parallel and connected reporting without conflict is possible. One move was to appoint an ISSB Chair with a business and strong sustainability background together with an ISSB Vice-Chair with a background in standard setting.
  • Inclusiveness. The ISSB is almost gender-balanced and the IASB is also on a good way. Also, the background of people is diverse. This not only includes the Boards, but also the staff and the stakeholders contacted in outreach. One additional aspect the IFRS Foundation has to consider is geographical balance. In this context, today's appointment of the second Vice-Chair of the ISSB was pointed out who will have a special responsibility for emerging economies and the global South.
  • Developments worldwide and especially the backlash against ESG matters in some states of the United States. Similar to the EU, the sovereignty of other areas of the world is fully respected. However, it was noted that most US companies are concerned about the fragmentation of the world they are operating in as many of the are globally active and, therefore, also need a global solution in sustainability reporting. The SEC proposals were considered as being very ambitious.

A recording of the one-hour session is available on the website of the European Parliament. Mr Liikanen's introduction begins at 14:35 hrs, Mr Barckow's at 14:42 hrs, Mr Faber's at 14:48 hrs. The question and answer sessions begins at 15:01 hrs. Please note that the audio options include translations into twelve languages.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.