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

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29 Jun 2021

At a CFA Institute symposium today, 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.

Please click to access the full text of Mr Liikanen's speech on the IASB website.

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