COP26 International Sustainability Standards Board Establishes Disclosure Standards for the Financial Markets
On November 3, 2021, the International Financial Reporting Standards (“IFRS”) Foundation announced the creation of the International Sustainability Standards Board (“ISSB”) at the 26th United Nations Climate Change Conference of Parties (“COP26”) that was held in Glasgow, Scotland. The ISSB is tasked with developing a comprehensive set of baseline sustainability standards for global use.
Amongst these standards, one widely discussed area of reforms includes establishing global sustainability mandatory disclosure standards for the financial markets; requiring regulators and asset managers to increase oversight, including stress testing against extreme climate impacts; central bankers must increase focus on how physical climate impacts could result in destabilization of the financial markets.
The General Requirements Prototype that was released by the ISSB to provide non-binding guidance on financial institutions subject to the upcoming mandatory disclosure requirements outlines the following “key points” for preparing your disclosures:
Entities must disclose all “material” “sustainability-related financial information”.
The requirements focus on four matters critical to an entity’s operations:
a) governance;
b) strategy;
c) risk management; and
d) and metrics and targets.
Currently, there is no requirement that entities make their disclosures in a specific location, other than that it must be included in the general financial reporting.
Although it is unclear as to what type of financial entities these disclosure standards will apply to, financial institutions of all caliber should be aware of these changes and should prepare themselves for the possibility that it could affect them. After all, the official website for the UN Climate Change Conference of 2021 provides, “[t]o achieve our climate goals, every company, every financial firm, every bank, insurer and investor will need to change.”
For any questions or concerns regarding these changes, please contact Kennedy Sutherland.