Racing for transparency: why industry is calling for global commitment on ISSB adoption by 2025

On 26 July, countries from around the world will gather in Paris for the opening ceremony of the 2024 Olympic Games. Over the following weeks, athletes will compete across 329 events in 32 different sports, with varying means to determine the results depending on the category – from a simple stopwatch time in running, cycling or swimming, to more complex points systems in sports like gymnastics and diving. One fact ensures that we can all be confident in the overall result: whichever sport athletes are competing in, common metrics measure their relative performance against other contestants.

As companies across the economy go up against their peers to attract capital from investors, they too need a level playing field with their competitors. Likewise, to make informed and robust decisions, fiduciary investors require a consistent means of assessing investee companies or measuring portfolio-level exposures. This has long been the case in financial data, where universal measurements like profit and loss or EBITDA enable an objective comparison of companies’ results or fit within an investment strategy. With financial institutions increasingly incorporating climate and sustainability considerations in their capital allocation decisions, consistent and comparable ways of measuring sustainability performance are also required.

LSEG’s 2023 global asset owner survey, with over 350 institutions responding, showed that 80% of these investors are integrating sustainability in their strategies, but also identified a lack of availability of the relevant data as the number one barrier to doing so^[1]. We know this sentiment is not unfounded – for example, taking Scope 3 emissions data, which tends to account for over four fifths of an organisation’s carbon footprint, only 45% of large and medium-sized listed companies disclose, and less than half of them cover the most material categories for their sector^[2].

Shortcomings in the availability, quality and consistency of sustainability-related data is a known challenge for financial institutions. The Bank of England found that, across different scenarios up to 2050, banks and insurers could see losses from climate change causing a 10-15% annual drag on profits. But the study also noted “a lack of standardised data of sufficient quality” as a barrier to managing this risk^[3].

On the flip side, a lack of decision-useful sustainability-related data could also lead to massive missed opportunities. LSEG’s research suggests that the global green economy could account for around 20% of market capitalisation by 2030, but without the right data, investors could miss out on the potential returns from this growth^[4].

When the IFRS Foundation announced the launch of International Sustainability Standards Board (ISSB) at COP26, it was clear that its forthcoming global baseline reporting standards – IFRS S1 and S2 – would provide the key to unlock this information. Shortly after this, LSEG outlined our call to action and support for the global adoption of the ISSB standards, on an economy-wide basis, by 2025^[5].

The Principles for Responsible Investment joined us in this call to action in 2023 alongside the launch of the S1 and S2 standards^[6]. More recently, the UN Sustainable Stock Exchanges initiative and the World Business Council for Sustainable Development have lent their weight to the campaign too.

Importantly, the ISSB standards build on the 2017 recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) – a framework widely leveraged in regulatory frameworks, and on a voluntary basis by companies. In doing so, the ISSB has taken an approach that many organisations are already familiar with and developed it into a more comprehensive standard for disclosure.

The International Organization of Securities Commissions (IOSCO) endorsed the ISSB standards a month after the launch, and now, many jurisdictions around the world are at varying stages of endorsement and implementation. The European Union has also taken steps to ensure interoperability between its own European Sustainability Reporting Standards and the ISSB approach, and recently outlined joint guidance with the IFRS Foundation to help businesses with their disclosures^[7].

To encourage further momentum, a group of 121 financial institutions, trade associations, corporates and stock exchanges are now calling for commitment from relevant authorities across jurisdictions to adopt the ISSB standards on an economy-wide basis by 2025.

Looking ahead, we encourage policymakers to consider this call to action from organisations across the economy and move at pace on implementing globally consistent sustainability disclosure requirements.

Read the full statement here

[1] Sustainable investment asset owner survey 2023

[2] Solving the Scope 3 conundrum (lseg.com)

[3] Results of the 2021 Climate Biennial Exploratory Scenario (CBES) | Bank of England

[4] Investing in the green economy 2023 - entering the next phase of growth (lseg.com)

[5] Mobilising capital for a sustainable global economy (lseg.com)

[6] IFRS - Global investor support for the launch of the IFRS Sustainability Disclosure Standards

[7] IFRS - IFRS Foundation and EFRAG publish interoperability guidance