Global regulators back developing sustainability standards

The International Organization of Securities Commissions is encouraging the International Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants to develop a more global assurance framework for sustainability-related corporate reporting.

In a report released Tuesday by IOSCO, the group of international securities regulators called for early engagement with preparers, investors and providers; and supported building greater capacity across the entire sustainability reporting system. The IAASB and IESBA plan to offer a framework by the end of next year.

"The global community is looking for timely actions to put in place standards for independent assurance of sustainability-related disclosures," said IOSCO's chair, Jean-Paul Servais, in a statement. "Momentum has been building for decisive actions. We are pleased that the IAASB and the IESBA intend to have their framework ready for end-2024 disclosures and encourage them to deliver on this timeline."

The report describes IOSCO's support for the ongoing work of the IAASB and IESBA to develop profession-agnostic assurance and ethics (including independence) standards over sustainability-related information.

On Monday, the IAASB and IESBA were given a new governance structure by the Monitoring Group of international securities regulators (see story). They will now be overseen by a new International Foundation for Ethics and Audit to give them more independence from the International Federation of Accountants, but they will continue to be based out of IFAC's offices in New York and partly overseen by IFAC, which will also appoint two of the trustees on its board.

"The finalization of these standards will be an important milestone," said Rodrigo Buenaventura, chair of IOSCO's Sustainable Finance Task Force, in a statement. "But the standards can only deliver on their promise if they are applicable for all assurance providers, irrespective of their profession, and subject to established robust due processes ensuring the development of high-quality standards. We call on issuers, assurance providers and others across the sustainability reporting ecosystem to engage as early as possible with the standards-setters' initiatives to ensure there is a robust process and that they are ready to apply the final standards soon after they are available, including on a voluntary basis."

Krisztian Bocsi/Bloomberg

IOSCO was a key player in encouraging ESG reporting standard-setters like the Sustainability Accounting Standards Board, the International Integrated Reporting Council, and the Climate Disclosure Standards Board to merge into a new International Sustainability Standards Board under the oversight of the International Financial Reporting Standards Foundation, which also oversees the International Accounting Standards Board.

Now it is getting behind the push by the IAASB and the IESB to develop better assurance standards over sustainability information. The Big Four accounting firms have become increasingly involved in providing assurance over sustainability reporting, and there are also other groups that have been vetting sustainability reports.

The practice has, however, come under fire from some groups accusing auditing firms of being overly lax in their work for clients. The International Consortium of Investigative Journalists published an expose earlier this month criticizing KPMG's Canadian firm for providing assurance reports for a forestry and logging company that cleared timber and destroyed wildlife habitat on protected land held by indigenous tribes, without visiting the sites. 

In its report, IOSCO encouraged continued strong system-wide engagement throughout the development of assurance standards. It wants standard-setters to improve the links between sustainability-related information and the financial statements and ensure that the global assurance framework promotes a high degree of transparency.

One of the main messages in IOSCO's fact-finding work is that capabilities need to be enhanced across the entire system to support effective assurance over sustainability-related information. IOSCO wants issuers and assurance providers to build and maintain appropriate knowledge of sustainability-related reporting, and the related skills, capabilities, processes and controls to support their reporting and assurance work. It's encouraging the standard-setters to support these efforts, while also taking account of the needs of emerging markets and other stakeholders that may be less familiar with assurance over sustainability-related information.

Both the IESBA and IAASB plan to issue public consultations later this year on standards for sustainability ethics and assurance, respectively. Both boards then plan to finalize their respective standards in 2024. IOSCO called for widespread outreach to ensure the standards meet the needs of users and benefit from diverse stakeholder input, among other recommendations. They also emphasized their commitment to address the key considerations and recommendations in the IOSCO report.

"We appreciate IOSCO's leadership in coordinating global consistency in sustainability assurance," said IESBA chair Gabriela Figueiredo Dias in a statement. "The ethics standards that the IESBA is developing aim at supporting a robust ethical and independent approach to sustainability reporting and assurance in the public interest. We are involving all stakeholders at an early stage through global and inclusive consultation."

She pledged to continue to work collaboratively with IOSCO and other stakeholders to support a globally coordinated approach to ethics and assurance for sustainability reporting.

"We share the sense of urgency highlighted in IOSCO's report, are on track to delivering a high-quality standard on time, and embrace the report's call for an inclusive process," said 

IAASB chair Tom Seidenstein in a statement, "Our efforts will include outreach to a wide range of stakeholders to ensure our standards are of high quality, meet the needs of users, and are profession-agnostic. The IAASB will intensify external outreach in the second half of 2023 in conjunction with the publication of a draft sustainability assurance standard."