ISSB and GRI disclosure standards have ‘high degree of alignment’

February 2, 2024|Written by

Analysis shows disclosure standards from two global bodies are closely aligned, UK pension funds must now integrate ESG into risk management, and more in this week’s roundup.

ISSB and GRI disclosure standards have ‘high degree of alignment’

There is a “high degree of alignment” between the Global Reporting Initiative (GRI) and International Sustainability Standards Board (ISSB) disclosure standards, according to a newly published document mapping their interoperability.

The mapping resource was jointly produced by the International Financial Reporting Standards (IFRS) Foundation and GRI as part of a collaboration agreement to create “a complete and compatible suite of sustainability disclosures” signed between the two bodies in 2022.

The joint establishment of the Sustainability Innovation Lab (SIL) in November 2023 aims to advance efforts in creating an interoperable reporting infrastructure. The first pillar being ISSB’s investor focus standards and the second, the GRI’s separate stakeholder-centred guidelines.

Emmanuel Faber, ISSB chair, said: “The IFRS Foundation continues to work closely with GRI on two tracks, firstly, to make it straightforward for companies using both the IFRS Sustainability Disclosure Standards and the GRI Standards, and secondly to support innovation and knowledge building in the disclosure landscape. The SIL provides a very welcome avenue for us to advance our cooperation”.

Separately, the GRI has released a major update of its biodiversity standards. The changes were produced in partnership with the Taskforce on Nature-related Financial Disclosures (TNFD) and are broadly interoperable with TNFD and other international guidelines. They include updated requirements for reporting on social impact, including on Indigenous Peoples’ rights.

UK pension funds must address climate risk ‘elephant in the room’

UK pension funds will soon be required to integrate ESG considerations into governance and risk management processes in line with The Pension Regulator’s (TPR) new code of conduct.

The updated general code introduces novel requirements for large pension funds to set up effective systems of governance (ESOG) and undertake own-risk assessments (ORA) once every three years. ESOGs must include consideration of ESG factors and how they relate to investment decision making, while ORAs should detail how they will assess the impact of climate-related risks.

The updated rules come shortly after TPR issued its first ESG-related fine to a pension scheme trustee.

“It is clear then, that ESG considerations will become an ever more pressing concern for pension scheme trustees,” wrote Charles Magoffin and Emily Parker of Freshfields Bruckhaus Deringer in the law firm’s risk and compliance blog.

Lou Davey, TPR director of regulatory policy and analysis, said: “For too long, too few trustees focused on climate, ESG and wider sustainability issues in any significant detail, however, trustees can no longer ignore the elephant in the room.”

Malaysia to hold consultation on local adaptation of ISSB standards

Malaysia’s Sustainable Reporting Advisory Committee will hold a public consultation on the use of ISSB disclosure standards. The committee, chaired by the Securities Commission and including representatives from the Bank Negara Malaysia (BNM), will hold the online public consultation in February.

In the press release, the Securities Commission states that a robust reporting framework is necessary to reduce the risk of greenwashing. This is increasingly important as the BNM expects half of new financing by banks to be aligned with green climate policies by 2026.

According to commission chairman Dato’ Seri Dr Awang Adek Hussin, reliable and comparable disclosures based on international standards are essential to facilitate flows of green finance. Hussin also stressed the importance of proportionality and interoperability to ease the transition to the new standards.

Biodiversity risk is systemically underpriced, but not for much longer

Portfolios with lower biodiversity risk substantially out-performed those with higher risk in a recent modelling exercise by Morningstar Sustainalytics. The results suggest that companies with higher biodiversity risk are currently “systematically overpriced”, said Morningstar’s ESG Spotlight report.

Using the company’s own biodiversity risk score, the exercise found that a lower-risk model portfolio delivered a cumulative return of 51.1% over five years. A higher risk portfolio had an 8.5% cumulative return.

With more than half of the world’s total GDP moderately or highly dependent on nature, standard setting bodies are stepping up efforts to encourage the incorporation of nature into financial decision-making processes. As disclosure quality continues to rise, so too do biodiversity-related controversies, finds the report.

The TNFD recently published a list of its inaugural cohort of 322 early adopters of its nature disclosure standards. While the financial sector was the best performing industry, with 103 companies signed up, only three oil and gas companies are on the list, the majority of which are headquartered in Colombia.

Sarb expands macroeconomic research into regional climate impacts

The South African Reserve Bank (Sarb) is expanding its research into the macroeconomic and monetary policy implications of climate change for central banks in southern Africa.

The central bank put out a call for research proposals to promote policy-related research which takes into account economic, financial and climate risk characteristics particular to the region.

Sarb invites high quality economic research on a broad range of topics, including: the interactions of global and domestic climate risks on policy; climate-informed central bank modelling; and the distributional impact of different monetary, micro and macroprudential policies.

Proposals are due on the 20 February and Sarb says it will give special consideration to research teams that include an early career researcher.

This page was last updated February 1, 2024

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