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Dec 01, 2022

IR regulation update: Playing by the (new) rules

ESG tops the list of regulatory initiatives for IR in 2023 but IROs need to stay up to date on changes to proxy reporting, board diversity and executive committees

The IR community is again grappling with an array of changes to the laws and regulations that govern its work. Much of the focus is on new rules in many jurisdictions that outline how companies should be disclosing ESG data. The onus is on helping companies to publish verifiable information investors can use to compare information issued by listed entities operating in the same sector.

In terms of how new climate change disclosure regulations are panning out, it’s worth splitting what’s happening into three groups. The International Sustainability Standards Board (ISSB), an offshoot of the International Accounting Standards Board (IASB), released its Exposure Draft IFRS S2 Climate-related Disclosures for comments in March 2022. 

Laura Hayter, IR Society
Laura Hayter, IR Society

Submissions were due at the end of July 2022 and there’s an expectation that final standards will be issued in early 2023. When these standards are enacted, they will have global application and be based on enterprise value, rather than fair value. 

The ISSB will publish sustainability reporting standards that set a baseline level of disclosure to meet the market’s needs. Individual countries’ accounting standards boards and other regulators can then tweak the standards to suit their own jurisdiction's requirements, similar to how the IASB manages IFRS.

At a regional level, the EU is releasing its own standards as part of the Corporate Sustainability Reporting Directive (CSRD). At a national level, the SEC is also issuing its own climate change disclosure rules.

The SEC released proposed new rules in March that outline how listed firms should release information about their material climate change risks and impacts. The regulator has also published draft rules about how emitters should release information about their upstream and downstream climate change effects, as well as the rationale for any climate-related targets.

Why TCFD is the cornerstone

The good news is that all three regimes – those of the ISSB, the CSRD and the SEC – take into account elements of the TCFD’s reporting framework. This already has the backing of 2,600 organizations worldwide, which should help support some commonality between the different reporting frameworks. It’s still probably a step too far to expect the process of agreeing and implementing climate change disclosure standards to run smoothly, but there is general agreement that rules should be harmonized globally where possible.

Open rulebook‘We believe any global baseline for sustainability reporting requirements should apply as broadly as possible and that regulators should seek to create as much harmonization and convergence with existing and emerging standards and frameworks in reporting as possible,’ says Laura Hayter, CEO of the IR Society in the UK, which supports the ISSB’s decision to base its draft standards on those developed by the TCFD and SASB.

‘We believe the ISSB is traveling in the right direction. But we would like to acknowledge the very significant workload implications for reporting entities in terms of compliance, including time, effort, systems and co-ordination, that will be required across all areas and aspects of their operations, given that sustainability-related risks and opportunities extend across businesses.

This is an extract of an article that was published in the Winter 2022 issue of IR Magazine. Click here to read the full article.

Alexandra Cain

Alexandra Cain is a Sydney-based journalist, editor, author and presenter who has been writing about investor relations for more than 20 years. When she’s not interviewing big wigs, emerging leaders and prime ministers, she’s surfing her favorite...