IOSCO's steps towards the connection between financial and non-financial information

Kris Nathanail-Brighton

  • 19 May 2022

Availability of adequate, quality sustainability information

I am struck by how far we have come since the creation of the Task Force on Climate-related Financial Disclosures (TCFD) in 2015. Although at the time the topic was not high on regulatory agendas, it was understood that, in the same way that financial markets have a central role to play in the transition to a more sustainable economic model, so too do regulators. It is understood that regulators need to ensure that adequate, quality information is available for investors and provided by the corporates themselves. IOSCO has been aware of the historical importance of these challenges and has treated them as a matter of priority for the past few years.

IOSCO supports sustainability reporting

From the start of 2018, IOSCO has sought to consider the spectrum of emerging sustainability risks. In 2021, IOSCO produced a report regarding the publication of sustainability information for corporate assurers and set out recommendations for fund managers as they seek to market ESG products to their investors. In addition, in this report, IOSCO delved into the trickier issue of ESG ratings and encouraged better governance and more transparency by ESG ratings providers, specifically in respect of their rating objectives and the methodologies they applied. Sustainability reporting and financial reporting are the foundations of capital markets and investment decision-making. In the case of sustainability reporting, it is the cornerstone of any successful transition towards a more sustainable economy. Information on sustainability underpins the valuation of financial instruments and allows investors to make better informed decisions in the same way as financial reporting information does.

Independent standard setting is required

Capital market authorities have typically looked to private independent bodies such as the
IFRS Foundation, International Auditing and Assurance Standards Board (IAASB) and the Financial Accounting Standards Board (FASB) to develop sound technical standards for corporate reporting, audit and assurance. This philosophy has led IOSCO to call for the creation of the International Sustainability Standards Board (ISSB) within the structure of the IFRS Foundation with the aim of establishing a global sustainability reporting framework. IOSCO was pleased when less than a year ago that call for action was heard and the ISSB was announced. We have also been encouraged by how quickly the ISSB has gone from concept to the delivery of the exposure drafts. The exposure drafts, and later the standards themselves, will create a clear path for corporates  to accelerate progress to disclosing complete, consistent, and comparable information on sustainability matters. This ushers in a new era for corporate reporting and sets the foundation for a comprehensive global corporate reporting system that connects both financial and sustainability-related reporting.

IOSCO’s criteria for the ISSB standards

The publication of the ISSB exposure drafts is a leap in the right direction but, as the international standards setter for securities regulators, IOSCO needs to ensure a few objectives are met by the drafts. IOSCO wants to ensure that the standards:

  1. Can serve as an effective global baseline for investor-focussed standards;
  2. Are sufficiently inter-operable with other frameworks;
  3. Can act as building blocks for national or jurisdiction-related additions without losing comparability;
  4. Are fit for purpose and help markets to assess both risks and opportunities stemming from sustainability factors; and
  5. Form the basis for the development of robust and sound audit and assurance frameworks.

Practical considerations for the ISSB standards

This means that various practical aspects need to be considered including:

  • Completeness, consistency, and comparability of sustainability-related information;
  • Creating a common, comprehensive, and structured global framework for sustainability-linked reporting, building on existing principles, frameworks, and standards to do so;
  • Creating a common taxonomy;
  • Clarifying of both scope and materiality. For example, in the case of climate, it should cover both the company’s resilience to climate risks as well as the impact of the company’s activities on climate to the extent that this affects value creation (IOSCO is a supporter of the financial price value approach in this context);
  • Providing guidance on science-based metrics that enable accurate assessments of ESG risks and opportunities;
  • Ensuring a level of consistent narrative on the company’s strategy, risk and financial processes, metrics, and targets relating to sustainability issues and how these impact the company’s financial results and enterprise value creation, building on the work of the TCFD to do so; and
  • Ensuring that these standards are able to integrate with the financial reporting standards.

IOSCO has set up the structures necessary to review the draft standards and effectively and rapidly consider their alignment with these principles and criteria.

Connecting financial and non-financial information

The connection between financial and non-financial information is important to bring about the necessary consistency as well as the utility of the standards. Corporates recognise this need. A 2021 PWC report on the management of non-financial information indicated that 87% of senior executives across 50 countries were paying closer attention to non-financial factors and using non-financial information in management decisions. Almost all of those surveyed said that “integrating financial and non-financial information improves insights into the process of creating long-term business value and leads to better management decisions”. This is only possible when there is connectivity between financial reporting and sustainability reporting.

Considering different perspectives

There is, however, a perspective that financial reporting shares little in common with sustainability reporting. This view is based on the premises that connecting financial and sustainability reporting detracts from the importance of considering impacts and that the aims of both sets of reporting should be different. One can consider that the IFRS International Accounting standards (IASB) already require companies to consider climate and other ESG risks, and to make judgements about providing  disclosures on these issues in their financial statements. The IFRS standards are based on the concept of materiality and this concept requires that preparers should focus on information which, if omitted, could influence the decisions of investors. Of course, this does not explicitly refer to climate or other ESG risks but, with evolving investor demands, it was only a matter of time before specific sustainability reporting was needed. IOSCO disagrees with the perspective that financial and sustainability reporting have little in common. IOSCO supports the connecting of financial and sustainability reporting while recognising that there are challenges in doing so. The strong belief in the need for connectivity is one of the reasons why IOSCO supported sustainability reporting under the IFRS Foundation. IOSCO felt this positioning would help better guide the reconciliation between sustainability-related disclosures and financial statements.

IOSCO endorsement of the ISSB standards

If the final ISSB standards meet IOSCO’s expectations, including with regard to appropriate interconnections/connectivity, then the IOSCO board would consider endorsing the ISSB standards as it did with the IASB standards. The impact of such an endorsement should not be underestimated — the globalization of the financial markets was largely as a result of about 140 jurisdictions embracing the IASB standards. In respect of sustainability reporting, currently very few jurisdictions have requirements in place. The 2021 Deloitte review of FTSE 350 company annual reports showed that although some disclosures were made on key social and environmental issues, they were wither partial, failed to include key information on specific Key Performance Indicators, or they failed to include information on specific business changes or activities. Similarly, a 2021 TCFD status report showed that although the disclosure of information in line with the TCFD recommendations had increased, significant differences were found in both the quantity and quality of disclosures across the recommended disclosures. It also indicated that only about 20% of the TCFD adopters disclosed impacts on financial performance and only about 14% disclosed impacts on financial position, again signalling the importance of the ISSB’s work.

A holistic support environment is urgently needed

Action remains urgent which is why IOSCO is working in tandem with the ISSB to finalise its endorsement process shortly after the ISSB standards are finalised. This is also why some regulators have already indicated that they would look to the ISSB standards if adequate. Beyond the IOSCO role, and that of other regulators, the work of institutions, such as the Good Governance Academy, is essential for a successful transition. A holistic environment is needed to help entities in the ecosystem, like preparers and assurers and others, build their capabilities such that the promise of connected reporting can be realised.

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Kris Nathanail-Brighton

Senior Policy Advisor for Special Projects, IOSCO

Kris joined IOSCO in October 2018. As a senior policy advisor, she is IOSCO’s appointed lead for the Follow-Up Group on Cross-Border Regulation (IOSCO’s working group on market fragmentation). Kris also works on financial stability through the Board-level financial stability engagement group and has participated in work on money market funds as well as margin practices among other things. She also works on ESG matters and has most recently coordinated IOSCO’s work on ESG ratings and data providers.


Before joining IOSCO, Kris spent 4 years at the UK Financial Conduct Authority where she was senior advisor to the Director of Policy and acted as manager of the Brexit Policy team. Prior to that Kris was a senior advisor within the asset management & funds policy team where she led and contributed to a number of domestic and international initiatives, including the ESRB’s and the FSB’s shadow banking workstreams, and IOSCO C5 and ESMA investment management standing committee related work.

Kris has a bachelor’s degree in political science and a master’s degree in North American and European Political Affairs from the Université Libre de Bruxelles. Kris also holds an MBA from the Quantic School of Business and Technology and is an associate member of the Chartered Institute for Securities and Investments.

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