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Delegates sit in the Action Zone as they attend the third day of the COP26 UN Climate Summit in Glasgow on Nov. 3, 2021.PAUL ELLIS/AFP/Getty Images

A new global accounting body, which has a major office in Montreal, has taken its first steps to establish formal reporting standards for corporate sustainability in efforts to improve transparency and discourage greenwashing.

The International Sustainability Standards Board, or ISSB, published a series of draft rules on Thursday for measuring and disclosing general sustainability factors as well as those tied specifically to climate change. The aim is to help investors, regulators and others accurately gauge how non-financial factors in the environmental, social and governance arena will affect corporate fortunes and asset values.

Accounting standards are well-established for financial reporting. The ISSB is looking to establish similar global practices for sustainability. Leaders of the Group of 20 industrial countries and the International Organization of Securities Commissions are among groups that had pushed the formation of the board.

As its first major initiative, the ISSB wants companies to provide markets with a complete set of sustainability-related financial disclosures. The proposals include numerous requirements for companies and funds to disclose all material information about significant risks related to sustainability, as well as the connections between pieces of information, such as environmental risks and financial statements.

Its initial focus is climate. The board said it will mandate reporting data on such things as corporate governance – how climate-related issues are dealt with by specific managers and directors as part of their duties – as well as explanations of how climate risks and opportunities will affect business models and strategy over various time frames.

It opened a 120-day comment period, and will look to formalize the standards by the end of this year.

The British-based International Financial Reporting Standards Foundation launched the ISSB at the COP26 climate summit in Glasgow, Scotland, in November. Investors and companies around the world have complained that sustainability issues, such as environmental risks and work force diversity, get reported using multiple frameworks, which makes for confusion and uncertainty about corporate claims.

It named Frankfurt, Germany, as the head office of the ISSB, and chose Montreal as a secondary hub to support the functions of the board and promote “deeper co-operation with regional stakeholders.” ISSB chair Emmanuel Faber is scheduled to visit Canada next week to meet with key officials and discuss plans for the Montreal office.

Mr. Faber said the board’s draft measures follow many parts of the reporting frameworks set out by the Sustainability Accounting Standards Board, or SASB, and the Task Force on Climate-related Financial Disclosures, or TCFD, which are being widely adopted in Canada and globally.

“We are working with international organizations and jurisdictions toward the incorporation of these global baseline proposals into jurisdictional requirements, and we intend them to be compatible with jurisdiction-specific requirements to answer the needs of the broader stakeholder in terms of sustainability information,” he said in a video posted on the ISSB website.

Numerous companies, especially larger ones, already report on sustainability measures using SASB and TCFD templates, or parts of them. Canadian Securities Administrators, the umbrella group for the provincial securities commissions, is in the process of making climate disclosure mandatory for publicly traded companies, and are proposing they report using the TCFD framework. The CSA is now determining how stringent to make the rules.

One of the key messages that the CSA heard was the need for Canadian regulations to be aligned with international ones, so the ISSB standards should help that effort, said Rosemary McGuire, director of external reporting and capital markets for Chartered Professional Accountants of Canada. Her organization is urging Canadians to provide input to the draft proposals.

According to a recent KPMG study, large Canadian companies top the list when it comes to reporting on sustainability issues, Ms. McGuire said in an interview. “The issue is that right now, it’s not consistent, it’s not comparable, just because of all the different frameworks, standards and recommendations that are in the marketplace. So by virtue of having it embedded in regulation, that’s a positive step toward standardization,” she said.

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