15 Jan 2021 4 min read

Non-financial reporting: IFRS finally comes in from the cold

By Alexander Burr

We share some of our recommendations on providing investors with access to high-quality, relevant, comparable, consistent and verifiable non-financial information across markets and asset class.


Snow on windscreen

In September 2020, Trustees of the IFRS Foundation published a consultation paper that posed the question of whether the Foundation, initially set up to develop a single set of globally accepted financial accounting standards now used in more than 140 jurisdictions[1] through its International Accounting Standards Board, should get involved in the fragmented world of non-financial reporting.

The proposed creation of a ‘Sustainability Standards Board’ (SSB), with the ambition of becoming a standard setter working with existing initiatives, is music to the ears of many of us. Finally, we have an institution that has the experience, mandate, and motivation to set a single global mandatory non-financial disclosure standard.

As we noted in our previous blog, investors need access to high-quality, relevant, comparable, consistent and verifiable non-financial information across markets and asset class. This could be a real game changer for the whole industry if we get this right.

Overall, there has been very strong support from the 500+ stakeholders who took the time to provide feedback, including LGIM. However, as the phrase goes, the devil is most definitely in the detail…

Here are a few key recommendations that might be helpful for Trustees to consider as they embark on this epic journey:

  • Materiality

Trustees proposed an initial focus on disclosing non-financial information that is financially material and most relevant to investors, with an expansion to ‘double materiality’ at an unknown point in the future. Whilst this is of course welcome, given investors are the primary users of such information, it would be helpful if the focus is expanded to include ‘double materiality’ from the outset. Materiality is dynamic in its very nature, so what is not financially material now does not mean it won’t be in the future. It is therefore helpful to have a full understanding of how ESG issues may impact the company and how the company affects society and the environment. It is also crucial that we bring all parties together, primarily the EU.

  • Scope

Trustees proposed an initial focus on climate-related risks (and opportunities). Whilst it’s very welcome, we do not believe this should be the sole focus. We strongly recommend that the scope is expanded to include a much broader range of ESG issues, in line with the approach taken by existing frameworks. Investors require access to non-financial information right across ESG topics, such as human capital disclosures, carbon emissions, women in the workforce, tax disclosure, CEO/chairman split, equal voting rights, etc. Good governance underpins good management of social and environmental risks. In addition, if we look at the growing amount of ESG/sustainability-related regulation, disclosures are required far beyond just the climate. We need to set standards across the investment chain that complement each other.

  • Coordination

Trustees proposed the SSB lead this mammoth task of developing the standard, a very welcome move indeed. It is, however, important that the SSB is well resourced (transparently funded and free from conflicts) so that it can pull together all the various stakeholders necessary to ensure the global adoption of a single non-financial disclosure standard. This includes voluntary standard setters, policymakers, investors, companies, civil society, the list goes on, from across key geographies. This aspect will be crucial if the SSB is to harmonise and strengthen regulation that is moving at varying speeds across markets.

  • Governance

Investors are the primary users of non-financial information and bring a wealth of experience. It is essential that investors are heavily engaged in the setting of a standard and the continued governance of the standard in the SSB.

  • Assurance

Investors need non-financial disclosures verified in the same way that financial disclosures are, as investment decisions are increasingly based off this information. It’s crucial we don’t ‘lower’ any standard just for assurance purposes. The market is not yet fully developed in this area, but we expect it will over the coming years.

  • Timing

With all this in mind, there must be some urgency in this work if we are to halt the ever-increasing fragmentation. Trustees should develop a clear and publicly available roadmap for the development and release of the standard.


[1] https://www.ifrs.org/about-us/who-we-are/#about-us

Alexander Burr

ESG Policy Lead

Alexander joined in 2019 and leads LGIM's ESG policy engagement across markets. Prior to this, he helped establish an impact fund that uses blended finance to invest in emerging markets. Before that, Alexander negotiated blended finance investments at the European Bank for Reconstruction and Development (EBRD) to support sustainable economic growth across Eastern Europe, Central Asia, and North Africa. He has held roles advising governments on alternative finance and established a nuclear safeguards organisation. Alexander holds a BSc in Politics and International Relations from the University of Southampton, and further education at LSE, ICSA, CISL, and Birkbeck.

Alexander Burr