International Sustainability Standards Board consultation on agenda priorities

We refer to the International Sustainability Standards Board’s request for information on its agenda priorities. We appreciate the opportunity to contribute our perspective.

Norges Bank Investment Management is the investment management division of the Norwegian Central Bank (Norges Bank) and is responsible for investing the Norwegian Government Pension Fund Global. NBIM is a globally diversified investment manager with 12,429 billion Norwegian kroner at year end 2022. We are a long-term investor, working to safeguard and build financial wealth for future generations.

As a long-term, global investor, we consider our returns over time to be dependent on sustainable development in economic, environmental and social terms. We need consistent, comparable and reliable information from companies on social or environmental issues which are financially material to their business. We rely on information related to the current performance of a company, as well as information on drivers of value that may be predictive of its long-term performance. This information helps inform our investment decisions, our risk management processes and our ownership activities. We therefore have strongly supported the important work of the International Sustainability Standards Board in developing a global baseline for sustainability reporting standards.

On the strategic direction and balance of the ISSB’s activities, we believe that supporting the implementation of the recently published ISSB Standards IFRS S1 and S2 is key to their adoption and should therefore be the first priority for the ISSB in the next two years. The development of implementation guidance and educational material is crucial to support the uptake of the Standards and help achieve the ISSB’s aim of providing a baseline for global sustainability reporting. Effective capacity building will also play a key role in enabling the disclosure of consistent and comparable data. The second priority for the ISSB should be launching new research and standard setting projects, with the ultimate goal of developing additional topical standards to complement S1 and S2. The application of IFRS S1 and disclosure on sustainability risks and opportunities beyond climate will initially rely on the guidance role provided by SASB Standards, which is however non binding; the lack of specificity in S1 might therefore result in suboptimal quality and comparability of disclosures. In our view, the ISSB should lay out its vision for a full architecture of topical standards which, coupled with the industry-specific guidance and metrics provided by the SASB Standards, can meet investors’ demand for information across a broad range of environmental, social and governance sustainability topics. Work on enhancing the SASB Standards should in our view be the third priority on the ISSB’s workplan. The enhancement of the Standards should entail a comprehensive review to ensure that the SASB Standards are fully internationally applicable and consistent with both the logic and architecture of the recently finalised IFRS S1 and S2, as well as additional future topical standards. Finally, we consider that researching targeted enhancement to the ISSB Standards should represent a mid-term priority rather than something to be prioritised over the next two years. Sufficient time to review initial application of the standards would indeed enable the ISSB to assess any implementation challenges which might need to be addressed with targeted revisions to the Standards beyond the enhancements already signalled to the market.

Regarding the new research and standard setting projects that could be added to the ISSB’s workplan, we believe that all of the suggested prioritised list of sustainability reporting matters should ultimately be covered by ISSB topical standards. However, taking into account the ISSB’s limited capacity to take on new projects in the next two years, we believe that two projects could be launched. The first project should cover both human capital and human rights, which are inherently linked. We appreciate, and strongly support, the ISSB’s recognition of the significance of social disclosures as part of financially material disclosures. However, the proposed approach of launching two separate projects (potentially leading to two different standards) may risk reinforcing the existing, misleading perception that human capital relates only to a company’s own workforce, while human rights are only relevant for a company’s supply or value chain. We therefore underline the importance of addressing both human capital and human rights in an integrated fashion. Companies’ operations impact their employees, contract workers, workers in supply chains, consumers and end-users, indigenous people and local communities, human rights defenders and the environment. Data on workforce composition and costs can help investors understand to what extent compensation is competitive and the company’s ability to attract and retain talent. Companies also have a responsibility to respect human rights, including in supply chains and other business relationships; lack of respect for human rights is not solely a responsible business conduct issue; it can also have a material impact on businesses.

Secondly, the ISSB should consider launching a research and standard setting project on biodiversity, ecosystem and ecosystem services. Changes to natural ecosystems and the biodiversity that underpins them likely pose increasing financial risks to companies in a number of industries globally, and impact their investors’ returns. Nature risks also have important interdependencies with climate change. At the same time, evolving trends may present new business opportunities. As a long-term, financial investor, biodiversity and ecosystems has been a priority topic on NBIM’s ownership agenda for several years, and the fund has specific expectations on how our portfolio companies should manage and account for these issues in their business activities. The international attention and momentum on this subject has increased since the Kunming-Montreal agreement reached in December 2022, which includes a target requiring jurisdictions to take measures to ensure that large and transnational companies and financial institutions regularly monitor, assess, and transparency disclose their risks, dependencies and impacts on biodiversity. While the financial relevance of nature loss is clear, the information needed to identify and manage nature-related risks is often not available or decision-useful. The development of a ISSB biodiversity standard would help provide comparable and consistent disclosures, and would benefit from the work already undertaken by the Taskforce on Nature-related Financial Disclosures (TNFD), which is due to release its final risk management and disclosure framework in September this year. A potential ISSB biodiversity standard could build upon the TNFD recommendations in a similar fashion to how the climate standard S2 has built upon the TCFD recommendations and structure.

Finally, NBIM believes that a project on integration in reporting could be given lower priority. Guidance on connected information would be beneficial for preparers and users alike, and the ISSB could work together with the International Accounting Standards Board on this project. This project could benefit from the insights gathered by the IASB in its project on the management commentary as well as the concepts at the basis for the Integrated Reporting Frameworks; the two standard setters could therefore work together to identify similarities and consider how these frameworks could be brought together to facilitate connectivity and integration. Collaboration between financial reporting and sustainability reporting standard setters is crucial to achieve coherence in corporate reporting.

We appreciate your willingness to consider our perspective, and we remain at your disposal should you wish to discuss these matters further.

Yours sincerely

Carine Smith Ihenacho,
Chief Governance and Compliance Officer

Elisa Cencig,
Senior ESG Policy Adviser