They say, “What gets measured gets managed.” If that is true, the International Sustainability Standards Board (ISSB) consultation on future priorities will be critical to managing the world’s social and environmental sustainability challenges. .
ISSB was established to provide a global baseline for sustainability-related financial reporting standards. It aims to enable investors to assess and manage important issues across jurisdictions based on comparable, decision-supporting company information.
In the PRI’s response to the consultation on agenda priorities, we call on the ISSB to prioritize corporate disclosure standards on human rights and social issues that are applicable across sectors, regions and business models.
Why do investors care about corporate disclosure on social issues?
For institutional investors, there are clear financial risks and opportunities related to human rights and social issues. Companies can reduce operational and legal costs by avoiding community disputes and better managing personal data. Diversity and inclusion initiatives can improve company performance and promote workplace satisfaction, the latter of which can lead to higher long-term stock returns.
Investors are also subject to systemic risk. For example, decades of increasing economic inequality have led to more volatile economic conditions and political polarization, impacting the global markets in which investors operate. This is partly caused by a decline in labor standards, i.e. a reduction in the distribution of economic benefits to workers. Corporate tax practices reduce government revenue and the ability to provide critical public services. The COVID-19 crisis and the recent spike in inflation have worsened the situation, with poorer countries bracing for the worst economic impact of the pandemic.
Furthermore, the rapid increase in corporate regulations such as human rights due diligence and modern slavery laws has increased the importance of social issues.
“Without high-quality, standardized reporting information, the investment profession as a whole cannot fully manage the financial risks and opportunities associated with social issues. […] Gaps in the data are clear. ”
Developing an ISSB framework tailored to investors’ data needs
PRI’s independent research shows that investors are seeking information on corporate governance, strategy, risk management and progress, using targets and metrics that cover a range of risks and opportunities related to social issues. is.[1]. Conveniently, the General Requirements for Disclosure of Sustainability-Related Financial Information (IFRS S1) standard and the International Framework on Human Rights constitute a strong template for corporate disclosure standards that meet these requirements.
We suggest ways to apply this to our response to the consultation.
- governance: Investors may seek to understand how boards and senior management assess, respond to, and monitor financial risks and opportunities related to social factors.
- strategy: Investors may seek to understand how critical social issues impact corporate strategy and financial planning. This also includes risks and opportunities arising from:
- Inherent social challenges related to a company’s business model.
- Actual and potential business interruptions resulting from impacts on specific groups of people, such as employees, communities, and customers/end users.
- Macroeconomic risks arising from social aspects (e.g. related to economic inequality) or transitions (e.g. low-carbon transition).
- regulatory and legal risks related to social issues, including ongoing litigation;
- Value chain structure and dependencies.
- crisis management: Investors may seek insight into identifying risks and opportunities for entities related to social issues. This information may be based on an assessment of the impact on corporate value resulting from identified social risks and impacts based on the company’s human rights due diligence procedures, drawing on stakeholder input.
- Goals and indicators: Investors may require both qualitative and quantitative disclosure of high-quality key risks and opportunities relevant to investor decisions and reporting. Given that workforce indicators (including human capital management) are becoming more sophisticated;[2] These may be prioritized for standardization by the ISSB as part of corporate disclosure standards on human rights and social issues.
Institutional investors operate in different regulatory contexts, with unique objectives and investment strategies, and use information in different ways to meet their specific needs. Some investors rely on service providers to provide analysis and ratings, while others perform these activities in-house. While we recognize the diversity of the investment community, gaps in data are clear.
Without high-quality, standardized reporting information, the investment profession as a whole cannot fully manage the financial risks and opportunities associated with social issues. While regulators have recently taken action in some jurisdictions, ISSB is uniquely placed to address this important challenge globally.[3].
We therefore call on the ISSB to prioritize the development of corporate disclosure standards on human rights and social issues so that both global companies and investment organizations can play their roles accordingly.