In a recent discussion with Richard Peers for Finextra TV, Tonia Plakhotniuk, Associate Director of Policy (Sustainable Finance & Financial Reporting) at the Association for Financial Markets in Europe (AFME), highlights key expectations for sustainable finance in 2021.
Citing a joint report by AFME, Boston Consulting Group, and the Global Financial Markets Association, Plakhotniuk emphasizes that approximately $150 trillion in investment is required over the next three decades to facilitate the transition to a low-carbon economy.
“This investment figure pertains solely to climate finance, underscoring the scale of the challenge ahead. There is widespread hope that 2021 will be a pivotal year for meaningful action in sustainability,” she stated.
Plakhotniuk identifies a crucial issue in sustainable finance: the proliferation of ESG-related regulations and initiatives in recent years. She stresses the urgent need to streamline these frameworks to improve the reporting and disclosure processes surrounding ESG matters.
“This consolidation will empower investors to access the information they require while allowing those who compile these reports to focus on delivering content that genuinely meets investors’ needs,” she explained.
Last year marked a significant development, with five key standard-setting organizations committing to collaborate on a more integrated corporate reporting framework. Plakhotniuk anticipates further consolidation in 2021, particularly following the merger of the Sustainability Accounting Standards Board (SASB) with the International Integrated Reporting Council (IIRC).
This trend is already reflected in the International Financial Reporting Standards Foundation’s (IFRS) recent consultation aimed at establishing a global sustainability reporting standard governed by a newly formed sustainability standards board in conjunction with existing standards.
“Having a credible, global standards-setting body willing to support this consolidation is a significant advancement. It paves the way for a harmonized framework that all stakeholders can utilize effectively,” she remarked.
For successful implementation, Plakhotniuk argues it is essential to build upon existing frameworks rather than create entirely new standards.
She also notes the ongoing debate over whether climate reporting should take priority or if it should encompass a wider range of sustainability issues. “While a climate-first approach may seem logical given the urgency, it is vital to set an inclusive tone from the beginning that extends to other sustainability concerns,” she added.
Financial materiality is another pressing issue Plakhotniuk highlights, as stakeholders are increasingly concerned about the impact of external factors on a company’s financial performance. There are calls for any global standard to ensure that companies report not only on financial metrics but also on their contributions to environmental and social well-being.
“Our perspective is to begin with financial materiality; however, this should not be the ultimate aim. Companies must also assess and report on the effects of their operations on society and the environment, especially as non-financial aspects are increasingly linked to financial outcomes,” she stated.
In agreement with Peers, Plakhotniuk concludes that a harmonized approach integrating both financial and non-financial standards is essential for achieving the desired outcomes, bolstered by the collaboration of leading industry organizations.