A call for an ISSB reporting standard on human rights and social issues

They say, ”what gets measured gets managed”. If that’s true, the International Sustainability Standards Board (ISSB) consultation on its future priorities will be of crucial importance to managing the world’s social and environmental sustainability challenges.  

The ISSB was created to provide a global baseline for sustainability-related financial reporting standards. It aims to help investors assess and manage material issues based on comparable and decision-useful corporate information, across jurisdictions.  

In the PRI’s response to the Consultation on Agenda Priorities, we call, among other recommendations, on the ISSB to prioritise a corporate disclosure standard for human rights and social issues, applicable across sectors, geographies and business models. 

Why do investors care about corporate disclosures on social issues? 

For institutional investors, there are obvious financial risks and opportunities relating to human rights and social issues. Companies can reduce their operational and legal costs by avoiding community conflicts and appropriately managing private data. They can improve company performance through diversity and inclusion measures and promote satisfaction in the workplace, the latter of which is associated with higher long-term stock returns. 

Investors are also affected by systemic risks. For example, decades of widening economic inequality has led to more volatile economic conditions and political polarisation, affecting the global markets investors are operating in. This has been partly driven by the erosion of labour standards – reducing the distribution of economic gains to workers – and corporate tax practices that have reduced government revenues and their ability to deliver essential public services. The Covid-19 crisis and the recent inflation surge have worsened the situation with poorer countries having counted the worst economic impacts of the pandemic. 

Furthermore, a sharp rise in corporate regulation – such as human rights due diligence and modern slavery laws – is increasing the materiality of social issues. 

“Without quality and standardised reported information, investment professionals across the board are not able to fully manage the financial risks and opportunities related to social issues. […] The data gap is clear.”

Developing the ISSB framework to match investor data needs 

From the PRI’s independent research, it’s clear that investors seek information about corporate governance, strategy, risk management and progress using targets and metrics covering the full suite of risk and opportunities related to social issues^[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 a corporate disclosure standard that matches those requirements.  

Here is how we propose it can be applied in our consultation response: 

• Governance: Investors may seek to understand how boards and senior management assess, respond to and monitor financial risk and opportunities related to social factors.
• Strategy: Investors may seek to understand how material social issues affect the company strategy and financial planning, including risk and opportunities arising from: 
  • Inherent social challenges related to an entity’s business model. 
  • Actual and potential business disruption arising from impacts on specific groups of people such as workers, communities, and customers / end-users. 
  • Macroeconomic risk emanating from social aspects (for example related to economic inequality) or transitions (such as the low carbon transition).
  • Regulatory and legal risk related to social matters (including ongoing legal cases). 
  • Value chain structures and dependencies. 
• Risk management: Investors may seek insights about a business entity’s identification of risk and opportunities related to social issues. This information may be based on an entity’s human rights due diligence procedures – which draws on stakeholder input – followed by an assessment of the impact on enterprise value arising from the social risks and impacts identified. 
• Targets and metrics: Investors may seek both qualitative and quantitative disclosures on key risks and opportunities which are of high quality and relevant for investors’ decision-making and reporting. Given that workforce metrics (including human capital management) are more advanced^[2] they may be prioritised by the ISSB for standardisation as part of a corporate disclosure standard for human rights and social issues.  

Institutional investors – working within a variety of regulatory contexts and with their own objectives and investment strategies – will utilise information differently to suit their specific needs. While some investors rely on service providers to deliver analysis and ratings, others undertake these activities in-house. We recognise the diversity of the investment community, but the data gap is clear. 

Without quality and standardised reported information, investment professionals across the board are not able to fully manage the financial risks and opportunities related to social issues. While regulators in some jurisdictions have recently acted, the ISSB is in a unique position to address this important challenge globally^[3].

We therefore call on the ISSB to prioritise the development of a corporate disclosure standard for human rights and social issues, to enable both corporate and investment organisations globally to fulfil their roles accordingly.