In a keynote address that could reshape the future of cross-border financial disclosures, U.S. Securities and Exchange Commission (SEC) Chair Paul Atkins has issued a pointed warning to the IFRS Foundation. Speaking at the inaugural OECD Roundtable on Global Financial Markets, Atkins suggested that the SEC may revisit its 2007 decision to allow foreign companies to file financial statements using International Financial Reporting Standards (IFRS) without reconciling them to U.S. Generally Accepted Accounting Principles (GAAP). This reconsideration stems from the IFRS Foundation's support for the newly formed International Sustainability Standards Board (ISSB), which some in Washington view as drifting into the territory of social and political policy.

A Shifting Regulatory Landscape

The warning from Atkins reflects broader shifts in the regulatory tone within the United States, particularly under the influence of the current administration. Since the beginning of the Trump administration, and continuing under current leadership, the SEC has scaled back its enthusiasm for mandatory sustainability and climate disclosures. This includes its recent decision not to defend its own climate reporting rules crafted during the Biden administration—in federal court. Against this backdrop, the SEC Chair’s comments represent the latest volley in the ongoing debate over the role of environmental, social and governance (ESG) factors in financial markets.

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ISSB’s Global Rise Sparks U.S. Unease

The IFRS Foundation created the ISSB in 2021 with the aim of developing global sustainability disclosure standards that could help investors assess risks and opportunities more effectively. The first two standards IFRS S1 and IFRS S2 were released in mid-2023 and have already formed the backbone of sustainability reporting frameworks in more than 35 jurisdictions.

The ISSB operates alongside the International Accounting Standards Board (IASB), both of which fall under the oversight of the IFRS Foundation. Although the Foundation has repeatedly stated that the ISSB and IASB remain independent in their governance, funding, and operations, critics in the U.S. fear that the integration of sustainability standards with financial reporting infrastructure could introduce non-financial considerations into capital market regulations.

Revisiting the 2007 SEC Decision

Atkins was an SEC Commissioner at the time of the 2007 decision to allow IFRS in U.S. filings and was among its supporters. However, in his recent speech, he expressed concern that one of the key assumptions behind that rule namely the IASB’s independence and financial stability may now be undermined. Specifically, he pointed to the IFRS Foundation’s expanded remit, which now includes funding the ISSB in addition to the IASB. If the IASB’s financial stability is compromised as a result of this dual responsibility, Atkins argued that the SEC might need to reevaluate the legitimacy of its 2007 decision.

He also warned against what he described as the misuse of IFRS standards to pursue political or social agendas, suggesting that financial disclosure should remain rooted in materiality to capital markets, rather than broader societal goals.

IFRS Foundation Defends Its Independence

In response to the SEC Chair’s remarks, a spokesperson for the IFRS Foundation emphasized that the formation of the ISSB was a response to clear demand from global capital markets for more consistent and comparable sustainability-related disclosures. The Foundation reaffirmed that the IASB and ISSB operate with separate governance and funding structures, a deliberate design to maintain independence and focus.

The spokesperson added that the organization is currently undergoing a two-year transformation program aimed at strengthening its operational efficiency and long-term funding strategy. The Foundation also confirmed its ongoing dialogue with U.S. regulators and maintained that its primary mission remains enabling the disclosure of financially material information for investors worldwide.

EU Regulations in the Crosshairs

Atkins did not limit his criticism to the IFRS Foundation. He also voiced "significant concerns" over the European Union’s expanding regulatory framework on sustainability, particularly the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). These laws embrace a "double materiality" principle, requiring companies to disclose not only how sustainability issues affect their financial performance but also how their operations impact society and the environment.

Atkins noted that these regulations have extraterritorial implications, as many U.S. companies with business operations in the European Union will be required to comply. While he acknowledged recent steps by the EU to ease compliance burdens and support transatlantic trade, he argued that regulators should return to a more traditional, finance-focused understanding of materiality.

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A Global Tug-of-War on Disclosure Standards

The disagreement over sustainability reporting reflects a larger philosophical divide between U.S. and European approaches to corporate disclosure. While European institutions increasingly incorporate social and environmental metrics into regulatory frameworks, U.S. policymakers remain more cautious, wary of regulatory overreach and its impact on global capital flows.

The future of IFRS and ISSB adoption in the U.S. could hinge on whether this tension is resolved. For now, the SEC Chair’s remarks serve as a cautionary signal to global standard-setters: expanding the scope of disclosure beyond traditional financial materiality may come at the cost of losing alignment with the world’s largest capital market.

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