ISSB vice chair Sue Lloyd discusses the international sustainability standards approach to materiality, and the line between financial and impact materiality.
Do you have any examples of pillar 2 type disclosures (multi-stakeholder needs) that do not have an impact on long-term performance right now, i.e. not relevant to investors?
The reality is that this is dependent on the sector and individual characteristics of a business. Different approaches to prioritisation and management of risks should be taken depending on whether specific sustainability related risks affect enterprise value and/or impact society and the environment, with consideration of the time horizon over which these risks occur.
It's arguably a pretty blurry line because many of these may not have a quantifiable impact but they may have an impact non-the-less?
In general, the Exposure Drafts allow for sustainability-related financial information to be expressed in quantitative and qualitative terms. In practical application, companies will have to justify to their investors why a specific sustainability risk is not material and be prepared to answer searching questions on how they reached this conclusion.
How does one draw a line in the sand between pillar 1 (investor-focused) and pillar 2 (multi-stakeholder needs)?
It is tempting to categorise information in this way but the reality is that factors impacting business performance change and regular judgements are required to assess what factors are material. Our collaborative work with GRI will provide clarity, to companies who might choose to apply both sets of standards, on how our two standards can work together to meet the needs of investors as well as wider stakeholders.
And at which point does a pillar 2 disclosure becomes pillar 1, is it purely when there is a quantifiable monetary value on it?
It isn't just about whether effects are quantifiable. Investors are often interested in qualitative information – the change would happen if there was information that became relevant to investors' assessment of enterprise value that wasn't before. If you think back a few years investors were not as focussed on GHG emissions, for example, but that has become increasingly relevant because, for example, a company with high GHG emissions may need to change their business model due to regulatory action. There is unlikely to be a hard and fast rule for the distinction between the two pillars. In some cases, the information supplied for enterprise value assessment will be equally relevant for impact assessment.
Down the line how will the ISSB and GRI standards be interconnected?
We are still in active discussion with GRI about the best way to advance our joint and respective work.
