The 'end game' or 'architecture' of IFRS sustainability standards (IFRS S) has been a question the ISSB has been very coy to discuss, mostly because of a lack of consensus on the issue amongst board members. But as the international standards setter embarks on its nature-related disclosure journey, the question is bound to become ever more pressing, as the latest Sustainability Standards Advisory Forum (SSAF) meeting revealed.
Amongst other issues, SSAF members were asked about the form of standard-setting within ISSB Standards that should be adopted for the development of disclosure requirements on nature-related risks and opportunities.
The staff paper outlined three options: add nature-related requirements to IFRS S1, add them to IFRS S2, or create a separate standalone Standard. If the content is included as application guidance in an appendix to S1 or S2, it would have the same authority as the Standard itself and would be mandatory for claiming compliance. A standalone Standard would instead sit alongside S1 and S2 and add any extra nature-related requirements not already covered.
It's fair to say that a majority of members replied in support for a standalone standard.
Patricia Moles of the Mexican standard-setter CINIF said that, from an emerging market perspective, a separate standard would reflect the strategic importance of nature-related risks and opportunities and put them on the same footing as climate. She also argued that it would preserve a clearer standards architecture, with IFRS S1 covering general requirements, IFRS S2 focused on climate and a future IFRS S3 dedicated to nature.
That view was echoed across several jurisdictions. Yvette Lange, adjunct professor at the University of the Witwatersrand, said there was already market expectation in South Africa that an IFRS S3 could emerge, and that a standalone standard would align with that expectation while giving nature-related disclosures greater specificity.
Owen Mavengere, of the Pan African Federation of Accountants, said discussions amongst South African stakeholders had also produced broad support for a standalone approach. Representatives of China's Ministry of Finance similarly argued that putting nature into S1 would blur the distinction between general and topic-specific requirements, while placing it in S2 would be too narrow given that nature-related risks and opportunities extend beyond climate.
Others framed support for a standalone standard in more practical terms. Gülşah Günay, of Turkey's Public Oversight, Accounting and Auditing Standards Authority, said S1 should remain a conceptual framework and warned that adding nature-related requirements to S2 would increase complexity for entities already struggling with implementation.
From Brazil, Vania Borgerth linked support for a new standard to the IFRS Foundation's building-block model, arguing that reopening S1 or S2 just as companies are completing implementation could be poorly received by the market.
Chiara del Prete, chair of the sustainability reporting technical expert group at EFRAG, highlighted that EFRAG does not yet have a formal Board-approved position, but the Secretariat's initial view is that clarity on the overall architecture should come first, and from that perspective a dedicated nature-related standard would be preferable.
This would avoid reinforcing any perception that nature is less important than climate, she said, adding that for European stakeholders, interoperability with ESRS would be a key consideration when judging the final form of the standard.
In support of amending S1
Not everyone agreed. Some members argued for a more cautious approach centred on IFRS S1.
Wendy Berman, chair of the Canadian Sustainability Standards Board, speaking in a personal capacity, said she supported integrating nature-related disclosures within S1 through application guidance, on the basis that this would promote connected information and reduce siloed reporting.
"We do not support creating a standalone standard such as IFRS S3, as this would likely be viewed as an additional compliance burden, particularly in the Canadian context where entities are already focused mainly on S2 and, to a lesser extent, S1," she said.
Similarly, Wafa Alnasrullah, of the Saudi Organization for Chartered and Professional Accountants, argued that Saudi Arabia is still moving towards adoption of IFRS S1 and S2, and that introducing a third standard now could delay that process. She said a guidance-based approach within S1 might therefore be more manageable, especially given that nature-related reporting is still less mature and more dependent on local context than climate reporting.
Different views
A couple of SSAF members were either less enthusiastic about the prospect of standards setting activities for nature related risk and opportunities, or more coy about which form they would wish that activity to take.
Yasunobu Kawanishi, Chair of the Sustainability Standards Board of Japan, argued that it is too early to amend the standards, that non-mandatory implementation guidance would be preferable in the short term, and that neither a voluntary standalone standard nor an appendix to S1 would be the right approach.
Mark Babington of the UK Financial Reporting Council also welcomed the effort to better integrate sustainability-related information, but warned that frequent changes could complicate the rollout of S1 and S2, particularly in jurisdictions where local adoption processes are already slow.
Expect disruptions no matter what
Another note of caution came from Australia. Charis Halliday, of the Australian Accounting Standards Board, argued that the risk of disruption may be similar regardless of the form standard-setting takes.
"Because IFRS S1 already requires disclosure of all sustainability-related risks and opportunities, any more specific nature-related requirements issued into the market -whether mandatory, voluntary, or not yet effective - are likely to create immediate pressure on entities to consider and apply them," she said drawing an analogy from the IFRS Interpretations Committee agenda decisions, which are often treated in practice as clarifications of existing requirements and can therefore drive rapid implementation pressure even before any formal effective date.
Responding to the discussion, ISSB vice-chair Sue Lloyd acknowledged that many participants saw a standalone standard as reinforcing a neat architecture: S1 as the general standard, S2 for climate and S3 for nature. But she suggested that one reason the board is hesitant to take that path now is that it may be too early to lock in the broader architecture.
"The Board may first want to see how nature-related disclosures develop, consider future topics such as human capital, and then return later to confirm the overall structure of the standards," she said. "In that sense, while creating an S3 now could be beneficial if the ultimate goal is a set of thematic standards, it could also reduce flexibility if the Board later concludes that a different architecture would be preferable. For example, one in which S1 evolves to cover a wider set of topics, potentially complemented by industry-based requirements."
In other words, keep building the house, but leave the floorplan open for now?
Companies:Australian Accounting Standards BoardComitê Brasileiro de Pronunciamentos ContábeisEFRAGFinancial Reporting CouncilIFRS FoundationISSBCINIFPAFAPublic Oversight, Accounting and Auditing Standards Authority of TurkeySaudi Organization for Chartered and Professional AccountantsSustainability Standards Advisory ForumSustainability Standards Board of JapanUniversity of the Witwatersrand.