The ISSB has received 689 comment letters on its exposure drafts for IFRS S1 and IFRS S2 during the consultation that closed on 29 July. Corporate Disclosures has analysed a sample of these comment letters to gage different organisations' opinions on the ISSB's approach to materiality.
The ISSB standards require companies to only report on sustainability issues that impact enterprise value creation, leaving aside impact materiality considerations.
This has been praised by multiple organisations, notably the Investor Relations Society which said: "We agree with the ISSB's definition of materiality in this context, which focuses on sustainability related financial information affecting enterprise value."
Other supporters of dynamic materiality include the Investment Company Institute which said it appreciated the financial materiality lens with the flexibility to include impact reporting if it is relevant information for investors.
However, other organisations have criticised the standards for a lack of specificity on the definition of materiality. The Institute of International Finance said that its members were concerned that the proposed definition of enterprise value might lead to a range of interpretation on what entities are required to report.
This concern was echoed by the Institute of Internal Auditors which said that the lack of an objective criteria "will allow the dishonest to manipulate the reported result".
A group of 86 global CFOs and institutional investors, representing £620bn in assets, criticised the ISSB for not adopting the double materiality approach which would require companies to report on the impact of their activities on the environment regardless of its relevance to enterprise value.
In a joint letter to the ISSB, they said: "As investors in the real economy, we need decision-useful data that considers both environmental and social impacts on a company as well as the company's impact on the environment and society."
German sustainable finance platform r3.0, took this criticism much further when they called the ISSB's approach to materiality "sociopathic" as they argue it ignores the fact that any social or environmental impact can eventually aggregate to a financial impact on another entity.
Regardless of their level of support for dynamic materiality, every letter seen by Corporate Disclosures expressed concerns that the international standards and the exposure drafts for the European Sustainability Reporting Standards (ESRS), which use a double materiality approach, are not aligned in their current format.
French regulator, the Autorité des marchés financiers, said that the ISSB needed to do more to align their definition of dynamic materiality with the double materiality in the ESRS. It said this could be done through the "identification of sustainability impacts that can be material both from an enterprise-value perspective and an impact perspective".
Others, such as Eurosif, a pan-European association for promoting sustainable finance, said it was encouraged with the ongoing collaboration between EFRAG and the ISSB but more would be needed to effectively align the standards.