21 July 2022

ISSB surveys the work ahead

The ISSB devoted the second session of its first board meeting to the preliminary feedback received through outreach events on its exposure drafts sustainability standards, highlighting areas of concern held by stakeholders.

The consultation on the draft standards will close on 29 July and the ISSB will have to read through comment letters received to supplement the preliminary feedback.

On IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, five priority areas were highlighted as requiring further consideration:

Preliminary—Priority areas that are likely to require further consideration

Discussing these considerations, board members reflected that, like any standard setter, they would have to balance the usefulness/benefit of the standards for investors with the cost of applying the standards for preparers.

Board members also reflected that they needed to better define industry-standards, vis-à-vis general standards, and what falls where.

Also part of the reflection, a board member noted that a greater emphasis should be put on application by smaller entities and entities in emerging economies.

The board also looked at the feedback received for IFRS S2 Climate-related Disclosures where six areas were highlighted as requiring more consideration.

Preliminary—Priority areas that are likely to require further consideration

The board commented on these, wondering if the outreach events would have fulfilled their educational purpose and if comment letters would be alleviated of some of those concerns, in particular carbon offsets was taken as an example.

The ISSB standards allow for carbon offset accounting, whereas EFRAG doesn't.

Sue Lloyd, the board vice-chair, said comment letters would probably reveal a broad range of views, from those that like it to those that don't. But she added that she believes the confusion comes from different approaches by different standard setters, which derives from the nature of the organisation. She did not name EFRAG but said that those with a policy making backing had to take a specific stand on carbon offset, while the ISSB's includes them for transparency purposes.

The board agreed that they should monitor responses to other consultations such as the US SEC and EFRAG, particularly from investors, to get an additional layer of information on specific topics related to the ISSB's own standards.

"We are not operating in a vacuum, in particular when it comes to climate," Emmanuel Faber, ISSB chair, said. "There are very important dynamics that we need to embark on [...] in order to really build our understanding [...] because these will inform what our beneficiaries, market participants, are going to incorporate or have to incorporate in their own work."