31 August 2022

ISSB to review IFRS S1 and S2 based on alignment with jurisdictions

The ISSB will not follow normal process when reviewing its S1 and S2 standards on the back of the stakeholder consultation, in an effort to foster greater alignment with jurisdictional requirements, chair Emmanuel Faber has told the European Parliament.

Faber spoke today (31 August) at the ECON committee meeting as part of an exchange of views with the chairs of the International Accounting Standards Board (IASB), the IFRS Foundation Trustees and the ISSB, where he praised the EU leadership on sustainability but expressed a hope that the pace of the EU legislation could slow down to allow for greater alignment with the international standards.

This prompted Pascal Durand, rapporteur for the CSRD and member of   Renew Europe, to ask if the IFRS Foundation recognised EU sovereignty in setting sustainability standards. Durand then asked what the international standard setter’s views on Scope 3 emissions were and how they fitted into the puzzle.

“Who am I to pretend that I could not recognize the sovereignty of the EU in defining what the EU believes is right for the EU,” Faber replied before explaining that the very nature of the IFRS standards, which need to be endorsed by IOSCO and onboarded by jurisdiction called for a clear recognition of jurisdictional sovereignty.

“The one thing I was saying is that I would hope that our EU colleagues in the discussions feel that the price of aligning is such that it’s worth having some more time if needed – if needed! [and that is not for me to say] – I’m not talking about years, I’m talking about weeks, maybe a couple months.”

On Scope 3, Faber said this is where the ISSB is going to serve the European process. “We have made the decision that, to make sure that we have the right momentum versus the jurisdictional adoptions of standards, we are not going to review our S1 and S2 standards the normal way - in a linear manner.”

Instead the ISSB is going to focus on some of the most important critical points consistent with where jurisdictions are on the same topics, he continued. “I cannot say what the nature of those choices will be but Scope 3 is on the list. We realize that with the progress made by the CSRD on Scope 3, the timing of the CSRD and where we are on substance on Scope 3, there's probably an opportunity for alignment.”

But to do this, the ISSB will need to leave aside a number of topics in the standards to focus on Scope 3 so it can deliver that in a timely manner, Faber said. “This is where we follow the jurisdiction momentum to be as much as possible in a position to create that global baseline and that building block.”

There is no guarantee that the end product will be a full alignment between the ISSB and EFRAG on what Scope 3 is and its limits, he acknowledged. “But this is how we see our role: countries and jurisdictions are sovereign, it's for us if we want to play that role of a convening platform for a global baseline to address our ability and our resources as much as possible to their agenda. And today, there's no doubt that the EU is a priority.”