How were the inaugural ISSB sustainability standards developed
As noted earlier, the response to the IFRS consultation paper was overwhelmingly in support of the formation of the ISSB to develop international sustainability standards. Similarly, in the standards-development process, the ISSB received ‘extensive market feedback and in response to calls from the G20, the Financial Stability Board and the International Organization of Securities Commissions (IOSCO), as well as leaders in the business and investor community’.5
Two of the key considerations raised by respondents to the consultations included the challenges that some entities might have in applying the standards and the ‘importance of achieving a high degree of interoperability with jurisdictional requirements’.6
The challenges that some entities might have also include the proportionately higher costs of compliance, the availability of expertise, and the availability of high-quality data in some markets, industries, and parts of the value chain. The ISSB addressed these problems by introducing the concept of requiring ‘all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort’, with respect to the requirements of IFRS S1. Although this will allow entities to carry out a less exhaustive search for information if the cost is prohibitive, entities are still expected to provide useful information, and ‘the greater the usefulness of information about a sustainability-related risk or opportunity for users, the greater the effort expected of an entity in obtaining that information’.7
With consideration to the high degree of importance attached to interoperability, the IFRS formed a Jurisdictional Working Group (JWG) comprising representatives from global institutions, including IOSCO (as an observer). In addition, the Sustainability Standards Advisory Forum (SSAF) was established to continue this collaborative effort with respect to IFRS S1 and IFRS S2. SSAF’s additional decisions included the following:8
‘IFRS Sustainability Disclosure Standards are designed to meet the information needs of investors, creditors and other lenders (that is, “primary users of general-purpose financial reports”).’9
‘Disclosures [are] based on a materiality assessment consistent with that used for IFRS Accounting Standards.’10
‘Information may be presented with information disclosed to meet other requirements, such as specific jurisdictional requirements, but may not be obscured by that additional information.’11
The JWG also ensured the alignment of the ‘core content’ of the standards with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations on governance, strategy, risk management, and metrics and targets.
One illustrative example of this concept of interoperability relates to two recent climate disclosure laws passed in California. The Climate Corporate Data Accountability Act requires entities to disclose their greenhouse gas emissions, and the Climate-related Financial Risk Act requires entities to produce a climate-related financial risk report. As highlighted in the AICPA & CIMA summary of these bills, ‘the laws promote interoperability and the reduction of duplicative efforts by allowing entities to satisfy their reporting requirements…using disclosures prepared to comply with other reporting requirements if those disclosures satisfy the requirements of the relevant law’.12 The use of IFRS S1 and IFRS S2 was provided as an example.
IFRS materiality
‘Information is material if omitting, misstating or obscuring that information would reasonably be expected to influence the decisions that primary users of financial statements make on the basis of those reports…’13