Overview of exposure drafts (S1 and S2) and feedback received as at 7 July 2022 (Agenda Paper 2)

On 31 March 2022, the ISSB published two exposure drafts (EDs): ED IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (ED IFRS S1) and ED IFRS S2 Climate-related Disclosures (ED IFRS S2). The comment period will end on 29 July 2022.

The ISSB conducted outreach events including webinars, panel discussions, large group meetings and targeted meetings in order to educate stakeholders, drive engagement and obtain technical input. At this meeting, a summary of preliminary feedback gathered to date will be provided and the ISSB will not be asked to make any decisions.

Stakeholders generally supported ED IFRS S1 but expressed desire for guidance and emphasise challenges on some requirements. Stakeholders also emphasised connectivity between financial and sustainability-related financial reporting and queried the need for assurance. Development of the first two standards is encouraged to continue at pace and stakeholders queried how the EDs fit with other regulatory developments.

Positioning of ED IFRS S1 (as the overarching IFRS Sustainability Disclosure Standard), requirements on core content disclosures, fair presentation, connected information, reporting entity, comparative information, sources of estimation and outcome uncertainty, errors and GAAP agnostic are areas with few or no concerns. Priority areas that are likely to require further consideration are:

• Enterprise value
• Breadth of reporting
• Materiality application
• Current and anticipated financial effects
• Timing of reporting

Stakeholders generally supported ED IFRS S2 but emphasised challenges on some specific requirements. Stakeholders also emphasised the importance of a global baseline and urgency, as well as the importance of not letting perfect be the enemy of good.

The scope of the ED IFRS S2, governance, strategy, climate-related risks and opportunities, and risk management are areas with few or no concerns. Priority areas that are likely to require further consideration are:

• Transition planning (including carbon offsets)
• Current and anticipated effects
• Climate resilience
• Cross-industry metric categories: greenhouse gas emissions
• Industry-based requirements
• Proportionality

The ISSB staff aims to provide a summary of feedback from the outreach and comment letters at the September 2022 ISSB meeting.

The ISSB was not asked to make any decisions during this meeting.

ISSB discussion

The Chair, Vice-Chair and ISSB members stated they appreciated the process of the ISSB’s and the EDs’ development. One member suggested that the future ED development on digital reporting taxonomy would enhance comparability and simplicity of sustainability reporting. Another ISSB member suggested to have more outreach activities in small group discussions, especially for preparers and investors from emerging economies, after the comment period; while the Vice Chair preferred to focus on the incremental points and details from comment letters first in order to have meaningful discussions with small groups in future.

In relation to ED IFRS S1, ISSB members had the following observations and comments:

• Do preparers understand what are the mandatory requirements based on the current language used within ED IFRS S1 (e.g. “shall consider”)?
• Suggestion to have a reference list of industry-based metrics as an appendix that is similar to ED IFRS S2 Appendix B
• Acknowledgement of the challenges on balancing the views between investors and preparers
• Emphasis of the importance of ensuring that the concepts and definitions (e.g. materiality) are clear
• ED IFRS S1 has no requirement on the frequency of reporting, that is the reponsibility of each jurisdication
• Request that consideration should be given to the application by smaller entities/entities in emerging economies and capacity building in certain jurisdictions

In relation to ED IFRS S2, ISSB members had the following observations and comments:

• Guidance/supplements/reference lists could be provided with examples obtained from SASB/TCFD
• Acknowledgement of expected alternative approaches raised by stakeholders
• Some ISSB members sought clarification about the differences between the proposed disclosure requirements about the use of carbon offset and the concerns from some European stakeholders and non-governmental organisations about the use of carbon offsets
• Do investors and preparers consider ED IFRS S2 as a specific and thematic application of ED IFRS S1?
• Suggestion that the ISSB considers providing options for preparers to measure greenhouse gas (GHG) emissions rather than requiring use of the GHG Protocol
• Some preparers including smaller entities and entities in emerging economies asked for the removal of SASB standards from Appendix B and the introduction of proportional reporting
• Suggestion that the ISSB learn from the comments raised in other regulatory proposals in order to consider whether the requirements are relevant and useful for investors’ decision making

The ISSB will follow up on the above observations and comments and will provide a summary of feedback from the outreach and comment letters at its September 2022 meeting.