General Sustainability-related Disclosures

Date recorded:

Sources of guidance to identify sustainability-related risks and opportunities and disclosures (Agenda Paper 3)

This paper discussed the sources of guidance to identify sustainability-related risks and opportunities and related disclosures in the Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information ([draft] IFRS S1) within the ‘fair presentation’ section.

The objective of this paper was to:

  • Describe the feedback related to the sources of guidance in [draft] IFRS S1
  • Seek the ISSB’s feedback on the staff’s analysis and recommendations
  • Seek decisions from the ISSB on the staff’s recommendations for revising the sources of guidance, including the overall approach on referencing materials, the specific materials to reference and the nature of each reference

Staff recommendations

  • Staff recommendation 1: Overall approach on referencing guidance—the staff recommended that the ISSB:
    • Confirm the general approach used in [draft] IFRS S1 to reference materials other than IFRS Sustainability Disclosure Standards—noting specific modifications recommended by the staff below
    • Provide further clarity on what is required when considering the materials referenced and the possible implications—specifically, state that a preparer is generally expected to have a process in place to consider the materials and that this process may result in not applying the materials (based on the objectives and other requirements throughout [draft] IFRS S1)
    • Clarify for each of the materials referenced, if a preparer is required to consider these materials or if consideration is permitted as an option—in other words, use ‘shall consider’ or ‘may consider’ (see staff recommendations 3-6 for specific recommendations on how the staff proposes this applies to each set of materials)
  • Staff recommendation 2: Overarching requirements for using other materials—the staff recommended that the ISSB confirm the requirements in paragraph 53 of [draft] IFRS S1.
  • Staff recommendation 3: SASB Standards—the staff recommended that the ISSB confirm the requirement to consider the SASB Standards as proposed in paragraphs 51(a) and 54 in [draft] IFRS S1.
  • Staff recommendation 4: CDSB Framework—the staff recommended that the ISSB amend the reference to the CDSB Framework application guidance (paragraphs 51(b) and 54 in [draft] IFRS S1) to state that preparers may consider these materials, both in the identification of sustainability-related risks and opportunities and in the identification of disclosures about those risks and opportunities, but that such consideration is not a requirement (amend from ‘shall consider’ to ‘may consider’)
  • Staff recommendation 5: Open ended sources of guidance—the staff recommended that the ISSB amend the references to ‘other standard-setting bodies’ (paragraphs 51(c) and 54 in [draft] IFRS S1) and ‘entities that operate in the same industries or geographies’ (paragraphs 51(d) and 54) to state that preparers may consider such sources, both in the identification of sustainability-related risks and opportunities and in the identification of disclosures about those risks and opportunities, but that such consideration is not a requirement (amend from ‘shall consider’ to ‘may consider’)
  • Staff recommendation 6: Global Reporting Initiative (GRI) Standards and European Sustainability Reporting Standards (ESRS)—the staff recommended that the ISSB amend the sources of guidance to explicitly state that preparers may consider the GRI Standards and ESRS to identify disclosures about sustainability-related risks and opportunities that meet the objectives of [draft] IFRS S1

ISSB discussion

All ISSB members agreed with the staff recommendations 1-4. They strongly supported the distinction between ‘shall consider’ and ‘may consider’ and believed that it would provide clarity for preparers especially from non-native English speaking countries.

One ISSB member suggested to provide additional guidance on what would be the evidence to demonstrate that the reporting entity has considered the relevant disclosure requirements. He also suggested to remove the word ‘neutral’ from paragraph 53 in [draft] IFRS S1 because it may not always result in faithful representation. Another ISSB member suggested to extend the definition of what are good processes in place by preparers to consider the reference materials other than IFRS Sustainability Disclosure Standards. The remaining ISSB members generally supported these suggestions.

For staff recommendation 2, one ISSB member suggested that the ISSB help preparers to understand whether their current reporting on particular issues would satisfy the requirements of [draft] IFRS S1 and if not how could they close the gaps.

In particular for staff recommendations 5 and 6, no decision was made due to different views and concerns expressed by ISSB members during the meeting. ISSB members generally supported staff recommendation 5, however, many of them expressed concerns on staff recommendation 6. They emphasised the importance of meeting investor needs as the main objective of [draft] IFRS S1 and risks of obscuring the relevant information arising from the references to other sources of materials. They further explained that GRI is widely used and could reduce the disclosure burden for preparers but at the same time is designed for a broader set of stakeholders. A right balance between benefits and costs should be carefully considered and effort is required to ensure the preparers only disclose information that meets investor needs. In the absence of an IFRS Sustainability Disclosure Standard for specific topics, it may be helpful for preparers to refer to GRI but the ISSB should develop a set of criteria for selecting, adopting and referencing the appropriate sources of materials over time.

In addition, a few ISSB members expressed their concern on specific references to GRI and ESRS. Given that preparers are allowed to apply judgement on selecting relevant sources of materials by using paragraphs 53 and 54 in [draft] IFRS S1, they believed that it is not necessary to explicitly include these broader/jurisdictional standards in [draft] IFRS S1. Such references would fail to achieve the objective of setting a global baseline for IFRS Sustainability Disclosure Standard.

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