Plan for redeliberations (Agenda Paper 3B & 4B)

This paper discusses the proposed plan for redeliberating the Exposure Drafts (EDs) IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosure.

The staff considered the following five main factors in deciding how to approach redeliberations:

• Timeliness and maintaining momentum
• Leveraging existing sustainability-related frameworks and standards
• Linkages between topics
• Future work plan
• Efficiency

Considering the factors above, the staff’s proposed approach to redeliberations involves assessing feedback on the EDs, establishing the scope of topics for redeliberations and establishing the approach on topics for redeliberations.

The staff proposed different approaches for redeliberations, depending on the complexity of the matters subject to redeliberations. In cases in which a matter is less complex, the staff suggests bringing analysis and recommendations in a single meeting. In contrast, in cases in which a matter is more complex, the staff suggests initially seeking a general direction from the ISSB and then bringing a paper in line with the direction to discus and facilitate a decision.

Noting that there has been widespread support for the proposed requirements in the EDs, the staff suggests focusing on a limited number of topics for redeliberations, which are:

For joint topics relevant to both EDs:

• Scalability
• Current and anticipated effects of sustainability-related and climate-related risks and opportunities

For IFRS S1 topics:

• Enterprise value
• Breadth of reporting required
• 'Significant’ sustainability-related risk or opportunity
• Identifying significant sustainability-related risks and opportunities and disclosures
• Application of the materiality assessment
• Connected information
• Frequency of reporting

For IFRS S2 topics:

• Strategy and decision-making, including transition planning
• Climate resilience
• Greenhouse gas emissions
• Industry-based requirements, including financed and facilitated emissions

The ISSB was asked to confirm the list of topics for redeliberations.

ISSB discussion

The ISSB members spent the first half of the meeting discussing the factors in deciding how to approach redeliberations and the general approach to the redeliberations that were described in the agenda paper.

Before starting the discussion, the Vice-Chair made a comment that while it is very unusual for the ISSB to discuss redeliberation plans right after the comment deadline, it is very important to do so to get direction as quickly as possible to build on the momentum that many stakeholders said matters.

Many ISSB members appreciated the staff putting together redeliberation plans in a timely manner and they agreed that the factors the staff considered in deciding how to approach redeliberations were very important.

On the aspect of future work plan, one of the factors considered by the staff, one ISSB member asked the staff what the staff meant by saying there may be instances when the staff recommends that the ISSB make a decision with an understanding that a topic should be considered as part of the development of its work plan. The staff clarified that the staff would not want the ISSB to simply view the redeliberations for IFRS S1 and S2 in isolation from the development and they may possibly lead to adding projects to the ISSB’s future work plan.

On the aspect of leveraging existing sustainability-related frameworks and standards, the Vice-Chair emphasised that considerations of this factor are not to say that the ISSB does not worry too much about the feedback that the ISSB received on these related topics, but instead that the ISSB has the benefit of some more understanding from experiences based on existing frameworks and standards.

One ISSB member asked whether the staff considered which of the 13 topics to prioritise. Discussions on this question by the staff and other ISSB members indicated that the staff had considered prioritisation of the topics when coming up with those topics. This was done by, for example, focusing more on topics where stakeholders provided new or emphasised different information than what was relied on in determining the proposals in the exposure draft. One ISSB member commented that the topics that are relevant to both IFRS S1 and S2 should be prioritised.

Another ISSB member asked if the ISSB were to develop any educational materials such as guidance and/or illustrative examples, and whether they would come out at the same time as the finalised requirements. The staff suggested that the ISSB has flexibility so that would not necessarily be the case. The ISSB could choose to first focus on materials that the stakeholders considered important based on the feedback received.

The ISSB members then spent the second half of the meeting discussing the topics for redeliberations proposed by the staff.

Many ISSB members, including the Chair and the Vice-Chair appreciated and supported the list of the topics for redeliberations.

No ISSB member, except the Vice-Chair, suggested topics for redeliberations other than those already included in the agenda paper. Considering the comments received and the results of outreach, the Vice-Chair said that proposals around comparative information having to reflect updated estimates were a good topic to discuss further. While the staff replied that it could be addressed as a drafting process, the Vice-Chair said it would require more than a refinement during the drafting process.

While agreeing with the list of topics for redeliberations proposed by the staff, one ISSB member asked the staff how the ISSB will consider other topics that are not included in the list but that still received useful and constructive comments from stakeholders for further improvement of the proposals. The Vice-Chair suggested that like the IASB does, the staff should prepare an agenda paper including a list of those comments along with a brief staff analysis and recommendations so that the ISSB has a chance to consider them.

The Chair asked what the staff meant by alternatives in the agenda paper, in which strategy and decision-making and targets in the context of IFRS S2 proposals are discussed. He specifically asked whether they were alternatives to the substance of the proposals. The staff clarified that this topic received supportive feedback in general so the intent was not to look at the topic broadly but to focus on those questions and confusion described in the agenda paper.

ISSB decision

All of the 10 ISSB members confirmed the list of topics for redeliberations that was included in the agenda paper.

Scalability (Agenda Paper 3C & 4C)

Most respondents to the consultation on the exposure drafts (EDs) IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures suggested that the ISSB should give more consideration to the range of capabilities and preparedness of entities around the world to apply the proposals in the EDs. Some respondents proposed that disclosures would require significant resources, both in a transition phase and more permanently, which would be especially challenging for smaller entities and entities in emerging markets. Respondents gave some examples of requirements proposed in the EDs that would likely be particularly challenging for some entities, including the requirements to disclose forward-looking information and Scope 3 greenhouse gas (GHG) emissions, as well as, the requirement to report sustainability-related financial disclosures at the same time as the related financial statements.

A list of options (mechanisms) as set out below is used by the ISSB staff to inform recommendations to the ISSB members in subsequent papers relating to the EDs. The paper does not address whether the ISSB should develop separate requirements akin to the IFRS for SMEs Accounting Standard that the International Accounting Standards Board (IASB) has developed. The mechanisms for addressing scalability are designed to address challenges that affect a subset of preparers: those that are less able to comply with the proposed disclosure requirements in the EDs, for example, entities which are more resource constrained and entities operating in a market where high-quality external data is less available or where it is more challenging to attract the human resources and talent needed to comply with the EDs.

The proposed disclosure requirements could be amended:

• So that an entity, based on a specific criterion related to scalability, would not be required to provide a particular disclosure—such as, the entity being unable to provide a disclosure would either not be required to provide that disclosure or would be required to provide an alternative disclosure that is simpler to apply. Additional explanation of when an entity may be unable to provide a disclosure should be made to illustrate the intended meaning, such as when an entity currently is ‘unable to’ obtain the required information or lacks the expertise necessary to undertake analysis required to provide a disclosure
• So that an entity that meets on of the criteria of being unable to provide a disclosure is required to explain how it meets the criterion
• To differentiate the application by entities by identifying requirements that are ‘basic’ and ‘advanced’ for a transition period—in order to facilitate a phased implementation by entities. The staff do not recommend that the ISSB set different effective dates for different categories of information. However, the staff recommend that this approach could be used to facilitate a scalability mechanism to be used by jurisdictions

Providing materials to assist preparers in the application of the standards

• Providing guidance to support application—This would enable comparability, enhance responsiveness to evolving practices and techniques and facilitate high-quality and consistent disclosures for all entities
• Referring to other sustainability-related protocols, frameworks and guidance as further resources—This would be a resource efficient mechanism

Other mechanisms considered but not recommended

• Amending the EDs to require companies to make disclosures on a ‘comply or explain’ basis applicable to the entire standard or specific requirements
• Amending the proposed disclosure requirements so that an entity, based on the criterion that the costs of disclosure would outweigh the benefit, would not be required to provide a particular disclosure
• Amending the proposed disclosure requirements to differentiate between the effective date by industries

The staff have also identified factors they recommend to be used when assessing which scalability mechanism to recommend, to ensure that the mechanism is appropriate to the specific scalability challenge and to ensure consistency in their recommendations to the ISSB in future agenda papers:

• Whether the scalability challenges are temporary or more permanent
• The extent to which the set of entities with a scalability challenge can be specifically identified
• The extent of available market guidance, methods, industry-practices and techniques
• The maturity of the underlying methods and techniques that underpin the disclosure requirement

At this meeting, the ISSB members were asked (i) whether they want to explore mechanisms to enable the requirements to be scalable, (ii) for feedback on the proposed mechanisms for addressing scalability and (iii) for feedback on the factors that should be used when evaluating which mechanism could be used for addressing particular scalability challenges.

ISSB discussion

Two ISSB members showed strong support for the paper and considered it is the appropriate direction.

One ISSB member emphasised the importance of a global baseline and consistency among all reporting entities’ disclosures and, therefore, the objective for this session should only be to reduce the variation and to increase the comparability among all reporting entities’ disclosure. The ISSB Vice-Chair explained that these mechanisms focused more on the long-term constraints and the alternative disclosures would still provide good quality of disclosures that investors need. The ISSB would like to take the lead in considering the scalability, rather than allowing different approaches adopted by different jurisdictions. In addition, the phased implementation suggested in the paper would help reporting entities achieve the ultimate set of high quality disclosures gradually.

One ISSB member suggested that the paper should clearly state the composition of preparers, including those that are less able to comply with the proposed disclosure requirements in the EDs. These are not limited to smaller entities and entities in emerging markets only. The ISSB Vice-Chair agreed that there could be other circumstances in which entities are less able to comply with the proposed disclosure requirements, even among large companies, for example if they have specific restrictions. She believed these mechanisms can address these different circumstances and different reporting entities.

One ISSB member asked whether the concept of “basic” and “advanced” requirements would create two sets of the global baseline. The ISSB staff agreed that the “basic” requirements could become the de facto global baseline and therefore the ISSB staff would suggest these requirements be limited to reporting entities meeting certain criteria for a transition period only.

The ISSB Chair emphasised that it is the management’s judgement to interpret the “unable to do so” exemption. It would be an entity-specific judgement made by the management and, if used, disclosure for the underlying reasons should be made. The ISSB Vice-Chair further suggested that it would be worthwhile to provide some examples explaining what are not valid reasons that would qualify as “unable to do so”.

At the end of the meeting, all ISSB members agreed that the ISSB staff should use this paper for their further analysis.