Changes to the Proposed IFRS Sustainability Disclosure Taxonomy (Agenda Paper 7)

The purpose of this paper was to provide an overview of the main changes to the proposed IFRS sustainability disclosure taxonomy that the staff recommended to the ISSB in response to stakeholder feedback.

Staff recommendation

Narrative information

• Confirm the principle for creating elements for narrative information expected to be both separately understandable to investors and readily identifiable for tagging.
• Make targeted amendments to the modelling of specific taxonomy elements to refine and enhance the Taxonomy as well as minimising the gap in how similar requirements in IFRS S2 and European Sustainability Reporting Standard (ESRS) E1 are modelled (specifically with regards to granularity and data type).

Modelling of relationship between IFRS S1 and IFRS S2

• Confirm the proposals to create:
  • a single set of elements to reflect the corresponding requirements; and
  • a dimensional model to reflect disaggregation by risks and opportunities.
• Introduce a mechanism to enable investors to identify the sustainability topic(s) of a risk or opportunity when such information is provided and tagged (specifically, adding an extensible enumeration reflecting the topic of ‘Climate’).

Metrics and targets

Make targeted improvements to the modelling of entity-defined metrics and targets and the link between metrics and targets to make it easier for investors to analyse the resulting data.

Other improvements

• Refine the list of categorical elements proposed and clarify the guidance for using the categorical elements.
• Make targeted editorial changes to shorten verbose standard labels to improve the functionality of the labels in the Taxonomy.

ISSB discussion

Narrative information

One of the Vice-Chairs noted that the meeting was to give comments and ask questions on the structure of the taxonomy. She noted that usually, the taxonomy is already set up and the task is only to translate the standard requirements into the taxonomy. However, this is a unique position and hence the ISSB suggested to have this session to input on the structure of the taxonomy.

One ISSB member asked whether existing SASB taxonomy users would encounter any issues when applying the IFRS sustainability taxonomy. The staff replied that some of the metrics in IFRS S2 were taken from SASB Standards, and therefore some elements are identical between the two taxonomies. One of the Vice-Chairs added that also, preparers use SASB Standards for sustainability topics other than climate to develop the disclosures required under IFRS S1, so the taxonomies are highly interoperable. It was noted that the ISSB should have principles that state under which circumstances changes to the taxonomy can be made solely to align with other taxonomies. One ISSB member said that it should be clear what alignment means. If two sets of sustainability disclosures are prepared under different rules, the taxonomy would not be able to align them.

One of the Vice-Chairs noted that each tag should be separately identifiable and understandable for users of the taxonomy. In his view, interoperability comes second behind this objective. This was echoed by another ISSB member who said that the most importantly, the ISSB should focus on stakeholder feedback. The other Vice-Chair said that if the ISSB’s standards are used as the global baseline, and preparers are using standards that are very similar, they also have the advantage of using the ISSB taxonomy with extensions (as long as they do not obscure the information presented). She acknowledged that it is more complicated with the ESRS taxonomy. Although there is much overlap, it would require some work with the EFRAG staff to make the taxonomies interoperable.

One ISSB member noted that interoperability with other taxonomies was estimated at 75%, which was assessed as to be insufficient. She asked what percentage would be desirable and warned that reaching a higher percentage would compromise the other objectives of reducing the reporting burden and providing useful information. The staff said that it is difficult to determine an ideal percentage but that all objectives would be considered when thinking about the changes to the taxonomy.

Modelling of relationship between IFRS S1 and IFRS S2

The Chair noted that the staff had used single tags for some information that is required under IFRS S1 and IFRS S2. It might be confusing for users to find the information if, for example, the IFRS 2 governance information is provided together with the IFRS S1 governance information. The staff replied that the taxonomy based on the staff draft included many instances of double-tagging, which was undesirable. Therefore, it was reduced to single elements in those instances. However, when the user searches for key words, all instances would appear.

Metrics and targets

One ISSB member asked how the staff monitors application issues with the taxonomy once effective. The staff replied that the due process handbook requires to review practice as it develops. The staff also reviews common content elements (i.e. those that are not required by the taxonomy) that practice develops. These are sometimes adopted in the taxonomy if they are consistent with the requirements. Another ISSB member suggested to draft some guidance for preparers on how to use the IFRS sustainability taxonomy with the SASB taxonomy.