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

This paper discussed the sources of guidance to identify sustainability-related risks and opportunities and related disclosures in paragraphs 50-54 of [draft] S1 within the ‘fair presentation’ section.

The objective of this paper was to seek decisions from the ISSB on the open issues related to the sources of guidance in [draft] S1 that that were discussed but not voted on in the 3 November 2022 supplementary ISSB meeting.

Staff recommendation

The staff was seeking decisions from the ISSB on these recommendations:

• Recommendation 1 — Open-ended sources of guidance—the staff recommended that the ISSB amend the references to ‘other standard-setting bodies whose requirements are designed to meet the needs of users of general purpose financial reporting’ and ‘entities that operate in the same industries or geographies’ 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 (so amending ‘shall consider’ as proposed in [draft] S1 to ‘may consider’)
• Recommendation 2a — Global Reporting Initiative (GRI) Standards—the staff recommended that the ISSB amend the sources of guidance to explicitly state that preparers may consider the GRI Standards to identify disclosures about sustainability-related risks and opportunities that meet the objectives of [draft] S1
• Recommendation 2b — European Sustainability Reporting Standards (ESRS)—the staff recommended that the ISSB amend the sources of guidance to explicitly state that preparers may consider ESRS to identify disclosures about sustainability-related risks and opportunities that meet the objectives of [draft] S1

ISSB discussion

The ISSB agreed with Recommendation 1.

Regarding Recommendations 2a and 2b, there was an interesting discussion emphasising certain advantages and disadvantages of explicitly referencing to GRI Standards and/or ESRS.

Since GRI application is widely spread, ISSB members repeatedly cited cost efficiency as a main argument. The argument of different materiality concepts, which was mentioned as an argument against referencing, was refuted by the remark that double materiality frameworks can also be helpful to identify financially material metrics, since rebound effects from impacts of companies are also relevant for users of general purpose financial reporting. Therefore, the ISSB decided to highlight that the focus for referencing should be on metrics and on financial materiality, which should also be reflected in the basis for conclusions of [draft] S1. Therein it should be clarified, among other things, that users cannot simply repurpose GRI and/or ESRS disclosures without further thoughts.

At the end, 13 of the 14 ISSB members decided to amend the sources of guidance to explicitly state that preparers may consider GRI Standards to identify metrics and disclosures about sustainability-related risks and opportunities that meet the objective of [draft] S1.

Regarding the reference of ESRS, some ISSB members were initially sceptical, because ESRS will only be applied in one jurisdiction in the future and are therefore localised. However, in addition to the arguments mentioned above, the Chair emphasised that referencing to other standards will not be included in the standards forever and reassessed whether needed in the future. At the end of the discussion, 13 of the 14 ISSB members agreed on referencing to ESRS Standards to identify metrics and disclosures about sustainability-related risks and opportunities that meet the objective of [draft] S1.

To emphasise the non-permanence of these references, the ISSB decided to include the guidance that preparers may consider the GRI Standards and/or ESRS in the appendix rather than in the main text.