Projects to add to the work plan (Agenda Paper 2)

Background

This paper provided the staff's analysis of the proposed projects based on feedback received from the ISSB’s request for information (RFI) Consultation on Agenda Priorities. The staff applied the agreed upon criteria to assess each proposed project. 

The staff have summarised comments and provided responses to support their recommendations as follows.  

Biodiversity, ecosystems and ecosystem services (BEES)

The feedback from respondents indicated a strong interest in obtaining better disclosure on the risks and opportunities related to BEES. Considering BEES alongside climate change is crucial for assessing the sustainability and resilience of an entity. However, the lack of a globally recognised framework hinders the availability and quality of such information.

Feedback from respondents and research conducted highlighted significant deficiencies in the quality and availability of information regarding BEES-related risks and opportunities currently. It also emphasised the global significance of BEES being applicable to entities of all sizes, sectors and jurisdictions.

Further, investors acknowledged that BEES is a relatively new and less understood area compared to other sustainability topics like climate change. They also recognised that while some BEES-related risks and opportunities may not directly influence their investment decisions for specific entities, there is a need for consistent and reliable information to better assess the overall impact of BEES factors on investment prospects.

The proposed project on BEES-related risks and opportunities can contribute to the implementation of IFRS S1 and IFRS S2 and can enhance the SASB standards. However, the proposed project would be complex due to a variety of factors.

The ISSB's ability to make timely progress on a project related to BEES depends on the project's scope. The staff agreed with the notion of approaching the research in a holistic manner, considering various interrelated subtopics. Leveraging existing resources, such as IFRS S1 and industry-based guidance like the SASB standards, could enable tangible progress.

Human capital

Respondents recognised that human capital is a crucial source of value for entities. Investor-led coalitions, such as the Human Capital Management Coalition and the Workforce Disclosure Initiative, demonstrate the demand for enhanced human capital reporting. Additionally, respondents highlighted deficiencies in current human capital-related disclosure practices, including boilerplate statements and non-standardised metrics, limiting comparability.

Feedback from respondents highlighted the importance of human capital to all entities, industries and jurisdictions. Although human capital-related risks and opportunities can manifest differently based on factors like jurisdiction, industry and business model, the staff agreed that the ISSB's research should consider proportionality as a key part of its analysis.

The proposed project on human capital-related risks and opportunities can support the implementation of IFRS S1 and IFRS S2 and enhance the SASB standards. Additionally, it is important for the ISSB to collaborate with other bodies like GRI, EFRAG, ILO and the US SEC to ensure interoperability and avoid duplication of work.

The human capital-related project is complex due to various factors, but feasible solutions are available through voluntary standards, investor-led initiatives and resources from the ISSB. The ISSB's ability to make timely progress on a human capital project depends on the project's scope. While broadening the scope is not recommended, a holistic approach considering interrelated subtopics is advised.

Human rights

Respondents demonstrated strong support for a proposed project on human rights. They recognised the potential for reputational harm, financial loss, operational disruption, and legal liabilities associated with human rights issues. Further, there are current deficiencies in the disclosure of human rights, including a lack of comparability and specific information.

Respondents had mixed views on whether human rights risks are more prevalent in certain jurisdictions or industries. Different business models and activities can be affected by human rights risks, but there are common areas such as due diligence processes that apply to all companies. Additionally, respondents indicated that human rights risks and opportunities are pervasive for many entities.

The proposed project on human rights can support the implementation of IFRS S1 and IFRS S2 and enhance the SASB standards. Considering the linkages between human capital and human rights, it may be beneficial to explore these topics together.

However, respondents highlighted the significant complexity involved in the proposed project on human rights-related risks and opportunities. Combining the topics of human capital and human rights into a single project was suggested, but it is believed that such an approach would further increase the projects’ complexities. Respondents raised concerns about the project's time-consuming nature and the ISSB's ability to make timely progress.

Integration in reporting

In the staff's outreach, integration in reporting was the least frequently mentioned matter compared to other sustainability-related areas such as BEES, human capital and human rights. Stakeholder feedback suggested that current reporting practices may not provide a comprehensive view of how companies create value and consider interdependencies, synergies and trade-offs. The proposed project on integration in reporting is seen as a means to enhance corporate reporting overall.

Integration in reporting affects all companies that prepare financial statements and sustainability-related disclosures. It affects companies of all sizes, industries and jurisdictions. Unlike the other proposed projects, the project on integration in reporting would not establish specific disclosures for a sustainability-related matter. Monitoring reporting practices for companies using the integrated thinking principles and the Integrated Reporting (IR) Framework will help assess the pervasiveness and acuteness of the matter in future.

The proposed integration project in reporting could potentially incorporate concepts from the IASB's management commentary project and the IR Framework, with feedback indicating support for collaboration between the ISSB and the IASB.

The staff considered that an integration in reporting project is more complex than proposed projects on specific sustainability disclosures. Feedback received revealed diverse views and expectations regarding the project's scope and outcome. Further, respondents raised concerns about the feasibility and timeline of a proposed project on integration in reporting. The staff agreed with these concerns and highlighted the importance of considering implementation costs and immediate benefits. They also suggested a potential collaboration between ISSB and IASB on this project.

Staff recommendation 

The staff recommended that the ISSB:

• add to its work plan a research project on information about risks and opportunities associated with BEES and human capital; and
• not add to its work plan projects information about the risks and opportunities with human rights, integration in reporting, or any other topics.

ISSB discussion

BEES was unanimously supported by all ISSB members, with support emphasising information needs from investors. The concerns raised were centred on the phrasing of the issue itself and whether it accurately describes the intended focus. This concern was also voiced with regard to human capital, prompting one of the Vice-Chairs to clarify that the specific phrasing proposed by the staff was less important than the scope.

Numerous ISSB members also spoke in support of the human capital research project. One cited significant investor interest and emphasised that it is important to look beyond climate-centric issues, as sustainability has a broader scope, particularly when defined under IFRS S1 and IFRS S2. There was also support because human capital, by definition, involves some level of human rights within its scope, although there was consensus that they are not inherently the same.

One ISSB member had an opposing view, expressing concern that human capital, under the technical definition, does not encompass the scope that would be beneficial to investors (e.g. health and safety, and diversity and inclusion would technically not fall under human capital).

One of the Vice-Chairs expressed agreement with the staff recommendations, stating that both the recommended topics and the staff’s proposed approach of where to begin the research aligned with investor needs and knowledge gaps, and avoided complications that can arise from not having a targeted scope.

Across all ISSB members, there was heavy emphasis that the research needed to include investor feedback. ISSB members stressed the importance of conducting the work in a way that drives value for investors and appropriately addresses knowledge gaps.

ISSB decision

All 14 ISSB members voted in favour of the staff recommendation to conduct a research project on BEES.

13 ISSB members voted in favour of the staff recommendation to conduct a research project on human capital.

13 ISSB members voted in favour of the staff recommendation not to move forward with any other research topics in the next two years.