Standard setters discuss sustainability reporting

  • IFASS (International Forum of Accounting Standard Setters) (dark green) Image
  • Leaf - sustainability (green) Image

08 Mar, 2022

The International Forum of Accounting Standard Setters (IFASS) is currently holding its spring meeting as a virtual conference. The whole morning today was devoted to the discussion of sustainability reporting.

The session began with four presentations on different sustainability initiatives.

A representative of the International Sustainability Standards Board (ISSB) explained about the growing and urgent demand for global standards to improve consistency and comparability that led the IFRS Foundation Trustees to establish the ISSB and to generally create the necessary institutional arrangements and technical groundwork for a global sustainability standard setter for the financial markets. After publication of prototype requirements on Climate-related Disclosures and on General Requirements for Disclosure of Sustainability-related Information in November 2021, the development of exposure drafts is well under way, the publication of the exposure drafts is expected by the end of March 2022. Chair and Vice Chair of the ISSB still need to decide on the comment letter period and whether to approach the DPOC for a shortened comment letter period (three months). The look and feel of the exposure drafts will be very similar to IASB exposure drafts and also include a comprehensive basis for conclusions. The ISSB representative concluded with a call to action and encouraged the IFASS members to familiarise themselves with the prototypes and to get ready to respond to the upcoming consultation documents by engaging with stakeholders in their jurisdictions.

The second presentation on the work of the EFRAG Project Task Force on European Sustainability Reporting Standards (PTF-ESRS) explained about the EU context of sustainability reporting, the development of a sustainability reporting pillar as part of EFRAG and the task force's achievements so far and next steps. A key concept of European sustainability reporting will be double materiality, the location and timing of reporting are to be in the management report and at the same time as financial statements. Mandatory audit is envisioned. Working papers on the forthcoming exposure drafts are being made available as they are being discussed by the task force - they are available here on the EFRAG website. The final exposure drafts are expected by the end of April 2022. Outreach events in several EU locations are planned for May and possibly early June 2022.

A representative of the Australian Accounting Standards Board (AASB) discussed positioning sustainability reporting requirements in Australia and explained about two recent consultation documents: the AASB Agenda Consultation 2022-2026 and a consultation on extended external reporting. Australian stakeholders expressed their belief that sustainability reporting is important and pointed to the increased in demand for more transparent, consistent and comparable sustainability information. They were supportive of the AASB expanding its scope of activities to include sustainability reporting. However, respondents also warned that that the scope of sustainability reporting is broad and its objectives differ from that of financial reporting. Respondents also commented that the AASB should consider international alignment as a priority in developing sustainability reporting requirements for Australia, however, there were mixed views about which international approach the AASB should align with. At its February 2022 meeting, the AASB discussed the feedback received and the possible way forward (please see agenda papers 3.1 - 3.9 on this AASB website). Preliminary decisions include that the AASB will include sustainability standard-setting in its remit and will develop a separate suit of sustainability reporting standards. The AASB will apply the existing AASB due process for its standard-setting and starting point will be the ISSB standards.

The fourth presentation by the Korea Accounting Standards Board (KASB) gave a very high-level overview of the decisions to be made when considering the adoption - or development - of sustainability reporting standards. A Planning Committee of the Korea Accounting Institute (KAI) under which the KASB operates is currently developing an adoption and implementation plan of Korea sustainability disclosure standards. The major adoption question to be answered is whether to adopt only ISSB standards, whether to adopt ISSB standards and supplement them with local requirements or whether to adopt only some ISSB standards/requirements and supplement them with local requirements. For the implementation phase, legal, organisational and technical questions need to be considered. The legal questions (mandatory or voluntary, scope, reporting channel, reporting entity's boundary) have a potential to increase the burden on Korean entities, while the Korean approach in general is aimed at reducing the burden. Similarly, the question of dual reporting (use of an existing reporting framework and application of the ISSB's disclosure requirements) vs. converged reporting (one set of reporting requirements) has a burden aspect. Finally, the Committee is looking into who the standard setter should be: (1) Expand the remit of the KASB (at the price of the lack of expertise), (2) establish an KSSB under the roof of the KAI (to ensure connectivity), or (3) establish an independent KSSB (at the price of a lack of structure and financing).

Following the presentations, the floor was opened for questions, comments and observations:

  • While for the EFRAG approach a possible structure of a report was presented that looked rather straightforward, it was admitted that there will be no single measurement unit - information would be narrative, qualitative, quantitative etc. The estimate was that a report would present 30-40 different measuring units so that combining numbers into single measures such as "profit", "loss" or "equity" would not be possible.
  • Asked about international co-operation, the ISSB representative clarified that international exchange (including with EFRAG) had been very helpful in developing the forthcoming exposure drafts and would continue in the future. An ASAF equivalent (the SSAF) will be set up. However, the ISSB is not only aiming at interoperability with different jurisdictions around the world, but also interoperability with broader stakeholder groups.
  • An IASB representative voiced concerns about the amount of consultation documents that will potentially stretch the stakeholders' ability to cope with them.
  • Asked about including (although at a later stage) smaller entities in the comprehensive EU requirements although the burden would considerably, the EFRAG representative replied that not including the smaller entities could in fact mean actively excluding them going forward as banks might be asking for the information or as entities might be required to provide them anyway as part of supply chains.
  • It was observed that some jurisdictions (as e.g. Australia and Korea) are just beginning to develop sustainability reporting structures. While the speed of the ISSB is highly appreciated, it might make it difficult for some jurisdictions to comment in an informed manner.
  • In a similar vein, EFRAG was asked whether the detailed, comprehensive requirements developed now would not make it difficult later to converge/harmonise with ISSB standards later (the EFRAG representative was positive that there was a lot of common ground already).
  • It was commented that connectivity between IASB and ISSB should not be discussed at project level, but at an overarching integrated reporting level.
  • Asked about the wider sphere of sustainable development and the SDGs, the ISSB representative pointed at the Sustainability Consultative Committee to be set up. Membership would comprise multilateral institutions, including the UN. The group would bring topics of emerging focus to the ISSB's attention who would then decide how this is relevant for and can be reflected in the ISSB's work.

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