The IFRS Foundation Constitution provides the ISSB Chair and Vice-Chair with the option to publish exposure drafts before the ISSB is quorate. This is due to the fact that standard-setting in this areas is perceived as urgent and while the process for appointing ISSB members has started, it might yet take a while until the ISSB is quorate. The granting of the option was based on the premise that the exposure drafts build on the mature and high-quality preparatory work of the TRWG and generally build on established frameworks. Still, the publication of the exposure drafts requires oversight and permission of the DPOC.

During the meeting, the ISSB leadership explained that they think there are two key benefits of publishing the exposure drafts prior to the ISSB becoming quorate. Namely to:

• advance standard-setting with urgency; and
• clarify scope and demonstrate interoperability with jurisdictional requirements.

They explained delaying publication of the exposure drafts to allow for their deliberation by the ISSB would mean a delay of at least a quarter, given that the ISSB is expected to be quorate early in the third quarter of 2022. The delay may even be longer if the board were to actively debate the proposals prior to publishing an exposure draft. Given the current quality of the exposure drafts, the Chair and Vice-Chair of the ISSB do not believe that the benefits that might arise from deliberation by the ISSB would be substantial enough to justify missing the window of opportunity of a quarter two/three consultation. In order to minimise the risk of re-exposure, which would lengthen the overall timetable to finalisation, the questions included in the exposure drafts will be designed to elicit responses on a broad range of issues to maximise the opportunity to obtain stakeholder feedback to inform the quorate ISSB’s redeliberations.

Regarding clarifying the scope and demonstrating interoperability, the Chair and Vice-Chair think this clarification will be beneficial to demonstrate the significant overlap that exists between information that is to be provided to the capital markets and information to be required for multiple stakeholders. Current discussions with stakeholders and a select number of jurisdictions have highlighted that timing is critical to provide a draft of the ISSB’s intended global baseline, as several jurisdictions intend to expose their own draft jurisdictional specific requirements in the coming months (for example the European Union and the United States). The ISSB leadership believes that giving stakeholders the opportunity to review the ISSB’s exposure drafts alongside jurisdictional consultations will allow stakeholders to bring fully informed and coordinated comments to each, broadly supporting interoperability and will allow the ISSB to receive extremely valuable feedback to finalise its work.

Following this line of argument, the DPOC members unanimously gave the Chair and Vice-Chair of the ISSB the permission to publish the two exposure drafts before the ISSB is quorate as long as all subsequent due process steps are adhered to.

A summary of the meeting has been made available on the IFRS Foundation website.

Five years ago, the first Parker Review set its key target that each FTSE 100 Board should have at least one director from a minority ethnic group by the end of 2021. Five years on this update report from the Parker Review states that this target has nearly been met with 89 of the FTSE 100 companies meeting it at the end of 2021. With an additional five appointments announced since then, it is expected that 94% of FTSE 100 companies will be complying with the target by May 2022. The Report goes on to note that, as expected, the great majority of these Board positions are as Non-Executive Directors. Only six CEOs and 12 other executive directors across the FTSE 100 come from a minority ethnic group. There are even fewer Chairs from a minority ethnic group background, with just three in the FTSE 100.

In the FTSE 250 companies, the target was for them to have a person from a minority ethnic group on their Boards by December 2024. With these companies, there has been some progress, particularly in the last two years with 55% now meeting the target compared to a small percentage in 2016. As with the FTSE 100, the large majority of directors from minority ethnic groups in the FTSE 250 are NEDs. However, there are 13 CEOs and five Chairs from minority ethnic groups.

Next steps for the Parker Review objectives

1. Assisting FTSE 100 companies to maintain at least their current level of Board-level ethnic diversity and assisting and encouraging FTSE 250 companies to reach the same level by having at least one director from a minority ethnic group by December 2024;
2. Acting as a focal point for those looking for, or offering, support and guidance - the Report includes material which it is hoped will be useful for companies seeking to widen talent pipelines and plan for succession; and
3. Continuing to collect data from FTSE 350 companies annually and to present it in a clear, consistent way for the benefit of the business community and investors. The Report encourages companies who are monitoring the percentage of minority ethnic employees within their Executive Committees, and at ‘Ex Co minus one’ and ‘Ex Co minus two’ levels to make this data available publicly in their reports.

Each of these steps is set within the overarching ambition for the Review to continue to encourage companies to make sure that every employee — from the bottom of the organisation to the top — has an equal chance to meet their potential, irrespective of their ethnic background.

The full report is available here.

After publication of six working papers in Batch 1, three working papers in Batch 2, one working paper in Batch 3, seven working papers in Batch 4, and two working papers in Batch 5, Batch 6 consists of the following two papers (all links to the EFRAG website):

• ESRS 1 General Provisions
• Cover Note

The Cover Note explains that concepts, principles and some disclosure requirements that were initially included in other ESRS and also fundamental principles that were so far only addressed in ESRG were incorporated into ESRS 1:

• some disclosure requirements about strategies and business model of an entity which provide context for their sustainability reporting so far part of ESRS 2,
• certain disclosure requirements on the development of entity-specific disclosures and the quality of sustainability information so far part of ESRS 4,
• and the entire ESRS 5 with definitions for policies, targets, action plans and resources (ESRS 5 is superseded by ESRS 1).

The agenda for the meeting is sum­marised below.

Agenda papers for the meeting are available on the IFRS Foundation's website.

In amending the IFRS Foundation Constitution in October 2021 to accommodate the establishment of the ISSB, the Trustees provided the ISSB Chair and Vice-Chair, in consultation with any appointed ISSB members, with the option to publish exposure drafts on General Requirements and Climate-Related Disclosures before the ISSB is quorate.

The Trustees provided this option in the light of:

1. the maturity and high-quality of the Technical Readiness Working Group’s (TRWG) preparatory work on the prototype standards
2. calls from stakeholders for the ISSB to develop standards urgently, particularly on climate;
3. the intention for the ISSB’s Standards to build on established frameworks; and
4. the possible length of time between the appointment of the Chair and Vice-Chair and there being a quorate ISSB.

Agenda papers for the meeting are available on the IFRS Foundation's website and provide background information and the rationale of ISSB Chair and Vice-Chair.

Because of its broader impact on these macroeconomic conditions, many entities globally may need to consider the effect of the war on certain accounting and financial reporting matters. The degree to which entities are or will be affected by them largely depends on the nature and duration of uncertain and unpredictable events, such as further military action, additional sanctions, and reactions to ongoing developments by global financial markets.

Political events and sanctions are continually changing and differ across the globe. Whilst this alert does not address such activities specifically, it is intended to raise awareness of some of the key impacts of the Russia-Ukraine war that entities need to consider. These include:

• Interruptions or stoppage of production in affected areas and neighbouring countries.
• Damage or loss of inventories and other assets.
• Closure of roads and facilities in affected areas.
• Supply-chain and travel disruptions in Eastern Europe.
• Volatility in commodity prices and currencies.
• Disruption in banking systems and capital markets.
• Reductions in sales and earnings of business in affected areas.
• Increased costs and expenditures.
• Cyberattacks.

Click to view Deloitte’s Need to Know — Financial reporting considerations related to the Russia-Ukraine War.

Mr Barckow began his speech by pointing out what the existing, principles-based standards already require: consideration of every emerging risk (be it climate-related or not) and deciding how these issues may affect the measurement of assets and liabilities as well as consideration of disclosures required to enable users to understand the effect of some events and conditions on the company’s financial statements. Examples he cited included the recognition and measurement of impairment losses on tangible and intangible assets, the recognition and measurement of provisions for government levies, remediation of environmental damage and onerous contracts, and the measurement of loan contracts with climate-related targets. Events and circumstances that led to the recognition of an impairment loss need to disclosed as well as key assumptions made.

However, Mr Barckow acknowledged, there is a widespread demand for more disclosure on sustainability. He therefore turned to the future of standard-setting. In this context, Mr Barckow pointed to two developments: the IASB's agenda consultation and the cooperation with the ISSB. He noted that at its March and April meetings, the IASB will continue deliberating feedback on its agenda consultation to decide whether and, if so, what more it could do about the accounting for climate-related risks in the financial statements. This would include considering how the IASB's climate education material has led to better covering of the implications of sustainability matters in the financial statements.

Finally, Mr Barckow turned to what he called "virtuous cycle of standard-setting". While the IASB focuses on the financial statements, which reflect transactions and events that have taken place up until the reporting date with some assumptions about the future to the extent that they relate to assets and liabilities recognised, the ISSB standards will require disclosure of information about the sustainability-related risks and opportunities that affect the company’s future cashflows and business model and, thus, its enterprise value — matters that again affect future financial statements. Mr Barckow concluded:

Together, the two boards can help investors connect these two complementary information sets into a single, holistic package to foster transparency, accountability and efficiency in global capital markets.

Please click to access the full transcript of the speech on the IASB website.

On IASB-related matters, the DPOC was provided with an update on the activities of the IASB and the IFRS Interpretations Committee. The DPOC was updated on the due process documents that had been published in the period and noted that the Interpretations Committee would be considering its first application question relating to IFRS 17 at the Committee’s March meeting. The update provided also included the goodwill and impairment project and practical questions that would arise if the IASB were to reintroduce amortisation of goodwill and possible refinements to the post-implementation review process.

On ISSB-related matters, the DPOC discussed the due process to be applied by the ISSB. The DPOC acknowledged that the ISSB’s due process will have to develop over time, but also noted that respondents to the Trustees’ consultation paper on sustainability reporting had said that a key motivating factor behind them encouraging the IFRS Foundation to establish the ISSB was the transparent due process applied by the IASB. The DPOC decided that the ISSB will begin by applying the IASB due process and the DPOC will work proactively with the ISSB leadership to consider whether any adaptations are required.

Please click to access the full report on the IFRS Foundation website.

The papers reflect the current state of the standard-setting work carried out by the Task Force following the due process the PTF-ESRS has defined for itself.

After publication of six working papers in Batch 1, three working papers in Batch 2, one working paper in Batch 3, and seven working papers in Batch 4, Batch 5 consists of two papers on social matters and two papers on governance (all links to the EFRAG website):

• ESRS S2 Own Workforce – Working Conditions
• ESRS S3 Own Workforce - Equal Opportunities
• ESRS G1 Governance, Risk Management and Internal Control
• ESRS G3 Business Conduct

Again, the PTF emphasises that the publication of these working papers is to ensure a transparent process, there is, however, no public consultation at this point; this is planned for a later date, which, however, is not specified. However, an early analysis of the working papers might be helpful given that as early as June 2022 EFRAG will have to submit the drafts of its sustainability reporting standards to the European Commission. 

The Code is voluntary and sets an aspirational standard beyond minimum regulatory requirements in the UK. The Code comprises 12 ‘apply and explain’ Principles for asset owners and asset managers, with reporting expectations relevant to their role. In addition, there are six, separate ‘apply and explain’ Principles for service providers with reporting expectations.

The updated list includes successful applications who submitted a report in the latest application window (October 2021). The FRC received 105 applications, of which 74 were successful, taking the total number of signatories to 199. The FRC was pleased to see that a large number of investors and service providers want to demonstrate their commitment to effective stewardship.

Further information is available on the FRC website.