Projects to be included in Request for Information (Agenda Paper 2)

Background

During the ISSB’s October 2022 meeting, it updated its planned approach in preparing a Request for Information (RFI) to include two main components:

• Foundational work: An outline of committed work building upon the foundation established by IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, once finalised
• Potential projects: A request for stakeholder feedback on a short list of proposals for new research and standard-setting projects that will be incremental to the foundational work

The ISSB staff have now conducted outreach and research activities to put together a short-list of potential projects to be considered for inclusion within the RFI. The purpose of this meeting was to allow ISSB members to provide thoughts and feedback on the staff’s research and outreach activities, the recommended potential projects to be included within the RFI and an example of a potential project description. ISSB members were also asked whether they agree that each of the recommended projects should be included within the RFI.

The foundational work will include efforts to improve the Sustainability Accounting Standards Board (SASB) Standards, the continued enhancement of IFRS S2, and coordination with the International Accounting Standards Board (IASB) to ensure compatibility and avoid inconsistencies between the ISSB and IASB’s respective requirements. As this work will be considered as part of the foundational work, it is not in scope for additional potential projects.  

Summary of feedback and findings

The ISSB staff have scoped and prioritized a short list of potential projects to be included in the RFI by conducting various outreach and research activities to assess potential projects against the criteria for inclusion discussed in the July 2022 meeting.

The primary consideration when prioritising potential projects was the ability of the ISSB to make timely, meaningful progress on sustainability-related subject matters within the two-year work plan. Potential projects were prioritised based on investor interest, market demand and whether current, widely accepted standards for capital market-focused disclosures already exist.

The research and outreach activities resulted in the following four potential projects be discussed within the RFI:

Biodiversity, including ecosystems, ecosystem services and other nature-related issues: Biodiversity is defined as the variability among living organisms from all sources, it is a foundational characteristic of nature. This topic emerged as a priority because biodiversity has substantial implications for all capital market participants. Further, research and work on the topic is evolving at a significant pace however, no widely embraced disclosure practices currently exist.

Human capital, with a focus on diversity, equity and inclusion (DEI): Human capital refers to the manner in which an entity manages its employees as assets, rather than as a cost to the entity. This is a key topic due to high levels of investor interest and market demand, particularly surrounding the topic of DEI.

Human rights, particularly in the context of the value chain, with a focus on worker, labour and community rights: Given the increasing complexity of international supply chains and economies a growing number of investors view human rights information as relevant to their decision making. This topic was deemed a priority due to strong market interest and the opportunity for further research and standards within this space, building on existing materials.

Connectivity in reporting, management commentary and integrated reporting: The staff recommended that the RFI include a proposal for a joint project between the ISSB and IASB to develop guidance that enables entities to report connected discussion and analysis between their financial and sustainability-related financial disclosures. This project would further build on the principles of the Integrated Reporting Framework and ask for clarity on the interaction between management commentary and sustainability-related financial disclosures.

The staff proposed that for each of the four priority topics discussed above, the RFI includes a description of the topic, a discussion of why the topic is a priority together with a project description and the indicative size.

ISSB discussion

One ISSB member suggested the staff provide stakeholders with a better understanding of the size of each proposed topic to help clarify what is plausible for the ISSB to pursue given the trade-off between pace and quality of research.

The Chair raised the importance of focusing on how and why the markets will price human rights issues, as opposed to thinking of moral judgements. He highlighted the significance of considering dynamic materiality for each proposed topic.

An ISSB member questioned whether living wage should be integrated into labour rights under the proposed topic of human rights. The staff clarified that the subtopics suggested within the agenda paper surfaced as a result of initial research, however, through the comment period, there will be an opportunity for further refinement based on stakeholder priorities. Stakeholder feedback will help the staff to identify areas of focus for future research both within and between topics.  

On the topic of connectivity in reporting, one ISSB member questioned whether ‘digital reporting strategy’ should be added as a subtopic to the proposed joint project. Another member recommended that the staff clarify the distinction between the three proposed research projects and the joint project; this distinction could assist in providing more clarity to stakeholders on what type of feedback the ISSB is requesting. Further, an ISSB member questioned whether the joint project should be considered as something that will be pursued by the ISSB regardless of the research topics considered—no final decision was made on this inquiry.  

A common theme discussed was the trade-off between providing granular information to solicit specific, useful feedback from stakeholders and discussing each proposed topic in general terms to not rule out any areas of focus prematurely. One of the Vice-Chairs suggested the staff provide an initial, broad discussion of each proposed topic, followed by specific examples within each topic including a discussion of areas that have been explored by others (the European Union (EU), GRI, SASB, etc.).

Several ISSB members commented on the importance of reaching an audience that includes all voices, (including the Global South and Indigenous voices) when receiving feedback on the consultation. The staff agreed, indicating that the purpose of the RFI is to receive feedback from a variety of stakeholders, this will be kept front of mind going forward.

Multiple ISSB members commented on the importance of providing as much context to stakeholders as possible, as ISSB stakeholders are new to the IFRS due process. An ISSB member suggested the staff include further discussion of how feedback will be used by the ISSB. One of the Vice-Chairs commented that the staff should clarify that the ISSB will not only be considering the feedback received in their final decision, but that resourcing and efficiency in scope are other important considerations. Further, the ISSB would like to make it clear that in this stage of the process they are not deciding on priorities, they are determining which topics to perform a research plan over, however, not every research plan will result in a disclosure standard.

ISSB members were asked to vote on whether the four proposed topics should be included within the RFI: 13 of the 14 ISSB members voted in favour, with the caveat that the projects be further built out to include an expanded description as well as explicit examples of subtopics within each potential project.