General Sustainability-related Disclosures — Summary of Comments

Date recorded:

Summary of comments (Agenda Paper 3A)

The comment period for ED IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information closed on 29 July 2022. Over 700 respondents from a range of stakeholder types and geographies submitted comment letters and/or surveys. This suggests significant and widespread interest across the global capital markets in the ED.

Almost all respondents supported the ISSB’s overall aim to develop a comprehensive global baseline of sustainability-related financial disclosures for the capital markets. However, many respondents asked for greater clarity, support, guidance and examples to enable effective application of the ED IFRS S1. Many respondents also suggested that the ISSB should give more consideration to the range of capabilities and preparedness of entities around the world, especially for smaller entities and entities in emerging markets, to apply IFRS S1.

At the same time, many respondents emphasised the importance of close collaboration with the International Accounting Standards Board (IASB) and the importance of improving understandability, connectivity and consistency by using shared definitions and concepts across IFRS Sustainability Disclosures Standards and IFRS Accounting Standards. In addition, many respondents observed key differences in concepts, terminologies, and definitions remain between the ISSB’s proposals and jurisdictional initiatives and they emphasised the importance for the ISSB to work together with jurisdictions, including Europe and the United States, in developing a global baseline of sustainability-related financial disclosures.

Except for the above comments, key comments from respondents for each questions are stated below:

  • Overall approach—Most respondents asked for greater clarity on (i) the scope of and the process for identifying significant sustainability-related risks and opportunities and disclosures and (ii) the definition and meaning of terms and concepts used in the ED, including sustainability, siginificant, sustainability-related financial information, sustainability-related risks and opportunities, and enterprise value. Many respondents also provided feedback on aspects of the ED that may prove challenging for auditors and regulators regarding the completeness and accuracy of information disclosed
  • Objective—Similar to ’Overall approach’
  • Scope—Most respondents agreed that IFRS S1 could be used by entities that prepare their general purpose financial statements in accordance with any jurisdiction’s GAAP and/or using IFRS Accounting Standards. Many respondents also suggested that the ISSB should provide guidance for preparers on how to navigate any potential differences
  • Core content—Many respondents suggested that IFRS S1 should contain generic requirements that need not be duplicated in other specific IFRS Sustainability Disclosure Standards. Many respondents suggested expanding the requirements on how sustainability-related risks and opportunities are managed from a governance perspective to be more explicit and more detailed and asked for clarification on the time horizons applicable to the short, medium and long term. Some respondents also asked for greater clarity on the type of disclosures that require entities to describe how their financial position and financial performance are expected to change over time and queried the meaning of “unable to do so”. At the same time, almost all respondents suggested that the ISSB considers how metrics and targets would be used where measures are at an early stage of development and data availability and quality varies
  • Reporting entity— Many respondents asked for clarification on the information required on sustainability-related risks and opportunities arising from an entity’s associates and joint venturesMost respondents said that the scope of reporting on value chain activities could be very broad, and without further guidance this requirement could produce disclosures of widely varying scope. Many preparers also said that it would be difficult and potentially costly to report on activities in their value chain that they do not control
  • Connected information—Many respondents commented on the challenges associated with the practical application of the proposed requirements and would welcome further illustrative guidance and examples. Many preparers also asked for greater clarity on determining what constitutes sufficiently connected information
  • Fair presentation—No major comments.
  • Materiality—Many respondents anticipated challenges associated with the application of materiality in the context of sustainability-related financial information and requested further guidance. Most respondents suggested that without further clarification and guidance, there could be varying and subjective interpretations made by preparers to assess the breadth of sustainability-related risks and opportunities relevant to an entity’s enterprise value
  • Frequency of reporting—Most respondents agreed but expected challenges on the proposal that sustainability-related financial disclosures be provided for the same period as the financial statements. Some respondents suggested a staggered approach which could include different reporting periods or a delay in the disclosure of sustainability-related information or time-bound transitional arrangements to the effective date of the proposed requirements on the timing of reporting
  • Location of information—Many respondents said that the proposed requirements on location may create potential challenges and suggested that the ISSB should be clearer on the preferred location of information, whilst not mandating this to allow for jurisdictional flexibility. Many respondents also said that reporting in different locations with incorporation by cross-reference should be encouraged as it is cost effective for preparers, allows preparers to adapt to jurisdictional requirements, and reduces reporting duplication
  • Comparative information, sources of estimation and outcome uncertainty, and errors—Many respondents referred to the complexities and onerous administrative burdens of restating estimated information for previous periods and either objected to or invited the ISSB to reconsider the requirement to restate and/or update estimated information
  • Statement of compliance—Many respondents recommended that the ISSB consider expanding the statement of compliance to require entities to include their rationale for non-compliance in instances in which local law or regulation was prohibiting them from disclosing particular information
  • Effective date—Most respondents suggested an effective date of two or more years and commented on the importance of allowing sufficient time to comply with the proposed requirements. Most respondents also suggested that the ISSB considers a phased approach to the effective date, meaning requiring some parts of the proposals to come into effect before others or different types of entities to apply the requirements at different times
  • Global baseline—No major comments
  • Digital reporting—No major comments
  • Costs, benefits and likely effects—Almost all preparers said that the costs of implementing the proposals were likely to be substantial, citing the costs of developing and implementing systems for reporting and internal controls on data, which would be new for many preparers. Many preparers also expressed concerns about potentially high ongoing application costs. Many respondents expressed that implementation costs were likely to be lower if the ISSB could facilitate the interoperability of its proposals with jurisdictional initiatives
  • Any other comments—Many respondents commented on the upcoming ISSB consultation on agenda priorities and the expected development of future standards, most of which called for standards on additional sustainability-related risks and opportunities, including broader environmental and social matters. Many respondents raised concerns about confidentiality, commercially sensitive information, and litigation risk

At this meeting, the ISSB members were not asked to make any decisions but they were asked to comment on any feedback that is unclear, that provides new information, or that needs further research.

ISSB discussion

  • ISSB members agreed that clarification on interpretation and illustrative guidance/examples should be provided for preparers to better understand how to apply IFRS S1. The ISSB staff indicated that questions commonly asked by stakeholders included but were not limited to “significant”, “material”, “enterprise value”, “value chain” and “unable to do so”
  • Frequency of reporting should be clarified in IFRS S1
  • One ISSB member emphasised that reporting entities may face challenges in relation to investments in different aspects, e.g. data collection and human resources, in order to comply with the requirements
  • One ISSB member expected stakeholders would request a reduced disclosure framework limited to entities under the control of the reporting entity. The ISSB staff then confirmed that although only a few respondents explicitly suggested to limit the scope for those entities, many preparers also expressed concern on the scope of disclosures on their value chain activities. The ISSB Vice-Chair confirmed that the ISSB staff will further work on how to capture the activities within the value chain and the related practical issues on collecting relevant data
  • One ISSB member asked for more information on the comments for connected information. The ISSB staff elaborated that there were various reponses including connectivity with management commentary and connected information between different sustainability risks and opportunties and financial statements
  • One ISSB member questioned whether the comments indicated how the respondents identified sustainability risks and opportnities, for example, whether they used the SASB standards. The ISSB staff stated that IFRS S1 clearly refers to other standards or guidance, including SASB Standards, but admitted that some stakeholders may be less familiar with SASB Standards and raised further concerns for the use of SASB Standards
  • One ISSB member commented that litigation risk was not well addressed within the entire IFRS S1 and the ISSB staff admited they have received a number of comments in this area as well
  • The ISSB Vice Chair acknowledged the different treatment for changes in estimate in relation to comparative information between IAS 8 and IFRS S1 and reiterated that it was intentionally drafted in such way. She would like to underdstand what are the investors’ views on this and whether such restatement of comparative information is most useful for the readers
  • There were concerns from smaller entities and entities in emerging markets for meeting the globlal baseline requirements which will be further discussed in the “Scalability” (Agenda Paper 3C & 4C) session. A few ISSB members expressed their concerns on the appropriate weighting for the feedback received from smaller entities and entities from emerging markets and also whether the comments in the staff paper reflected the majority views from those entities. The ISSB Vice Chair acknowledged this issue and the ISSB Staff will try their best to address it

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