Let’s return to the Consultation Paper recently issued by the Trustees of the IFRS Foundation “to assess demand for global sustainability standards and, if demand is strong, assess whether and to what extent the Foundation might contribute to the development of such standards.”

One of the main options outlined in the paper was for the Foundation to establish a new sustainability standards board. As the accompanying news release summed it up: “The new board could operate alongside the International Accounting Standards Board under the same three-tier governance structure, build on existing developments and collaborate with other bodies and initiatives in sustainability, focusing initially on climate-related matters.”

The paper expanded on that last point as follows:

• The Task Force’s research and informal consultation indicates that developing global sustainability-reporting standards for climate-related information is the most pressing concern. Climate risk is a financial risk of growing importance to investors and prudential regulators, mostly because of public policy initiatives by major jurisdictions globally. Given the immediacy of these initiatives, it is proposed that any initial work to be undertaken by the SSB focuses on climate-related information. Companies are already considering how their business operations will be affected by a transition to a low-carbon global economy, which will increasingly directly affect companies’ financial reporting. What is meant by ‘climate-related information’ is open to interpretation. That information could focus specifically on climate change and greenhouse gas emissions, or take into consideration wider environmental factors and the associated financial risks.
• The SSB could prioritize climate-related risk because of its urgency but could also consult on other environmental priorities. In certain jurisdictions a broader approach is already underway, and a focus solely on climate-related disclosures could misalign with public policies (for example jurisdictional regulations relating to the disclosure of information on pollution). The SSB could also broaden its work over time to focus on other priorities beyond a specifically climate or environmental focus (for example into social and other related matters) as demands change. This work would be subject to the IFRS Foundation’s existing due process requirements.
• During the Task Force’s informal consultation, many stakeholders have argued that, at a later stage, the SSB might adopt a broader scope of sustainability reporting that includes the interrelationship between environmental, social and governance factors. For example, the mandate for the current World Economic Forum International Business Council initiative also refers to the principles of governance, planet, people and prosperity, and proposes a flexible structure that would initially focus on climate but would be able to enlarge its scope in due course.

Plainly, this is a rather undesirable balancing act, picked up on by various respondents. For example, the International Federation of Accountants noted that “A climate-only approach will not provide a sufficiently robust global platform to support/accommodate jurisdiction-specific sustainability reporting initiatives such as the EU, where policy and legislative momentum appears to embrace the broad range of sustainability issues,” but then concluded: “With a view to practical expediency—and given the importance of climate change to society as a whole—if the IFRS Foundation pursues a “climate-first” (not only) approach, IFAC will support this strategy.”

Other respondents, such as the Investment Consultants Sustainability Working Group (who knew…?) likewise emphasized practicality:

• we are mindful that covering the full scope and breadth of sustainability factors and reporting requirements from inception may well prove too onerous which could impact quality and delivery. Trying to broaden the focus too much from the start could fail to achieve the objectives in a timely way. The pressing need and acknowledgement that time is of the essence to put a suitable and credible reporting framework in place implies that a practical approach should be taken.

Others, such as the Africa Integrated Reporting Council, didn’t even allow that much:

• To effectively address the issue of fragmentation in sustainability reporting, the SSB’s initial work should not be focused on climate-related disclosures only. This would leave a gap in terms of the framework or standards to be applied for other sustainability reporting. Limiting the standards in this manner is likely to “muddy the waters” further by adding to the list of possible frameworks or standards from which to select. AIRC therefore disagrees with a “climate-first” approach for the SSB.
• AIRC proposes that SSB should start by developing a conceptual framework of sustainability reporting and designing a work plan that incorporates all elements of sustainability not just climate change. As noted above, SSB should leverage on already developed standards and frameworks.

And then of course, you can also find disagreement on what should rank most highly among those other “elements of sustainability.” For example, the Japanese organization Keidanren was one of several respondents that placed equal emphasis on broader social and governance concerns:

• As to non-financial factors other than climate change, the COVID 19 pandemic has made them more important, which include solution of social issues through innovations of digital and other technologies, stronger resilience of social infrastructure regarding on public health and energy and of supply chains, care of employee health conditions, and contribution to local communities.

More on the (500!) responses to the discussion paper in the future…

The opinions expressed are solely those of the author