As we addressed here, the International Sustainability Standards Board has issued its first two exposure drafts, General Sustainability-related Disclosures and Climate-related Disclosures, which were both open for comment until July 29, 2022.

Here’s an extract from the general disclosure document:

• To identify sustainability-related risks and opportunities about which information could reasonably be expected to influence decisions that the users of general purpose financial reporting make on the basis of that information, an entity shall refer to IFRS Sustainability Disclosure Standards, including identified disclosure topics. In addition to IFRS Sustainability Disclosure Standards, an entity shall consider: (a) the disclosure topics in the industry-based SASB Standards; (b) the ISSB’s non-mandatory guidance (such as the CDSB Framework application guidance for water- and biodiversity-related disclosures); (c) the most recent pronouncements of other standard-setting bodies whose requirements are designed to meet the needs of users of general purpose financial reporting; and (d) the sustainability-related risks and opportunities identified by entities that operate in the same industries or geographies.

KPMG remarks on this proposal as follows in its comment letter:

• As drafted, the list of sources of guidance…to determine what to report is broad. This would make it challenging for preparers to apply the proposals consistently, and for assurance providers to identify a suitable basis to assess the completeness of disclosures. We also expect that first-time application of the standards with such a broad scope of potential disclosure topics would be a challenge for many entities. It might even form a barrier to rapid endorsement in some jurisdictions.
• We recommend that the ISSB clarify and narrow the sources of guidance that must be considered, as follows.
  • Narrow the list of external sources…to include the SASB Standards only. Although entities may choose to identify and report on more topics, this approach would limit any confusion around the requirement for peer benchmarking and provide a useful baseline of topics to consider….

While stating that they “support the proposal to include the various sources of guidance to help entities identify sustainability-related risks and opportunities and related disclosures,” EY also express some caveats, including the following:

• We think a requirement to consider all sources listed could be burdensome and we suggest that clarification is provided as to whether this was intended. For example, the consideration of the most recent pronouncements of other standard-setting bodies…or the sustainability-related risks and opportunities identified in the same industries and geographies…could require a very extensive global search and would represent a significant amount of information to be considered in the identification of sustainability-related risks and opportunities and the identification of disclosures and metrics. It will also be difficult for entities to evidence that such research has been conducted appropriately, over and above considering whether the output of the process is material information.

At the same time though, EY threw in something else that might lengthen the list: “an alternative source that entities (especially in Europe) may include in their considerations are the European Sustainability Reporting Standards (ESRS) prepared by European Financial Reporting Advisory Group (EFRAG), that will be mandatory according to the Corporate Sustainability Reporting Directive (CSRD). The ESRS will likely constitute the baseline for sustainability reporting in the European Union (EU)…”

In similar vein, this is Mazars:

• ..should IFRS S1 address sustainability-related disclosures beyond IFRS Sustainability Disclosure Standards, we consider an entity should not be required to consider all of these sources. Instead, an entity may only consider this guidance whenever it is deemed appropriate, ESRS in particular for European companies.
• Imposing a requirement to consider all the sources listed…would probably be too costly and too complex to apply consistently, particularly for smaller entities or those with multiple operations.

BDO set out its objection quite succinctly:

• we agree that the sources of guidance identified…provide useful information in identifying sustainability-related risks and opportunities and related disclosures, however, the paragraph states that an entity ‘shall consider’ those sources. We do not agree that an entity should be required to refer to these sources because such a requirement is redundant…. (noting among other things) the requirement to comply with fair presentation. We do not believe it is appropriate to set out a mandatory list of guidance that has not been subject to the due process of the ISSB. We believe it would be more appropriate to state that entities ‘may consider’ those sources.

That may well point to the chosen fix, if only because it’s the easiest one. It’s not entirely satisfactory though. Given how long the world has waited for these standards and the disclosures resulting from them, it’s rather odd to say that preparers shouldn’t from the outset take into account all sources and inputs that might ensure their quality. If that would sometimes make the task more “challenging” and “burdensome”…well, maybe that would be a measure of underlying seriousness…

The opinions expressed are solely those of the author.