As we addressed here, the International Sustainability Standards Board has issued its first two exposure drafts, General Sustainability-related Disclosures (S1) and Climate-related Disclosures (S2), which were both open for comment until July 29, 2022.

We’ve noted several times the vast number of comment letters – more than 1,400! – received on the two projects. CFA Institute also noticed:

• … there are a plethora of stakeholders – other than investors – who will likely comment on the ISSB’s Draft IFRSs S1 and S2 that do not, however, have an investor perspective, or are even engaged in the preparation of general purpose reports for investors. Instead, they may have a civil society objective or an ideological agenda they are seeking disclosures to highlight, pursue or achieve. We believe the ISSB needs to develop an approach for considering and weighing feedback on Draft IFRSs S1 and S2 – as well as on future standards from stakeholders who are not pursuing an investor focused enterprise value objective.
• … We highlight these important considerations because as an organization long engaged in promoting the information needs of investors, we have experienced the situation with accounting standard setters where the primacy of investors – as the end users of the data – is lost in the consideration of public feedback on consultations. And this has occurred when only preparers and the accounting profession have been the principal contributors of feedback other than investors.
• This is often the case as investors generally respond with fewer comment letters. However, their feedback is foundational to the determination of the decision-usefulness and value relevance of the disclosures or accounting being considered for revision – as they are the users of such information and the ultimate arbiters of decision-usefulness.
• It has been our experience that because the number of respondents from the preparer or accounting community are greater than the number of responses from the investment community – and because those summarizing the letters are more familiar with their views – that investor views are underweighted, and preparer and the accounting profession responses are overweighted, in the decision-making of the IASB. Further, investors generally comprise a non-significant minority of the board.
• As it relates to sustainability standards, the ISSB will receive feedback, likely in a similarly disproportionate weighting toward preparers and accountants, but the ISSB will also likely receive commentary and feedback from stakeholders with other objectives and agendas as noted above. Our question to the ISSB is: How will this input be considered and weighted if it is from organizations who do not have a direct interest in the preparation or use of general-purpose financial reporting for investors?

The implied answer to that question, it seems, is that such input should basically be thrown into the garbage. And this goes to a key point that we’ve made here in the past, about the folly of assuming that the two standards, even if finalized and adopted in a form that meets with general approval, will necessarily be “good” for, well, the planet. Certainly, the standards may make it easier to understand (say) the magnitude of the emissions resulting from a particular enterprise’s activities, and therefore to conclude that the enterprise is an undesirable investment from a long-term perspective (or from any perspective, depending how one weighs environmental and ethical factors). But by the same token, the standards might also make it easier for short-term profit-oriented investors to identify (by that measure) attractive opportunities. As such, the letter specifies:

• CFA Institute members have a fiduciary responsibility to their clients. As such, we need and seek information that is sufficiently disciplined that allows us to discern value-relevant information and to make a distinction, when important, between value-relevant and values-relevant information such that we have the ability to advise investors when there may be a trade-off between value and values in their investment decision-making.
• As such, our views here are not developed from a public policy or civil society objective, but rather with the desire for investors to have the information they need to make value-relevant investment decisions.

The nature of the “trade-off” possibly being that while a particular company might be shunned by certain categories of investors as a climate-related villain, it also means that those investors are leaving a lot of money on the table, creating opportunities for those inclined to scoop it up.

Anyway, the letter-writers will probably, and rightly, have been disappointed to note that the summaries of comments provided for the ISSB’s September meeting condensed all those hundreds of letters into 75 combined pages (19 of which are appendices with no new information), noting that “most respondents” thought this and “some respondents” thought that, occasionally distinguishing feedback from investors (“Whilst many respondents agreed with this disclosure, in particular auditors, only some investors agreed”) but mostly not. Even acknowledging the need for some practical way of pushing along, it’s to be hoped that individual ISSB members will dig a bit deeper than that into the wealth of information and perspective provided by commenters. After all, they did ask for it…

The opinions expressed are solely those of the author