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.

The general exposure draft proposes that an entity be required to report its sustainability-related financial disclosures at the same time as its related financial statements, and that the sustainability-related financial disclosures should be for the same reporting period as the financial statements. The basis for conclusions has little to say on those proposed requirements, perhaps taking them to be largely obvious. Grant Thornton came up with several issue though:

• We believe there should be some flexibility in the length of the reporting period, so that interim financial statements, quarterly reporting etc, can be considered. It may be in the future there would be benefit from having an interim standard, much like IAS 34 ‘Interim Financial Reporting’ that exists under IFRS.
• We agree that investors want will want the sustainability-related financial disclosures to be provided at the same time as the financial statements to which they relate, but we believe there should be some flexibility around this requirement. Management will need to prepare two sets of reports at the same time.
• We believe it may be difficult to achieve high quality reporting, particularly in the first year of implementation, if the information has to be made available at the same time. We also believe this will be a challenge for small and medium sized entities with their finite resources to implement…

Rolls Royce was among those who provided an industry perspective:

• We are supportive of the intent but note the significant burden on resources in an already time intensive reporting period. The breadth of topics that may fall under the scope of S1, the requirement to obtain data from joint arrangements and to reflect changes in underlying data could make it impossible to meet reporting deadlines. An annual reporting timescale will not always fit with an assessment of long-term sustainability risks. The use of a comply or explain mechanism has merit in such cases.
• We believe that interim reporting should only be required by exception, where there has been a material change to the previously reported full year position.

The input from The 100 Group was quite similar:

• We are supportive of the ambition for integrated reporting and therefore agree with this proposal. We do however appreciate that for many this will create a significant burden on resources at an already time constrained reporting period.
• We would suggest that strong pressure be applied (perhaps through comply or explain) for timing to be aligned. Given the call for this information is so clear from the investor community, we would anticipate that those who do not report together and do not give a clear justification will pay the premium through a lack of investment. This would still allow for newly scoped entities, or those in unique situations, for example, to act in their own best interests.
• With regard to the requirement…for interim reporting, we believe that this should only be required by exception, where there has been a material change to the previously reported full year results, or a significant change to the risk profile…
• Beyond these theoretical concerns we also have a couple of practical concerns: namely, that some regulatory regimes may prevent this from being possible; and…because of the nature of forward looking reporting, requiring restatement for changes in underlying data could make it impossible to meet reporting deadlines when externally driven inputs can change at any moment.

Here’s another, from the Saudi Arabian company SABIC:

• it would be preferred to publish/disclose sustainability related financial disclosures at the same time and covering the same period.
• Though key concern will be the timely availability of certain relevant sustainability data and sufficient time for auditors to complete their assurance review (including notes).
• In addition, interim reporting does not seem to be appropriate for certain sustainability-related disclosures and therefore, it should be left optional.

And from Canada’s TMX Group Limited:

• While we acknowledge the benefit of providing sustainability-related financial disclosures contemporaneously with the financial statements to which they relate, we note that the availability of certain data (particularly GHG emissions or other data provided by third-parties along an issuer’s value chain) may not coincide with existing reporting timelines. We therefore support the concept of allowing some flexibility within the General Requirements to accommodate such circumstances on a jurisdictional basis. A requirement to report and disclose more than once per financial year may be unnecessarily burdensome and costly, particularly for growth-stage companies.

While I’m seldom too convinced by “burden on resources” type arguments, it seems reasonable to me to argue at least for some entities that once a strong base of sustainability reporting has been established, it won’t inherently require updating on a quarterly basis (given that the focus isn’t on current performance to the same extent as it is for the core financial reporting). Some kind of “comply or explain” or exception-based reporting approach might be reasonable in those cases (although less so for the core annual reporting, contrary to the suggestion by Rolls-Royce). Once again though, it seems to me that the ISSB might be best advised to set in a high bar within the standard itself, leaving local regulators to determine the scope of such accommodations or exemptions…

The opinions expressed are solely those of the author.