One of the many challenging aspects of standard-setting is the fine-tuning of a standard’s scope and application: that is, to what degree and under what circumstances affected entities should be given a break from some of the requirements. This is from the basis for conclusions to IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information :

• Although most respondents to the consultation on (the exposure draft) agreed with the proposed requirements, many of these respondents suggested that the ISSB give more consideration to the range of capabilities and preparedness of entities around the world to apply the proposals. The reasons that some entities might be unable to comply fully with the proposals include:
• (a) resource constraints—the costs of investing in and operating the systems and processes necessary to enable disclosure are proportionately higher for some entities
• (b) data availability—high-quality external data is less available in some markets, industries and parts of the value chain; and
• (c) specialist availability—skills or expertise are less available to some entities and in some markets.

The ISSB responded to these concerns in part by applying to various areas of the standard a concept of disclosing only “all reasonable and supportable information that is available at the reporting date without undue cost or effort,” and by specifying that “an entity need not provide quantitative information about the anticipated financial effects of a sustainability-related risk or opportunity if the entity does not have the skills, capabilities or resources to provide that quantitative information.” For other areas of the standard, the ISSB defined some areas of transitional relief; for example, an entity isn’t required to disclose comparative information in the first annual reporting period in which it applies the Standard.

These concessions and accommodations are all carefully considered, but rendered rather abstract by the fact that any country or authority mandating the application of the ISSB’s standards can (and most likely would) layer on its own areas of relief. For example, the Canadian Sustainability Standards Board included in its final version of the standards additional transition relief of one year for the effective date of the standards, the start date for reporting on sustainability matters beyond climate, and the start date for reporting on Scope 3 GHG emissions, as well as two additional years of relief for the start of aligned reporting, three years of relief for the quantitative aspects of scenario analysis data reporting, and an additional year of transition relief for Scope 3 GHG emissions reporting. And even after that, if those standards ever become mandatory for public companies (which seems unlikely to happen in the foreseeable future, but you never know), it will be under the terms imposed by Canadian securities regulators, which might include yet more layers of relief or carve-out. In other words, any eventual adoption of the standards by a Canadian public company might conceivably come with three layers of relief, those provided in the ISSB standard, plus the additional time allotted by the CSSB, plus a bit more granted by the regulators. Or, at the other extreme, the regulators could theoretically mandate that regardless of what the ISSB and CSSB set out, all public companies adopt the standards on a certain date without recourse to any transition relief of any kind (no worries, there’s zero chance of that happening).

The advantages of embedding such matters in the body of the standard are, I suppose, that they provide a basis for consistency of application across jurisdictions, they take care of at least some of the thinking that local regulators would otherwise have to do, and they allow an entity to make an explicit and unreserved statement of compliance with the standards. In contrast, an entity taking advantage of purely local transitional relief would have to modify its statement of compliance with regard to that item; entities and users might find this a bit less desirable if only from an aesthetic perspective. The standard relieves an entity from disclosing information otherwise required by an ISSB Standard if law or regulation prohibits the entity from disclosing that information, and from disclosing information about a sustainability-related opportunity otherwise required by a Standard if that information is commercially sensitive as described in the standard: in these cases the entity isn’t prevented from asserting compliance. But that wouldn’t appear to extend to additional relief provided on a jurisdiction-specific basis.

It can sometimes seem, unfortunately, that more energy is expended on these issues than on the substantive content of the standards. I recall numerous presentations in the run-up to Canada’s adoption of IFRS where the relative attention paid to IFRS 1 First-time adoption was highly disproportionate, giving more time to the various exemptions than to the standards to which they related, thus rendering them largely incomprehensible. That was a special case, but more broadly, given the speed at which the world turns, and how companies love to brag about their capabilities and nimbleness, one might argue that any entity above a certain size should either be expected to adopt major new aspects of corporate reporting in fully-achieved form, or else to specifically explain why it can’t do so, without being able to hide behind extra-large fig leaves of “relief”…

The opinions expressed are solely those of the author.