ICAS responds to ISSB exposure drafts
By James E Barbour CA, Director, Policy Leadership
28 July 2022
James Barbour CA highlights the key points from the ICAS responses to the first two exposure drafts from the International Sustainability Standards Board (ISSB).
The International Financial Reporting Standards Foundation has played a pivotal role in the success of the International Financial Reporting Standards for accounting. ICAS therefore welcomed the establishment of the International Sustainability Standards Board (ISSB) that was announced during COP26 and very much appreciates the effort that has enabled the two exposure drafts to be issued in a short space of time. Given the pace, however, it is only to be expected that the proposed standards require further refinement before they will be suitable as the basis of establishing a global baseline for the reporting of sustainability-related information.
In particular, ICAS believes that there is a need to include definitions for key terms in the final standard and to ensure that any potential inconsistencies are removed. In this regard, it is crucial that “sustainability” is defined to ensure that the boundaries of what is to be reported are clearer. Likewise, the use of both “significant” and “materiality” appears rather cumbersome and potentially confusing to users.
Furthermore, ICAS remains to be convinced with the inclusion of the concept of “enterprise value” within materiality and believe a definition of materiality that is more aligned to financial reporting would be more beneficial i.e which focuses on “could reasonably be expected to influence decisions that the primary users of general-purpose financial reporting make on the basis of that reporting, which provides information about a specific reporting entity.” This would then more readily facilitate entities to also use the standards of another body such as the Global Reporting Initiative (GRI) which focus on impacts and are of relevance to a wider group of stakeholders, including investors.
ICAS is supportive of the need to disclose information along an entity’s value chain, but greater specificity is required to determine the extent to how far along the value chain this requirement is intended to extend. Given the importance of the “value chain”, guidance or illustrative examples would be useful to enable a better understanding amongst users as to the scope of what is intended.
These proposed standards are primarily aimed at the providers of capital, whether in the form of debt or equity, and this model has been widely accepted in relation to financial reporting. The argument that the primary users of sustainability reporting information are investors is, however, less persuasive. If the standards are finalised using the current proposed approach, then it is essential to ensure that they provide a global baseline which also easily facilitates entities to report under a framework that is designed to meet the information needs of a wider range of stakeholders.
In this context, ICAS welcomes and support the ISSB’s collaboration with jurisdictions via its jurisdictional working group and the establishment of the IFRS Sustainability Standards Advisory Forum. These groups will act as a catalyst to help establish an effective global baseline and in ensuring effective collaboration in the area of Sustainability Reporting. The need for effective collaboration has never been greater.
See below for links to ICAS full responses to the IFRS exposure drafts: