Last year, the IFRS Foundation Trustees announced the launch of the International Sustainability Standards Board (ISSB). At the time, they stated:
"…the intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies' sustainability-related risks and opportunities to help them make informed decisions."
They also suggested that this kind of reporting has become important to investors, who are increasingly concerned about sustainability matters (this specifically includes climate-related issues) in relation to their own chosen investments.
At the time, I remarked that delivering such standards would require a degree of urgency, which is not always the norm in standard-setting, where the pace of development can be somewhat glacial in nature. Well, to give credit where it's due, the ISSB has been quick off the mark to get not one but two Exposure Drafts on the table. This is a decent, prompt start and sets a good precedent to follow in the future.
Let's begin with IFRSS S1 General Requirements for Disclosure of Sustainability-related Financial Information. Whilst this lengthy title may not exactly trip off the tongue, it is nevertheless an important document in terms of sustainability reporting.
The stated aim of IFRS S1 is for preparers of financial statements to put together a set of sustainability disclosures that meet the information needs of investors when assessing enterprise value. The concept of "enterprise value" perhaps needs some explaining. It is defined as the total of an entity's equity and debt after considering anticipated future cash flows. This is somewhat wider in terms of definition than traditional financial values, as it takes into account a business's impact and dependencies on people, the planet and the economy.
Enterprise value requires you to think about both risks and opportunities. In fact, there are four major elements to consider, namely governance, strategy, risk management, and metrics and targets. There will need to be disclosure of information on each of these elements in the reports produced.
There is also scope within this general approach of IFRS S1 to take account of industry-specific guidance on sustainability issues. Another stated aim of the proposed standard is that the information produced should "present fairly" related financial disclosures. This terminology seems to indicate that the information included would subsequently be subject to audit. This is a timely reminder that it is not just reporting staff who should be interested in this development, but auditors too.
The term sustainability can have quite a broad meaning. This is illustrated by some of the examples given by the ISSB in the Exposure Draft for IFRS S1. There is a clear reference to climate issues, with one example talking about levels of greenhouse gas emissions. However, another example discusses doing business with firms that have sub-standard employment practices. Given recent developments in cases such as that around P and O Ferries, we must remember to consider what sustainability might actually include.
As it is an Exposure Draft, it is effectively part of a consultation process. Respondents are invited to submit comments by 29 July 2022. You can read the full exposure draft and submit a response here:
They are interested in responses from a wide variety of sources, so don’t believe that your views are not welcome.
In my next blog I will be looking at the second of the two exposure drafts, on Climate-related Disclosures.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
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