The second initial draft standard to emerge from the International Sustainability Standards Board (ISSB) is well-written, says ICAEW. However, parts of the proposal would benefit from simplification and clarification to help with consistent understanding and application, it concludes.

The second proposed standard, IFRS S2 Climate-related Disclosures, draws heavily on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), an approach that ICAEW strongly supports.

Laura Woods, Technical Manager in ICAEW’s Financial Reporting Faculty, says: “TCFD is a tried and tested framework that has already been successfully implemented by many entities and in various jurisdictions globally. For practical implementation reasons, it makes a good deal of sense to use this framework to underpin any new or additional requirements.”

Generally, the overall proposed objective meets the urgent need to develop a global framework for the reporting of climate-related information. However, parts of the proposal would benefit from simplification and clarification to help with consistent understanding and application, Woods says.

“Duplication is never desirable and we think that further work is needed to improve the overall architecture and interaction between the two proposed sustainability standards so that duplicative requirements can be removed entirely,” she says.

The proposed climate-related standard includes an appendix of industry-based disclosure requirements (Appendix B), which is referenced throughout the main body of the standard and is an integral part of the Exposure Draft. These requirements have been derived from the Sustainability Accounting Standards Board (SASB) Standards, with certain targeted amendments to enable them to be applied internationally.

“We recognise the rigour with which the SASB Standards have been developed prior to incorporation into the IFRS S2 Exposure Draft,” says Nigel Sleigh-Johnson, Director of Audit and Corporate Reporting at ICAEW. “However, we have heard the message loud and clear that the industry-based requirements in Appendix B should not stand with the same level of authority as the main body of the standard.”

“The predominant concern centres around the lack of adequate due process considering the volume of material presented within Appendix B and the consultation period provided.”

That said, the industry-based content is valuable and ICAEW would support keeping Appendix B as non-mandatory guidance if improvements are made, he says.

The successful implementation of the proposed Standard will very much depend on the outcome of global alignment efforts. “It’s important that the ISSB continues to prioritise global agreement when defining fundamental terms such as ‘net zero’, ‘material’ and ‘enterprise value’ to allow for consistency and comparability on a worldwide scale,” Woods says.

The ISSB intends the IFRS Sustainability Disclosure Standards to provide a global baseline for the assessment of enterprise value in this context. This means that the draft Standards are designed to meet the needs of primary users (ie, investors) rather than all potential stakeholders – and local jurisdictions could provide additional requirements to meet wider stakeholder needs.

“The global baseline concept is a sound one, but one that needs to be embraced by all relevant parties in order to be achieved,” warns Sleigh-Johnson. “ICAEW strongly supports ongoing collaboration by the ISSB with other key standard-setters in this regard.”

With the ISSB only established at COP 26 in November last year, efforts to produce two initial draft standards in such a short space of time are commendable, ICAEW says.

ICAEW’s initial views on IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, published last month, concluded that clarity on some of the key terms was needed to avoid confusion and to ensure the standard is applied consistently.

Get in touch

Outreach to ICAEW members and other stakeholders about the proposals has been extensive and ongoing. ICAEW draft responses to the ISSB Exposure Draft consultations can be found here. If you have any comments on the ISSB proposals or the draft ICAEW responses, please contact laura.woods@icaew.com . The ISSB deadline for responses is 29 July.