Launched at COP26 late last year, the International Sustainability Standards Board (ISSB) has achieved a lot in a short time.

In March, it launched a consultation on its first two proposed sustainability disclosure standards. The Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information sets out the overall requirements for companies in scope to disclose material information about all significant sustainability‑related risks and opportunities that investors and other stakeholders would find useful when assessing the enterprise’s value.

Laura Woods, a technical manager at ICAEW and one of its leads on the topic, says: “An awful lot of work has gone into creating this exposure draft. Overall, the proposals are well-written and clear.”

Dr Nigel Sleigh-Johnson, Director of Audit and Corporate Reporting at ICAEW, agrees that the progress made has been remarkable, but adds: “There are, inevitably, areas where we believe some more work is needed if the ISSB is to achieve its ambitious aim of creating a global, consistent and widely-applied sustainability reporting framework.”

In particular, he says, more clarity on some of the key terms used is needed. “Companies would be required to disclose information about significant sustainability-related risks and opportunities – but key terms such as ‘significant’ and ‘sustainability-related’ are not defined. We think that some clear, precise definitions are likely to be needed to remove any unnecessary confusion and to ensure that the standard is applied consistently.”

Woods believes it should be fairly straightforward for the ISSB to fix this issue: “For example, there is some information on what is meant by ‘significant’ in the basis for conclusions that is helpful and provides some additional clarity. With some careful redrafting, this could form the basis of the definition.

“But whatever definition is provided, it should be clear what threshold must be reached before something is considered to be ‘significant’, as we don’t want reports to be overloaded with vast quantities of metrics and other information,” she adds.

More clarity around what is meant by ‘sustainability related’ is needed, says Sleigh-Johnson, “otherwise it will be harder than it need be for preparers to know which topics they should make disclosures about. While I wouldn’t advocate trying to include an exhaustive list of sustainability-related topics in the standard, it may be useful to include a list of common sustainability-related issues.”

Woods agrees that such a list would be helpful, marking an improvement on the current proposals. “They require management to consider a wide range of literature when identifying sustainability-related risks and opportunities, including Sustainability Accounting Standards Board (SASB) and other inherited standards that have not themselves been subject to ISSB due process.”

In addition, says Sleigh-Johnson, references to SASB standards in the related proposals on climate-related disclosures have generated a lot of debate. “If companies have to apply SASB and other standards to be compliant with the ISSB standards, some will see this as a fatal flaw that may in practice restrict global take-up, especially in relation to smaller companies.”

Compliance won’t be an easy task, but he thinks sensible drafting changes could make a significant difference to helping companies comply with the requirements of the standard: “Putting these proposals into practice will be a big challenge, albeit perhaps less so for large companies in more developed economies such as the UK, where there is some familiarity with the Task Force on Climate-Related Financial Disclosures framework on which the exposure drafts are largely based.”

Implementation is likely to be especially challenging for smaller listed and private companies, particularly in jurisdictions where reporting on sustainability-related issues is new, Sleigh-Johnson warns. “This has to be factored in when discussing issues such as scope and timing.”

Although there is huge interest in sustainability-related issues at the moment and a real and understandable sense of urgency around these proposals, Woods adds a note of caution: “You have to remember that the proposals are not just talking about climate-related issues – they widen the net to include other significant sustainability-related risks and opportunities. This may mean the workload for some companies will be high, so it’s really important for the standards to be very clear and for reporting entities to be adequately prepared for implementation.”

Failure to achieve this could lead to a checklist-driven approach to reporting and lots of boilerplate text, Woods warns. “If that happens, a great opportunity will have been wasted. If we want to get this right, we may need to be just a little patient.”

Get in touch

Outreach to ICAEW members about the proposals is extensive and ongoing. If you have any comments on the ISSB proposals, please contact laura.woods@icaew.com.