In its September meeting, the International Sustainability Standards Board (ISSB) began reviewing feedback on its recently published exposure drafts S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures.

The two draft standards were generally well received and there is clear support for the ISSB’s mission to develop a comprehensive global baseline of high-quality sustainability disclosure standards. However, certain requirements were met with a mixed reaction, resulting in several topics being put forward for further deliberation as part of the ISSB’s due process procedures, including the following.

Scalability

Most respondents asked the ISSB to consider the range of capabilities and preparedness of entities to apply the proposed standards, noting that certain entities lack sufficient resources to be able to fully comply. The ISSB is currently considering which scalability mechanisms should be explored to help it respond to this issue. Options include amending disclosure requirements and providing guidance materials to assist preparers in the application of the standards.

Improvements to clarity

The feedback highlighted concern over a lack of clarity of key terms and definitions. The ISSB will therefore explore whether definitions of terms such as ‘enterprise value’ and ‘significant’, in the context of sustainability financial information, can be made clearer. The ISSB will consider whether further guidance is needed to support the application of materiality and to clarify the breadth of reporting required. Mixed feedback was also received on the proposed requirement for preparers to consider external sources of guidance, with calls for greater clarity on the words ‘shall consider’ used in the draft.

Practical challenges for preparers

Certain requirements were identified by respondents as particularly challenging for preparers. The ISSB plans to redeliberate the following topics and consider whether more time and/or additional guidance is needed.

• Connected information: respondents seek further clarity on how to disclose information that complies with the requirements on connected information, specifically between various sustainability-related risks and opportunities and linkages with the financial statements.
• Current and anticipated financial effects: affecting the redeliberation of both S1 and S2 exposure drafts, respondents raised questions on how to measure the financial effects of sustainability-related risks and opportunities given the high level of estimation uncertainty involved and the difficulty in attributing particular effects to specific risks and/or opportunities.
• Climate resilience: respondents are concerned that climate-related scenario analysis may place a significant burden on preparers, especially as methodology and application issues are yet to be resolved.
• GHG emissions: there are concerns regarding the data availability, collection and calculation of Scope 3 GHG emissions.

Industry requirements

The extensive, mandatory, industry-based requirements set out in Appendix B of the climate-related disclosure standard (S2) were also met with a mixed reaction. Although there was support for including industry requirements, many said that more work could be done to make these requirements more suitable for international application. Others, including ICAEW, suggested that the requirements should not be mandatory. There is currently no indication as to how the ISSB may respond to such feedback, but it is clear these requirements will gain attention throughout the redeliberation process. 

Next steps

The ISSB will continue to discuss respondents’ feedback over the next few months and is aiming to publish IFRS S1 and IFRS S2 as early as possible in 2023 – a slight delay on the original ambition of publishing the standards before the end of 2022.

• Further information on the ISSB’s Sustainability Disclosure Standards is available from ICAEW’s Non-financial reporting hub.
• ICAEW sets out what it believes to be the mission critical matters for the ISSB.