The International Sustainability Standards Board (ISSB) has unanimously voted in favor of clarifying how preparers consider SASB and CDSB but did not find an agreement on including GRI and ESRS in their source of guidance.
The ISSB voted in favour of the IFRS staff’s recommendation to amend IFRS S1 so that, in identifying sustainability-related risks and opportunities, prepares shall consider the disclosure topics in the industry-based SASB Standards and may consider the CDSB Framework application guidance for water and biodiversity-related disclosures.
And when identifying disclosures, including metrics, about sustainability-related risks and opportunities, prepares shall consider the metrics associated with the disclosure topics included in the industry-based SASB Standards and may consider the CDSB Framework application guidance for water and biodiversity-related disclosures.
The IFRS staff also recommended amending the standards so that preparers may consider the most recent pronouncements of other standard-setting bodies, whose requirements are designed to meet the needs of users of general-purpose financial reporting, as well as the GRI Standards and the European Sustainability Reporting Standards.
While board members seemed to broadly be in agreement with recognising other standard-setting bodies who set standards for financial reporting, the board was divided on the idea of recognising the GRI and European standards in the guidance (recommendation 6).
“I find [the recommendation] problematic,” vice-chair Jingdong Hua said. “In the sense that, by referring to either a regional standard or another standard whose purpose is not focused on investors and making explicit reference, it opens several issues for me.”
Preparers who want to use GRI and ESRS would do it without the ISSB including it in its guidance, he argued. “More importantly, if you were to refer to other live standards that will have an ongoing shelf life which is different than SASB and CDSB, which was sunset, would it also open to us referring to future live jurisdictional regional standards? That probably will bring more confusion than clarity.”
“Also, if we are the global baseline, I would assume others would build upon us rather than the other way around,” he added. “[This recommendation implies] we are building on others […] so at this point I don’t think I will be able to support [this recommendation].”
Vice chair Sue Lloyd agreed that the recommendation to include financial reporting minded standard setters in the guidance was straightforward.
“The reason why it’s a really big deal, whether or not we [accept recommendation 6], is that the way we drafted the standards, you are only permitted to look at particular sources of materials. And so, unless we had something like what is set out in recommendations 6, companies would not be allowed to reference the ESRS standards and the GRI standards because they're not investor focused.”
She believes it would be very useful for preparers to be allowed to use the GRI standards and the ESRS “to fill in the gaps as long as it meets investor needs because if you're already using GRI then you can continue to use at least a subset of those disclosures to meet our requirements. And if you had to apply ESRS and you had to apply the ISSB standards, this is a way to be able to streamline and repurpose some of your disclosures”.
But Lloyd acknowledged that this recommendation is not without risk. “The risky thing is making sure that they only choose disclosures that do meet investor needs and then it's done in a way that it doesn't blur the global baseline.”
She added: “If drafted very, very clearly, it’s a nice way to make it a more efficient reporting process for companies and maybe a less confusing one for investors and others using the information because then we’ve got less risk of similar disclosures about similar information that aren’t quite distinct enough.”
Before concluding: “The point is, unless we give them permission actually, at the moment that company couldn't use GRI and ESRS, which is why the staff recommendation six is actually pretty important.”
The IFRS staff highlighted to the board that the reason for this recommendation was that most of the feedback from the public consultation mentioned GRI and Europe as key initiatives for the ISSB to align with.
Chair Emmanuel Faber told the board: “The reason for me that [GRI and ESRS] need to have a special treatment, if we want them in [the guidance], is because they are not investor focused or not entirely investor focused, so they are, in a way, an exception but a significant exception in terms of interoperability.”
There are standards with which the ISSB has consolidated (Value Reporting Foundation) and standards with which the ISSB has signed cooperation agreements “for the sake of interoperability” (GRI), Faber said. “And there are standards with whom we are building the interoperability and that is the case with Europe.
“There is super hard work which is not finished that is being done. […] We're coming to a point where an intersection will be available with Europe, with the fact that the same definition of financial maturity has been recognised, we are working on alignment in substance on the important topic of climate. So, the likelihood that a big chunk of our work is interoperable with a significant chunk of the ESRS is there. So I wouldn't be in any way comfortable to do what we're doing right now, if that was not a precondition. So one we are linked with an M0U the other one we might be in the next several months by very articulate approach to interoperability.”
The board decided to delay a vote on the matter to a future meeting.
