In its responses to exposure drafts by the International Sustainability Standards Board (ISSB), ICAEW has welcomed efforts to develop disclosure requirements for sustainability and climate-related financial information, and has emphasised some critical points where improvements are necessary. 

ICAEW highlights the need for greater clarity and definition around terminology, such as ‘sustainability-related’ and ‘enterprise value’. This would help avoid confusion and ensure standards are applied consistently. Dr Nigel Sleigh-Johnson, Director of Audit and Corporate Reporting at ICAEW, says: “Clarity is a prerequisite if the new standards are to be effectively implemented and enforced. That applies not just to key terms and concepts, but also the process entities are expected to go through when applying the new standards.” 

The Institute also stresses that, while industry-based metrics are clearly valued by investors, the mandatory industry-based requirements, contained in an appendix, are not of sufficient quality to form a mandatory part of the Climate-related Disclosures Standard. “The industry-based requirements are not well aligned to the main body of the standard, nor have they been sufficiently internationalised,” explains Laura Woods, Technical Manager in ICAEW’s Financial Reporting Faculty. 

The materials encompassed by the proposed appendix, based on Sustainability Accounting Standards Board (SASB) Standards, have been subject to a rigorous due process prior to incorporation in the exposure draft. But not by the IFRS Foundation, or in an international context. The appendix is some 640+ pages long. “The 120-day consultation period is simply not enough time for IFRS Foundation stakeholders to properly review the material,” says Woods.

In its response letters, ICAEW raises concerns about the scalability of the standards and the practicalities of smaller entities implementing them. ICAEW suggests that the ISSB could consider an approach that categorises the disclosure requirements into three ‘buckets’: core disclosures, additional disclosures and supplementary disclosures. 

This approach would allow some jurisdictions to adopt the ISSB’s standards and reporting entities to begin their journey towards full compliance earlier than might otherwise be possible. This should encourage more widespread adoption. “An approach like this would recognise the steep learning curve that lies ahead for many preparers,” Sleigh-Johnson comments. “Much is sure to be learned through the early stages of implementation and through an iterative feedback process.”

The ISSB consultation closed on 29 July, but the debate will continue as the ISSB continues to work on these and other new standards. For further detail on ICAEW’s views of the ISSB exposure drafts, take a look at Mission critical matters for the ISSB, where links to the full responses can be found. If you have any comments or suggestions please contact laura.woods@icaew.com

Read about the government response to the ISSB exposure drafts