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ISSB must prioritise IFRS S1 and S2

Author: ICAEW Insights

Published: 25 Aug 2023

In its response to the ISSB’s call for opinions on its agenda priorities, ICAEW stresses the importance of prioritising the implementation of IFRS S1 and S2.

The International Sustainability Standards Board (ISSB) must put the implementation of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures at the top of its priority list, ICAEW has argued.

Its view reflects those of the UK Endorsement Board (UKEB) and Financial Reporting Council (FRC), which have also pushed for the implementation of these standards to be prioritised. Additionally, the FRC has expressed strong encouragement for the ISSB to work closely with the International Accounting Standards Board (IASB) to undertake an integration in reporting project and is aligned with the ICAEW view that this should take account of an existing IASB project on Management Commentary.

The Management Commentary project was paused in light of the establishment by the IFRS Foundation of the ISSB due to the clear crossover and potential interaction with the ISSB’s work. ICAEW believes it would be a missed opportunity if the ISSB does not collaborate closely with the IASB to complete the project.

ICAEW strongly encouraged the ISSB to prioritise supporting the implementation and uptake of IFRS S1 and S2 above all other activities. It would like the ISSB to set out a clear statement of intent following its agenda consultation regarding the development of S3 and beyond. There is a risk that if the ISSB does not take action swiftly in developing ‘S3’, the gap will be filled by standards from other bodies, which could amplify confusion in the market.

“We believe that if the ISSB achieves widespread global adoption of the initial standards, this could form an excellent foundation for growth and expansion into new topic areas,” the ICAEW said in its representation. “But without securing the foundation of widespread adoption of S1 and S2, developing and producing new standards may not achieve the desired impact.”

A research and standard-setting project around human capital and human rights issues should be prioritised over the next two years, above some of the other projects set out in the consultation, according to ICAEW.

“Given the agenda consultation covers a two-year period, there is a natural need to select a project where progress can be made reasonably quickly. A research and standard-setting project on ‘the workforce’ would meet this criterion.”

It highlighted biodiversity, ecosystems and ecosystem services (BEES) as a critically important topic to address as part of the sustainability reporting framework. “The potential subtopics under the BEES heading are wide-ranging and individually substantial, and as such we are not convinced that two years is enough time to make sufficient progress on this project.”

ICAEW recommended that the ISSB monitor and allow for the work of other organisations to continue and develop, then leverage them as a means of making efficient progress in those areas.

ICAEW strongly discouraged the ISSB from pursuing any project involving integration of financial and non-financial reporting without collaborating with the IASB. “Any project that seeks to integrate financial and non-financial reporting must involve sufficient input from both boards in order to reach a successful outcome.”

The ISSB also needs to set out its strategy for comprehensively incorporating industry-specific requirements into the ISSB reporting architecture. “A clearly articulated vision for the future role of the SASB Standards may be of particular importance for jurisdictions as they approach the question of IFRS S1 adoption.”

Materials from other bodies have been consolidated into the ISSB’s literature, such as the work of the Climate Disclosure Standards Board (CDSB). However, they are not fully integrated to form one set of requirements. In ICAEW’s view, “It is very important that the ISSB articulate a transition plan about what the future holds for the SASB Standards and these other materials, and how the ISSB plans to achieve this.”

“We recommend that the ISSB takes a strategic approach when considering its workplan and ensures that the next two years are dedicated to properly embedding the first two standards and supporting jurisdictions with the endorsement and implementation process,” says Laura Woods, Technical Manager, Corporate Reporting.

“We appreciate that there is demand for the ISSB to undertake a wide range of standard-setting projects, in particular in areas such as biodiversity and climate-adjacency matters. While these are important topics, we believe the success of the next topic specific standard will depend on there being sufficient initial uptake and endorsement of IFRS S1 and S2. In our view, achieving the global baseline should be the ISSB’s priority at this time.”

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