Convergence and collaboration on sustainability reporting

In an International Sustainability Standards Board (ISSB) webinar on 28 April, vice-chair of the ISSB, Sue Lloyd, reiterated the four focus points of the ISSB:

1. Develop standards for a global baseline of sustainability disclosures
2. Investor-focused
3. Enabling the provision of sustainability-related information for global capital markets
4. Building blocks approach

The creation of the ISSB by the IFRS Foundation was in response to a demand for convergence, given the confusion and lack of comparability caused by the numerous voluntary sustainability reporting frameworks, standards, and disclosure recommendations available. 

The ISSB, which aims to introduce the mandated, single source of truth when it comes to sustainability disclosures, is leveraging the work of the existing organisations. For example, the four content elements of the TCFD – governance, strategy, risk management, and metrics and targets – form the skeleton for the two ISSB exposure drafts released in late March, while the SASB Standards are also explicitly referenced. 

The “building blocks approach” refers to the core identity of the ISSB, in the context of the overall reporting landscape. Consequentially, the ISSB will provide standards for sustainability-related disclosures to investors and capital markets, whilst the Global Reporting Initiative (GRI) and even some jurisdictions, such as the EU, take a broader multi-stakeholder approach.

However, some strong advocates of the GRI standards challenge the ISSB’s prioritisation of capital markets, arguing that mandated sustainability reporting needs to go broader. Adams & Mueller (2022) undertook a software analysis to report that 72 per cent of submissions credited to an author with links to academia were not supportive of the IFRS Foundation’s proposal for the ISSB in late 2020. The reasons for opposition were usually attributed to the strict financial focus and inconsistency with the Sustainable Development Goals (SDGs). Additionally, Abela (2022) calls for a return to accountability and transparency, as he also questions the absence of double materiality in the ISSB exposure draft standards. 

By contrast, Michael Bray, KPMG fellow and director – better business reporting at Deakin University, expressed firm support for the ISSB at April’s meeting of the IPA’s Sustainability Discussion Group. Presenting the views of the VRF, Mr Bray applauds how the ISSB meets the demands of investors while remaining accessible and reasonable for preparers. However, Mr Bray and the VRF hope for explicit clarification around the role of Integrated Reporting  to be included in the standards. 

On 25 May, one month after Mr Bray’s comments, the IFRS Foundation provided greater clarity on the future of and the Integrated Thinking principles. The Framework will be “initially positioned as a voluntary resource” with “a prominent place on the Foundation’s website”. Although this does not give  an immediate position in the standards, Andreas Barckow, chair of the International Accounting Standards Board (IASB), has identified it as vital for the connectivity between the information requirements of the IASB and ISSB.

While the expertise of the IFRS Foundation or the scope of the ISSB can continue to be debated and criticised by some, the memorandum of understanding announced on 24 March between the ISSB and GRI should be commended. The media release from the ISSB states that the bodies “will seek to coordinate their work programmes and standard-setting activities” and “further harmonise the sustainability reporting landscape”. Evidence of collaboration has not taken long, with Mardi McBrien, managing director of the IFRS Foundation, posting a photo capturing the two organisations working together. 

For the ISSB to evolve from a set of recommendations to mandatory reporting requirements, the standards must be adopted by jurisdictions. IPA technical policy adviser, Daen Soukseun, sits on the AASB’s Project Advisory Panel and observes that the board “proposes using ISSB standards as a base, which it can build on and modify to address Australian matters and requirements”. Ms Soukseun notes the AASB’s timely focus on sustainability reporting as the aspiration for “Australia [to] remain at the forefront of standard-setting and reporting…[which] in turn permits Australian entities to be competitive [internationally]”. 

The challenges involved with the adoption of ISSB standards are multifaceted, with Ms Soukseun explaining that “existing accountants and auditors will need to retrain, accounting bodies may need to reassess the accreditation and regulation of its members, and regulators on the compliance of reports”. 

These are barriers we need to embrace and overcome, as the demand for sustainability disclosures and reporting is on the rise. Positively, the ISSB is simplifying the current landscape and the MoU with GRI should also ensure that both the financial and non-financial implications of sustainability issues are considered. The consultation on the IFRS Foundation’s two draft standards closes on 29 July 2022.