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The International Sustainability Standards Board (ISSB) approved a sequence of relief provisions specific to Scope 3 greenhouse gas emissions reporting, which would be required once the ISSB’s IFRS S2 Climate-related Disclosures standard is confirmed. The relief provisions include:
The board also approved an IFRS staff recommendation to introduce a framework for how an entity measures its Scope 3 GHG emissions. Companies would estimate its Scope 3 GHG emissions by prioritizing the use of:
Since its establishment, the International Sustainability Standards Board (ISSB) has weathered criticism that its mandate for investor-focused sustainability reporting would result in companies downplaying (or not disclosing) their wider environmental or social impacts – i.e. external impacts without a “material” link to enterprise value.
At COP15 in Montreal, the ISSB addressed this criticism through by offering a definition of sustainability in the context of financial value creation and committing to embed this definition in its forthcoming IFRS Sustainability Disclosure Standards.
Sustainability will be described in the ISSB’s General Sustainability-related Disclosures Standard (IFRS S1) as the ability for a company to sustainably maintain resources and relationships with and manage its dependencies and impacts within its whole business ecosystem over the short, medium and long term. Sustainability is a condition for a company to access over time the resources and relationships needed (such as financial, human, and natural), ensuring their proper preservation, development and regeneration, to achieve its goals.
By referring to this articulation of the value creation process, a company will be better placed to explain to its investors how it is working sustainably within its business ecosystem—addressing the impacts, risks and opportunities that can affect its performance and prospects—to ultimately deliver financial value for investors.
This definition addresses the criticism by linking a company’s external impacts to its capacity to create value, making it clear that the ISSB does not necessarily consider the materiality of external impacts to be distinct from materiality from an enterprise value perspective. The definition builds on concepts from the Integrated Reporting Framework, which helps companies articulate how they use and effect resources and relationships for creating, preserving and eroding value over time.
The European Financial Reporting Advisory Group (EFRAG) submitted its first set of draft European Sustainability Reporting Standards (ESRS) to the European Commission for consideration. Companies captured by the European Corporate Sustainability Reporting Directive (CSRD) would be required to disclosed against the ESRS from as early as 2025.
The European Commission may amend the draft ESRS before adopting them in June 2023.
(Authors note: This timeline focuses on developments in global sustainability reporting standards. Although the ESRS are not globally applicable, we have included important ESRS developments in this timeline because (a) the ESRS cover a comprehensive suite of sustainability topics, unlike other jurisdictional requirements that focus on climate only, and (b) the comprehensiveness of the ESRS may set a new market standard for sustainability disclosure, particularly for multinational companies with operations in the EU or with industry competitors located in the EU.)
At its November 2022 meeting, the International Sustainability Standards Board (ISSB) voted to require the publication of sustainability reporting at the same time as financial reporting.
While some companies publish sustainability reporting at the same time as financial reporting today, the practice is rare. It requires significant additional resourcing and focus from organizations at a time when bandwidth is already stretched by the financial reporting process. It also requires overcoming challenges to acquiring, compiling, and assuring sustainability data.
Given these hurdles, the ISSB tentatively agreed to permit an entity to report its annual sustainability-related financial disclosures at the same time as its H1/Q2 earnings reporting. This decision roughly aligns with the ISSB staff recommendation on transitional relief that would have allowed a company to disclose its sustainability reporting up to three months after the publication of its financial reporting.
Sustainability-related financial disclosures would also need to be authorized by the same bodies or individuals that authorize the financial statements (e.g. the full board).
At COP27, the CDP and the International Sustainability Standards Board announced that CDP will incorporate the ISSB’s proposed climate-related disclosure standard (IFRS S2 Climate-related Disclosures Standard) into CDP’s existing questionnaires. CDP is one of the more longstanding disclosure initiatives on climate change and has since expanded to include questionnaires on water and forests.
As CDP has already aligned its climate change questionnaire with the TCFD Recommendations, it is not surprising that CDP will shift to align with IFRS S2 once it is finalized. It is expected that IFRS S2 will supersede the 2017 TCFD Recommendations, as the TCFD has been actively collaborating with the ISSB since its inception.
The International Sustainability Standards Board (ISSB) has confirmed that their forthcoming climate-related reporting standards will require companies to use climate-related scenario analysis to report on climate resilience and to identify climate-related risks and opportunities to support their disclosures.
The ISSB noted that:
At the United Nations Conference on Trade and Development International Standards of Accounting and Reporting (UNCTAD/ISAR) forum, Mardi McBrien of the IFRS Foundation suggested that a first joint project between the ISSB and GRI is expected to be released in the first half of 2023. The joint project “will be very high level to help preparers and policymakers understand how you can use both GRI and ISSB standards together to report on a company’s complete picture of sustainability and financial performance to all stakeholders.”
Peter Paul van de Wijs, chief external affairs officer at the GRI, described how the ISSB and GRI standards would relate to requirements at the national level. “Our vision is that there is this global, aligned set of ISSB and GRI standards, effectively giving you the full picture of the company’s impact on the world and the world’s impact on the company. But you will always see additions at national level because it needs to fit in existing legislation.”
The ISSB and GRI signed a collaboration agreement in March 2022 (see further below on this timeline).
The International Sustainability Standards Board (ISSB) has confirmed that their forthcoming sustainability disclosure standards will require companies to report on Scope 1, Scope 2, and Scope 3 greenhouse gas emissions. Recognizing the challenges associated with Scope 3 reporting, the ISSB is further contemplating whether extra time and/or safe harbor provisions will be included within the standards.
The ISSB also decided to modify some of the language in the proposed standards, removing:
The above language edits are (likely) part of the ongoing debate on where the ISSB wants companies to draw the line when it comes to material information for investors. The ISSB intends to have further discussions to refine its articulation of materiality and related concepts.
In a recently published statement on climate issues, the G7 Finance Ministers and Central Bank Governors reiterated their commitment to mandatory climate-related disclosures and indicated support for the work being done by the ISSB specifically.
The G7’s expression of support for the ISSB’s standards follows the merger of the Value Reporting Foundation and the Climate Standards Disclosure Board into the IFRS Foundation in 2022, part of a wider trend toward consolidation of voluntary sustainability reporting standards. In the coming years, many countries are expected to implement requirements for sustainability-related financial disclosures and G7 support for the ISSB’s standards hints at the possibility that several countries will use the ISSB’s IFRS Sustainability Disclosure Standards as a model from which to develop mandatory disclosure requirements.
On 7 July 2022, the GSSB announced the launch of a topic standards project for labor. The Global Sustainability Standards Board (GSSB) the governing body responsible for the GRI standards. The focus of the project will be revision of existing GRI disclosures on labor which can be found in several GRI topic standards.
In September the GSSB put out a call for nominations of experts to the advisory group being formed in order to provide stakeholder perspectives throughout the review process, with the composition of the advisory group expected to be finalized in early November.
This review takes place amid growing concerns of recently observed increases in modern slavery, as the number of people, including children, trapped in forced labor grew to over 27 million in 2021.
Jingdong Hua is the final appointee to the International Sustainability Standards Board (ISSB) and will begin his term in September 2022, rounding out the inaugural board’s 14 members. Mr. Hua brings experience in international finance and development and will be responsible for development and implementation of the ISSB’s support and inclusion strategies for stakeholders in emerging and developing economies—advancing the work to develop an IFRS Sustainability Disclosure Standard that can be implemented globally. The IFRS Foundation Trustees appointed Mr. Hua to the role of Vice-chair, a role which is shared by Sue Lloyd who will continue her oversight of the ISSB’s technical staff and other work. The next public meeting of the ISSB will be held at its offices in Frankfurt during the week of 19 September 2022.
The International Sustainability Standards Board (ISSB) has three new board members who will begin their terms in September and October of 2022. Jenny Bofinger-Schuster, Hiroshi Komori and Veronika Pountcheva were appointed by the IFRS Foundation Trustees, bringing the total number of board members up to 13. The new appointees provide geographic balance and will contribute expertise in the areas of investment, corporate sustainability and reporting, further strengthening the extensive skillset of the board.
The IFRS Foundation has completed the consolidation of the Value Reporting Foundation (VRF) into the IFRS Foundation. The VRF was the “holding entity” for the SASB Standards and the Integrated Reporting Framework.
The VRF’s SASB Standards serve as a key starting point for the development of the IFRS Sustainability Disclosure Standards, while the Integrated Reporting Framework provides connectivity between financial statements and sustainability-related financial disclosures.
The ISSB, which now governs the SASB Standards, is embedding the industry-based approach of the SASB Standards into its standard-setting process, as well as addressing the international applicability of the SASB Standards as a priority. The ISSB encourages companies and investors to continue to provide full support for, and use of, the SASB Standards.
The IFRS Foundation’s International Accounting Standards Board (IASB) and the ISSB now assume joint responsibility for the Integrated Reporting Framework and are working together to agree on how to build on and integrate the Integrated Reporting Framework into their standard-setting projects and requirements. The ISSB and IASB actively encourage continued adoption of the Integrated Reporting Framework to drive high-quality corporate reporting.
The newly-established International Sustainability Standards Board of the IFRS Foundation held its first Board meeting on July 20th and 21st, which was open to the public via webcast. The focus of the meeting was on the Board’s future priorities and discussing feedback from stakeholders on the two proposed IFRS Sustainability Disclosure Standards, which are out for public consultation until 29 July 2022.
The ISSB discussed initial feedback from outreach events and technical discussions with targeted stakeholders on the General Requirements and Climate exposure drafts. Some general feedback from these targeted stakeholder consultations included:
ISSB Chair, Emmanuel Faber emphasized the ISSB is “climate first, but not climate only” – the ISSB expects to have additional exposure drafts which address other sustainability issues not covered in the climate and general sustainability drafts in time for the next board meeting in September.
The Global Reporting Initiative (GRI) and IFRS Foundation previously announced an MOU that signaled their respective boards would coordinate their initiatives and standard-setting activities (see 24 March 2022 entry on this timeline). In May, technical representatives from both organizations met to outline and scope the activities and initiatives to achieve more alignment between the standards and provide clarity to users on the compatibility of their standards.
The organizations have now outlined further agreements on processes and signaled the development of two utility documents:
The two groups should have a body of work to draw from, as SASB and GRI set out on a similar collaborative agreement years back and produced a “Practical Guide to Sustainability Reporting Using GRI and SASB Standards”. However, the SASB standards do not include all the guidance on reporting laid out in the ISSB’s General Requirements and Climate Exposure Drafts. The current work will find new opportunities for alignment through in a mapping exercise of the ISSB’s exposure drafts with the GRI Standards, as well as a comparison of the ISSB’s General Features and Qualitative Characteristics of Information in the General Requirements Exposure Draft with GRI 1: Foundation.
This work is subject to the due process of both organizations and approval by their respective boards, so it remains to be seen when the companies will see the tangible outcomes of the outlined collaboration.
During a week where the final meetings of the Value Reporting Foundation (VRF) Board of Directors, SASB Standards Board and Integrated Reporting Framework Board took place to sunset their Boards, the IFRS and VRF Boards ratified the consolidation of VRF into the IFRS Foundation, effective 1 July 2022. The consolidation makes good on a commitment set by the organizations back at COP26 in November 2021.
The announcement details how VRF CEO and Board members will continue on as advisors within the IFRS Foundation. The IFRS Foundation has already committed to continuing the work of the SASB Standards and Integrated Reporting Framework (see posts from 31 March 2022 and 25 May 2022 on this timeline), with further information on the consolidation to be published on 30 June 2022.
GRI has released a technical mapping document of the GRI Standards against the proposed EU Sustainability Reporting Standards (ESRS). This work is a tangible outcome of the EFRAG-GRI cooperation agreement, signed in July 2021, where each other’s technical expert groups committed to share information and to align standard setting activities and timelines as much as possible.
GRI’s support and close coordination with EFRAG (the body that drafted the ESRS) can be tied to their push for the double materiality principle to be applied to corporate sustainability reporting. GRI welcomed the ESRS’s position that companies need to first consider their impacts on the external economy/environment/society (impact materiality), as these impacts may lead to financial consequences for the company in the short, medium, or long term (financial materiality). They also suggested that the definition for financial materiality should align with the approach of the International Sustainability Standards Board (ISSB) of the IFRS Foundation. GRI still pushes for companies to not assume what’s stated in the draft standards to be material to their business and suggests organizations should still conduct their own materiality assessment using GRI’s approach.
The Integrated Reporting Framework, first published in 2013 by the International Integrated Reporting Council (which today is part of the Value Reporting Foundation), will become part of the materials of the IFRS Foundation. This will occur as part of the planned consolidation of the Value Reporting Foundation into the IFRS Foundation in the coming months.
The Integrated Reporting Framework will be used by the International Accounting Standards Board (responsible for financial reporting standards) and the International Sustainability Standards Board (responsible for sustainability disclosure standards) in their respective standard-setting work. The IASB and ISSB also commit to a long-term role for a corporate reporting framework, incorporating principles and concepts from the current Integrated Reporting Framework. A corporate reporting framework would provide guidance to companies on how to prepare an integrated report and/or otherwise support connectivity between the reporting required by the IASB and the ISSB.
The G7 Finance Ministers and Central Bank Governors issued a Communique in which they express support for the work of the IFRS Foundation’s International Sustainability Standards Board (ISSB). Welcoming the progress toward a global baseline of sustainability reporting standards, the G7 also encouraged the ISSB to continue its work on sustainability reporting standards beyond climate, such as nature and social issues.
In what is mostly a recap of previous announcements, the International Sustainability Standards Board (ISSB) of the IFRS Foundation has outlined actions required to deliver a global baseline of sustainability disclosures. The key message here is that the ISSB sustainability disclosure standards themselves are only a first step, which then requires action by public authorities and market participants to require or encourage their widespread usage.
The ISSB has already created a working group with representatives from jurisdictions that are contemplating their own sustainability disclosure requirements. The ISSB release outlines other activities that it will take to support wider adoption, such as intensified engagement with authorities and market participants, establishing advisory and consultative bodies, and working with IOSCO as it evaluates whether to endorse the ISSB standards for use by IOSCO members.
The ISSB intends to have these institutional arrangements in place by the end of 2022, which is also when it intends to issue its first two sustainability disclosure standards. At the time of writing, these two disclosure standards – one on general requirements and one on climate-related disclosures – are open for public comment.
The Value Reporting Foundation has published its response to the US Securities and Exchange Commission’s consultation on its proposed climate-related reporting requirements. The Value Reporting Foundation is set to consolidate into the newly-formed International Sustainability Standards Board (ISSB) of the IFRS Foundation by July 2022. At the time of writing, the ISSB also has two proposed sustainability disclosure standards out for public comment.
The Value Reporting Foundation’s letter sets out areas of consistency between the proposed ISSB standards and the SEC proposal, while pointing out the ISSB’s inclusion of industry-specific reporting requirements. It also advocates for the SEC to allow foreign private issuers to use the ISSB climate-related disclosure standards as compliance with the SEC requirements.
The European Financial Reporting Advisory Group (EFRAG) has released Draft EU Sustainability Reporting Standards (ESRS) for public comment. The ESRS would inform reporting expectations for EU corporates under the European Commission Corporate Sustainability Reporting Directive (CSRD).
The Draft ESRS take a double materiality approach to corporate sustainability reporting – requiring entities to report on sustainability factors that affect enterprise value and on how the entity impacts the external environment. GRI, which has also advocated for double materiality as part of its ‘two pillar’ approach to corporate sustainability reporting, worked closely with EFRAG on the development of the Draft ESRS (see post from 9 July 2021 on this timeline).
The Cover Note to the Public Consultation contains useful context, including links to tables that compare the Draft ESRS to the TCFD Recommendations (Appendix IV of the Cover Note), and tables that compare the Draft ESRS to the IFRS Sustainability Disclosure Standards S1 and S2 Exposure Drafts (Appendix V of the Cover Note).
The Draft ESRS include cross-cutting standards, environmental standards, social standards, and governance standards. Consultation surveys are available to help organize feedback. The comment period is open until 8 August 2022.
The International Sustainability Standards Board (ISSB) of the IFRS Foundation has established a working group – the Sustainability Standards Advisory Forum – to promote compatibility between the proposed IFRS Sustainability Disclosure Standards and ongoing jurisdictional initiatives on sustainability disclosures. Although the ISSB intends to establish a global baseline of sustainability disclosure standards, various jurisdictions have enacted, or plan to enact, their own sustainability disclosure requirements. The working group will seek to establish how the proposed global baseline set by the IFRS can contribute to optimizing reporting efficiency for companies in those jurisdictions, and how those jurisdictions can build upon the global baseline according to their needs.
Members of the Sustainability Standards Advisory Forum include the Chinese Ministry of Finance, the European Commission, the European Financial Reporting Advisory Group, the Japanese Financial Services Authority, the Sustainability Standards Board of Japan Preparation Committee, the United Kingdom Financial Conduct Authority and the US Securities and Exchange Commission.
The IFRS Foundation has released exposure drafts of its first two standards:
According to the IFRS Foundation: “the proposals set out requirements for the disclosure of material information about a company’s significant sustainability-related risks and opportunities that is necessary for investors to assess a company’s enterprise value.”
The International Sustainability Standards Board (ISSB) of the IFRS Foundation is accepting feedback on the exposure drafts through 29 July 2022. It will review feedback on the proposals in the second half of 2022 and aims to issue the new Standards by the end of the year, subject to the feedback.
Consistent with previous announcements that the International Sustainability Standards Board (ISSB) will build on the work of existing investor-focused reporting initiatives when proposing its new global sustainability disclosure standards, the ISSB has confirmed that will embed the industry-based approach used by the Sustainability Accounting Standards Board (SASB) into its standard-setting process.
This announcement was made at the same time as the ISSB’s release of exposure drafts for IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. Appendix B of IFRS S2 Climate-related Disclosures indicates that the ISSB intends to embed industry-specific reporting requirements (based on the SASB Standards) within topic-specific standards (IFRS S2 Climate-related Disclosures) – as opposed to issuing industry-specific disclosure standards.
In the announcement, the ISSB outlined other ways that it would build on the existing work of SASB, such as improving the international applicability of the SASB Standards and continuing SASB’s research projects on matters such as climate and human capital. The ISSB encourages companies to continue using the SASB Standards (in their current form) as they transition into the ISSB’s proposed standards.
The IFRS Foundation and Global Reporting Initiative (GRI) announced a collaboration agreement under which their respective standard-setting boards will seek to coordinate their initiatives and standard-setting activities. The announcement helps settle what was an emerging area of conflict between the two standards-setters – as the IFRS Foundation left open the possibility of its standards applying to corporate reporting on impacts, while the GRI maintained that it was the only ‘credible’ mechanism for impact reporting.
It also continues the momentum toward what is becoming a proposed ‘two pillar’ structure for corporate sustainability reporting – with sustainability-related financial reporting covered by the IFRS Foundation and corporate impact reporting covered by GRI. The agreement acknowledges the importance of working together to ensure compatibility and interconnectedness between corporate reporting under the two pillars.
Emmanuel Faber, Chair of the ISSB, noted the links between impact and enterprise value:
“For those interested in considering impact when assessing enterprise value, using the standards set by the ISSB and GSSB together will offer a complete and compatible suite of sustainability disclosures.”
Eelco van der Enden, Chief Executive Officer of GRI, referred to the importance of double materiality within the corporate reporting system:
“The MoU between GRI and the IFRS Foundation is a strong signal to capital markets and society that a comprehensive reporting system, which combines financial and impact materiality for sustainability reporting, is possible on a global scale.”
The Value Reporting Foundation (VRF), which oversees the continued development of the SASB Standards and the Integrated Reporting Framework, will consolidate into the IFRS Foundation in June 2022 as part of the establishment of the International Sustainability Standards Board (ISSB). The VRF has published two documents explaining how the future of the SASB Standards and the Integrated Reporting Framework will be affected by the consolidation.
The VRF suggests that the SASB Standards and the Integrated Reporting Framework remain current and should be used by companies, especially as these tools will be used by the ISSB to construct their forthcoming sustainability disclosure standards. However, the consolidation will affect the tools in the medium term.
The SASB Standards will ultimately transition into IFRS Sustainability Disclosure Standards using ISSB due process. This transition is straightforward, as the prototype sustainability disclosure standards specify that there will be industry-specific directions within the standards. The 77 industry-specific SASB Standards will likely form the basis of these industry-specific components of the new standards.
The future of the Integrated Reporting Framework is not as straightforward. The VRF states that principles and concepts of the Integrated Reporting Framework will provide a conceptual basis for connectivity between the IFRS Accounting Standards and the new IFRS Sustainability Disclosure Standards. Furthermore, they cannot say with absolute precision how the Framework will manifest in the future, although “the enormous investment by stakeholders in developing the Integrated Reporting Framework and its use around the world will be secured”. This will presumably be secured by the IFRS Foundation’s Technical Readiness Working Group, which has the subject of connectivity as one of its deliverables (although the outcomes of this deliverable have not yet been made public).
Responding to the comment from IOSCO that the ISSB standards will enable corporate reporting on impacts (see 3 February 2022 entry on this webpage), GRI has stated that “it is highly unlikely that the ISSB has the ambition to arrive at true impact reporting”. This view is based on the fact that “the existing disclosure guidelines the ISSB draws upon – TCFD, Value Reporting Foundation (which includes SASB) and CDSB – all have an exclusive focus on financial materiality for an investor-based audience” (emphasis in original).
It is important to note that the ISSB has not yet released exposure drafts of its proposed standards. GRI’s document notes that an organization’s impacts of an organization are or will become financially material over time, which would seem to leave the door open for the ISSB to include impact reporting in its standards in some way. To date, however, GRI has positioned itself as the “only credible partner to fill in the ‘impact’ angle in the corporate reporting landscape”.
Looking beyond investor interests, the document advocates the use of GRI for impact reporting as a public interest activity for multiple stakeholders, which is more clear cut given the ISSB’s explicit focus on investors:
“The impacts of a company matter and must be reported even if the company or its investors do not consider them to be financially material, either now or in the future.”
Ashley Alder, Chair of the International Organization of Securities Commissions (IOSCO), has stated that the International Sustainability Standards Board (ISSB) climate-related disclosure standard (expected to be released in late 2022) will provide investors with insights into companies’ environmental impacts. His position is that the ISSB’s focus on sustainability-related matters that are relevant for enterprise value (i.e. ESG impacts on company operations/performance) would not exclude reporting on company impacts as well:
“Reporting a company’s impact on the environment is actually highly relevant to sustainability reporting through the lens of enterprise value, which is the lens through which the ISSB sustainability standards are being constructed.”
IOSCO comprises national regulators of most countries worldwide. IOSCO is an important collaborator in the development of new ISSB standards, as IOSCO endorsement of the new standards would facilitate their adoption by national regulators. Alder’s position regarding impact reporting under the forthcoming ISSB standards contrasts with statements made by GRI, which has maintained that the “enterprise value” focus of the ISSB is insufficient to enable comprehensive reporting on company impacts to multiple stakeholders.
When announcing the establishment of the International Sustainability Standards Board (ISSB) in November 2021, the IFRS Foundation also announced that the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation would be consolidated into the IFRS Foundation to support the work of the ISSB.
This announcement confirms that the consolidation of CDSB into the IFRS Foundation has been completed. CDSB staff, core intellectual property, and technical assets are now supporting the work of the ISSB. Organizations are still encouraged to use the CDSB Framework and other technical guidance, which remain available via the CDSB legacy website – as these materials are informing the sustainability disclosure standards to be developed by the ISSB.
GRI issued a release welcoming Sue Lloyd and Janine Guillot to their respective roles at the newly-established International Sustainability Standards Board (ISSB). In the release, GRI CEO Eelco van der Enden underscored the differences between the GRI Standards and the standards expected to be published by the ISSB later in 2022:
[Improving corporate transparency requires] stronger financial disclosure that reflects sustainability risks, as the ISSB is setting out to achieve, along with wide-ranging reporting on sustainability impacts, as enabled by the GRI Standards.
He went on to state that comprehensive reporting against both of these pillars is a prerequisite for businesses to be held accountable and meet the transparency expectations of their stakeholders.
The IFRS Foundation continues its establishment of a new International Sustainability Standards Board (ISSB) through the appointment of Sue Lloyd as ISSB Vice-Chair and Janine Guillot as Special Advisor to the ISSB Chair, Emmanuel Faber.
Sue Lloyd, as ISSB Vice-Chair, will focus particularly on the ISSB’s work on technical standard-setting issues and developments. She has been a member of the International Accounting Standards Board since 2014, and served on the Technical Readiness Working Group that has had a leading role in establishing the ISSB.
Janine Guillot is currently the CEO of the Value Reporting Foundation (which houses the SASB Standards, Integrated Reporting Framework, and Integrated Thinking Principles). As Special Advisor to the ISSB Chair, she will have specific responsibilities for the consolidation of the VRF into the IFRS Foundation an the establishment of the ISSB.
Under the proposed EU Corporate Sustainability Reporting Directive (CSRD), the European Financial Reporting Advisory Group (EFRAG) would be responsible for drafting European Reporting Sustainability Standards and conducting impact analyses EFRAG has called for applications for a Chair and other members of its Sustainability Reporting Technical Experts Group.
The EU CSRD is being developed independently of standards contemplated by the International Sustainability Standards Board of the IFRS Foundation. Based on prototype documents and preliminary scoping undertaken by both bodies, it seems that the EU CSRD will comprise reporting on a business’s impacts on environment/society/etc. as well as ESG-related impacts on enterprise value (‘double materiality’), whereas the ISSB standards will focus more on the enterprise value ‘lens’ of double materiality. Further evidence to this position is that GRI, which publishes reporting standards based on a definition of materiality that refers to external impact, has a ‘statement of cooperation’ with EFRAG and has yet to make a similar commitment to the ISSB.
GRI published The GRI Perspective: A business case for environment & society, in which it supports “the creation of a comprehensive corporate reporting system based on a two-pillar structure”. The two pillars are defined as:
The document points out that there is actually no ‘alphabet soup’ when it comes to actual standards setters. On a global scale there are only two reporting standards: GRI and SASB. These two standards roughly align with the two pillars. SASB is part of the Value Reporting Foundation, which is consolidating into the IFRS Foundation to support the development of sustainability-related financial disclosure standards (Pillar 1). GRI has always been focused on an organization’s external impacts, thus supporting corporate reporting against Pillar 2.
The document notes further that the European Sustainability Reporting Standards (ESRS) under development extend across both pillars, whereas the standards contemplated by the newly-established International Sustainability Standards Board are focused on Pillar 1 only.
In an interview posted on the “Trust me, I’m listed” website, Jonathan Labrey (Value Reporting Foundation), Richard Barker (Oxford’s Saïd Business School), and Robert Eccles (SASB Founding Chairman) provided insights on the work to be undertaken by the newly-established International Sustainability Standards Board.
The interview noted that exposure drafts of the first set of ISSB standards could be expected in late March or early April. However, this is a decision for the ISSB Board, which has yet to be fully appointed.
GRI issued a release welcoming the appointment of Emmanuel Faber as the inaugural chair of the International Sustainability Standards Board (ISSB) by the IFRS Foundation. GRI is remaining separate from the sustainability reporting standards setting of the ISSB, as GRI sees the forthcoming ISSB standards as “separate yet complementary” to broad reporting on sustainability impacts as enabled by the GRI Standards
GRI representatives state that to drive transparency on the impacts of organizations and increase the accountability of business, there needs to be a “two-pillar disclosure system in which sustainability and financial reporting are on an equal footing.” GRI views itself as the standards setter for the “sustainability reporting” pillar, and views the ISSB as a sustainability standards setter for the “financial reporting” pillar.
Following the announcement by the IFRS Foundation in November 2021 about the creation of a new International Sustainability Standards Board (ISSB), the Foundation appointed Emmanuel Faber as Chair of the ISSB.
Faber’s appointment aligns with the ISSB’s focus on sustainability matters that affect the financial performance or enterprise value of an organization. As the Chair and CEO of Danone, Faber championed the importance of sustainability information to global capital markets and the investment decision-making process. He led various initiatives to help investors better understand how sustainability factors might affect their assessment of enterprise value over the short, medium and long term.
The Value Reporting Foundation publishes the Integrated Thinking Principles Prototype, which is one of the three key resources of the Value Reporting Foundation. The others are the SASB Standards and the Integrated Reporting Framework. The Principles provide a structured approach for considering how to create the right environment within an organization, as well as for reviewing what can, at times, go wrong.
The six Integrated Thinking Principles – purpose, strategy, risks/opportunities, culture, governance, performance – are designed to be embedded into an organization’s business model and applied across key activities overseen by the board and managed by the senior leadership team. The Principles also provide a basis on which to create an annual integrated report and fulfil disclosures associated with the TCFD Recommendations and the future CSR Directive (EU).
The Principles will be supplemented by a detailed methodological guide on how to embed them into the day-to-day processes and practices of an organization, which the Value Reporting Foundation intends to publish in Q2 2022.
The Value Reporting Foundation announces the dissolution of the Corporate Reporting Dialogue, which was established in 2014 by the then International Integrated Reporting Council in response to calls for better alignment in corporate reporting.
Members of the Dialogue included CDP, Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), International Accounting Standards Board (IASB), International Organization for Standardization (ISO), and the Value Reporting Foundation (housing Integrated Reporting Framework and SASB Standards). The Dialogue’s collaboration enabled the establishment of the International Sustainability Standards Board by the IFRS Foundation (consolidating the CDSB and the VRF), and has informed national standards-setting efforts such as the EU Corporate Sustainability Reporting Directive (which also involves GRI).
The IFRS Foundation announces the establishment of the International Sustainability Standards Board (ISSB) to develop – in the public interest – a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.
The Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation will be consolidated into the ISSB. This consolidation puts climate disclosure, the SASB Standards, and the Integrated Reporting Framework front-and-center in the development of the IFRS Sustainability Disclosure Standards.
Together with the IFRS Foundation announcement establishing the International Sustainability Standards Board, the IFRS Technical Readiness Working Group published a prototype to be used by the ISSB to develop general requirements for sustainability disclosure (General Requirements Prototype). The general requirements would set out overall requirements for disclosure of sustainability-related financial information relevant to an entity, and would be supported by separate standards for specific industries and specific sustainability matters (such as climate change).
The General Requirements Prototype suggests that ‘material’ information could include but is not limited to information about (a) an entity’s impacts on society and the environment, if those impacts could reasonably be expected to affect the entity’s future cash flows; and (b) events considered to have a low likelihood but a high potential impact on the entity’s future cash flows. This conceptualization of materiality broadly aligns with that of the Integrated Reporting Framework and should be contrasted with the conceptualization of materiality used by the GRI Standards.
The General Requirements Prototype hopes to standardize sustainability-related financial information by specifying that entities shall disclose information on material matters using the categories of:
Together with the announcement of the International Sustainability Standards Board by the IFRS Foundation, the IFRS Technical Readiness Working Group published a prototype to be used by the ISSB to develop a disclosure standard setting out the requirements for the identification, measurement and disclosure of climate-related financial information (Climate Prototype).
The Climate Prototype is based on the TCFD recommendations, however it is more prescriptive when it comes to the content to be included within each of the TCFD categories of governance, strategy, risk management, and metrics and targets. For example, the strategy disclosure requirements ask the entity to disclose whether it has used a “Paris-aligned scenario” and to disclose current or planned investment in lower-carbon alternatives and reskilling the workforce.
The Climate Prototype also defines cross-industry metrics of:
Quantifying many of these metrics should be taken with care given the uncertainty involved and thus the potential for oversimplifying or misrepresenting a company’s position, which would defeat the purpose of the Climate Prototype to provide reliable information. Noting this, the working group has recommended that the ISSB develop detailed technical protocols for the cross-industry metrics.
GRI welcomes the establishment of the International Sustainability Standards Board (ISSB) by the IFRS Foundation, and further underscores GRI’s focus on company reporting related to its external environmental and social impacts. Sustainability-related financial disclosure (the focus of the ISSB) and broader sustainability reporting (the focus of the GRI) are to be considered on an equal footing within a comprehensive corporate reporting system.
Eric Hespenheide, Interim CEO of GRI, said:
“The sustainability pillar, under which GRI sits, addresses a company’s external impacts on society and the environment, while the financial pillar needs to reflect sustainability risks to a company’s value. Today’s announcement marks a significant step towards strengthening that second pillar.
Disclosure on a company’s financially material sustainability topics – while important from the context of helping markets to assess opportunities and risks – is not sufficient to deliver full transparency on sustainability impacts, as envisioned by the GRI Standards and embraced by the EU.”
GRI releases an updated version of its Universal Standards, effective for reports published from 1 January 2023. The new Universal Standards present key updates regarding materiality:
In the launch email about the new Universal Standards, GRI stated that the new Standards are “now the first and only global reporting standards to fully reflect due diligence expectations for sustainability impacts, including those on human rights as set out in authoritative and intergovernmental instruments by the UN and OECD.”
At the SASB Public Standards Board meeting on 1 October 2021, the Board discussed market confusion on the role of materiality in the SASB Conceptual Framework. One of the considerations is to improve alignment and connectivity with financial reporting conceptual frameworks. SASB Board meeting slides 14-17 go over the market feedback and provide comparisons with financial reporting definitions of materiality.
The Value Reporting Foundation consultation response focused on four key areas of particular relevance as the ISSB is being designed:
The G20 Finance Ministers and Central Bank Governors published a Communique following their meeting in Venice, Italy, on 10 July 2021, referencing the IFRS Foundation.
The Communique states:
“We will work to promote implementation of disclosure requirements or guidance, building on the FSB’s Task Force on Climate-related Financial Disclosures (TCFD) framework, in line with domestic regulatory frameworks, to pave the way for future global coordination efforts, taking into account jurisdictions’ circumstances, aimed at developing a baseline global reporting standard. To that aim, we welcome the work programme of the International Financial Reporting Standards Foundation to develop a baseline global reporting standard under robust governance and public oversight, building upon the TCFD framework and the work of sustainability standard-setters, involving them and consulting with a wide range of stakeholders to foster global best practices.”
A group of experts has begun work to develop EU-wide sustainability reporting standards and joined with the Global Reporting Initiative (GRI) to ensure the standards inform, and are informed by, global efforts at standardisation.
The European Financial Reporting Advisory Group (EFRAG) and the GRI signed a ‘statement of cooperation’ as they “work towards international sustainability reporting convergence”. EFRAG also said it is exploring similar partnerships with other reporting organisations.
GRI shares the EU’s focus on ‘double materiality’ – reporting on both sustainability factors affecting the company and how the company impacts on society and the environment – while the IFRS focuses on ‘enterprise value’, which captures expected value creation for investors in the short-, medium- and long-term
The letter set out seven key positions and recommendations the Value Reporting Foundation has for the US Securities and Exchange Commission, given the crucial role the Value Reporting Foundation believes the SEC can play in advancing the coherence that both investors and businesses have called for in sustainability disclosure:
Value Reporting Foundation official announcement of its commencement – merging SASB and IIRC.
The Foundation supports business and investor decision-making with three key resources: Integrated Thinking Principles, Integrated Reporting Framework and SASB Standards.
Whitepaper commissioned by GRI that covers double materiality and ongoing discussions in financial materiality vs broader impacts on sustainable development.
According to the whitepaper:
Double-materiality is central to the European Commission’s proposed Corporate Sustainability Reporting Directive (CSRD), while it also closely aligns with the materiality approach in the GRI Standards. The authors believe each direction of the notion of double materiality needs to be considered in its own right – it is not about the convergence of the two perspectives that renders an issue as material. Impacts on the environment and society cannot be deprioritized on the basis that they are not financially material, or vice versa. Moreover, a company should start with the assessment of the outward impact component of the double-materiality principle followed by the identification of the subset of information that is financially material to the company and their stakeholders.
This new “schematic” uses a “building blocks approach” to encourage consistent, comparable, and assurable sustainability information.
A couple of key takeaways:
Proposing amendments to the IFRS Foundation Constitution that would enable the creation of a new sustainability standards board under the governance of the Foundation.
The Trustees are proposing amendments that are a prerequisite for creating a new board within the governance structure of the IFRS Foundation
The objective of the IFRS Foundation would be expanded to include the development, in the public interest, of a single set of high quality, understandable, enforceable and globally accepted sustainability standards based upon clearly articulated principles.
SASB and IIRC comment on the forthcoming merger of the two entities into the Value Reporting Foundation:
“We will be one global organization with a unified strategy and three principal products:
- Integrated Thinking Principles
- International Framework
- SASB Standards
We will advance a simplified corporate reporting landscape, bringing together our existing framework and standards…
We will provide active support to achieve the ambition of a global Sustainability Standards Board under the IFRS Foundation’s governance…”
The International <IR> Framework prompts thinking across the capitals, reinforcing the need for connectivity and explicit links between governance and value creation, and driving management analysis of risks, opportunities and resource allocation. Combining financial reporting with the SASB Standards can help drive integrated thinking through the six capitals concept:
GRI has welcomed that the European Commission is maintaining its ambition to achieve progress in corporate transparency on sustainability impacts, following publication of the proposed new Corporate Sustainability Reporting Directive (CSRD).
Announcement that the EU is planning a Corporate Sustainability Reporting Directive to replace the Non-financial Reporting Directive. Key takeaways:
SASB’s Climate Risk Technical Bulletin is designed to help investors better understand, measure, and manage their exposure to climate-related risks and opportunities. The research finds that climate change is likely to materially affect nearly every industry, but manifests differently in each one. Investors can’t simply diversify away from climate risk; instead they must focus on managing it—and on encouraging portfolio companies to manage it—in all its forms.
To this end, the bulletin includes an analysis of the systematic nature of climate risk, a climate-focused view of the SASB Materiality Map broken down by climate risk type (physical, transition, regulatory), a breakdown of financial impact channels by industry, an overview of current disclosure practices, and a full table of SASB’s climate-related metrics and associated risks across 77 industries.
Suggests that SASB can serve as a “foundational” layer of investor-focused disclosure.
A Practical Guide to Sustainability Reporting Using GRI and SASB Standards is based on extensive interviews with four global companies: UK-based Diageo, City Developments Limited (CDL) of Singapore, US-headquartered General Motors (GM), and Canada’s Suncor Energy. All four are long-term GRI reporters that now also report with SASB. Their insights are supplemented by survey findings with 132 business representatives around the word.
The publication overviews the similarities and distinctions between the standards – covering materiality, the type and scope of disclosures, audiences and the standard setting process – and indicates how they can be used together to meet the needs of a broad range of users.
Key themes from the research include:
GRI statement on continued developments toward IFRS oversight of sustainability reporting.
“As I set out in my response on 8 March, recognizing investors’ needs for reporting that identifies the effects on value creation, linked to social and environmental issues, is a step in the right direction. However, companies need to be accountable to a multiplicity of stakeholders. This is why financial reporting and comprehensive sustainability reporting, as enabled by GRI, need to be on an equal footing.
The case for multi-stakeholder reporting, which applies the principle of double materiality, is clear. We will continue to work with IFRS, the European Commission and others to support global changes that fulfill these aims.”
GRI welcomes the direction of travel IFRS is taking, which has the potential to strengthen financial reporting by taking into account the financial opportunities and risks of a company’s sustainability impacts. GRI believes that such strengthened financial reporting complements sustainability reporting, which focuses on disclosing a company’s impact on the world.
At the same time as the IFRS Foundation progress their work, the European Commission is exploring how new EU sustainability standards could be created and managed. In January, GRI contributed to the consultation led by the European Financial Reporting Advisory Group.
Much of the complementarity of the <IR> Framework and SASB Standards can be attributed to the inherent purpose of ‘frameworks’ and ‘standards’ for disclosure. Frameworks provide a set of (often) industry agnostic, principles-based guidance for how information is structured and prepared and which broad topics are covered. Whereas standards often offer industry-specific, replicable and detailed requirements for what should be reported for each topic.
Provides instructions on how to align SASB standards to IR capitals
This paper states IFRS Foundation’s intent to publish feedback to initial consultation paper and investigate setup of SSB.
The Trustees remain on track to make a final determination about a new board in advance of the November 2021 United Nations COP26 conference
Based on the feedback to the 2020 Consultation, and encouraged by the IOSCO Board statement, the Trustees have reached the following views about the strategic direction of a new board:
IOSCO identifies the proposed Sustainability Standards Board (SSB) within the IFRS Foundation’s governance structure as the most suitable home for standards relevant to enterprise value creation and we support this proposal.
Endorses climate-first approach, endorses ‘Group of five’ corporate reporting system prototype as suitable for the basis of SSB’s climate-related reporting standards.
Three priority areas for future improvement:
IOSCO sees an urgent need to improve the consistency, comparability, and reliability of sustainability reporting, with an initial focus on climate change-related risks and opportunities, which would subsequently be broadened to other sustainability issues.
Welcomed the announcement of a potential SSB
Encourages use of ‘Group of five’ reporting frameworks prototype
This report proposes a roadmap for the development of a comprehensive set of EU sustainability reporting standards.
The objective of the recommendations is to describe the scope and structure of future sustainability reporting standards that contribute to the achievement of the EU’s policy objectives, not to set out specific disclosure requirements, indicators or metrics.
Double materiality concept introduced from page 74 onward.
GRI maintains its materiality focus “on an organization’s most significant impacts outward: on the economy, environment, and people, including impacts on human rights.” The new exposure draft adds new language around the interplay between these outward impacts and financial consequences for the entity…
“The outward impacts of an organization are therefore also important for those interested in the financial performance and long-term success of the organization. Understanding an organization’s impacts outward is necessary in order to identify financially material risks, opportunities, and impacts for the organization. … The material topics identified using the GRI Standards need to be prioritizes in their own right and cannot be deprioritized on the basis that they are not financially material”
‘Group of five’ standards setters put forward a ‘corporate reporting system’ that defines how the standards can be used together, to develop disclosure that meets the needs of investors and other stakeholders.
Introduces the concept of ‘nested materiality’ (which aligns strongly with the EU double materiality concept)
Enterprise value materiality vs sustainable development materiality
For example, carbon emissions enter the big lens perspective as society becomes aware of global warming, the middle lens as investors start to factor net zero transition into capital market pricing, and the small lens as financial consequences are felt in net asset values.
Sustainability reporting can therefore include leading indicators of matters that may, over time, become relevant for enterprise value.
The authors’ reporting prototype follows a governance-strategy-risk management-metrics/targets scheme similar to TCFD, and suggests that the prototype can be deployed for climate change initially, with other ESG topics to follow the same standard.
Announcement of IIRC and SASB merger to form the Value Reporting Foundation from mid-2021. This entity will provide investors and corporates with a comprehensive corporate reporting framework across the full range of enterprise value drivers and standards to drive global sustainability performance.
Organizations globally already use both to communicate effectively with investors about how sustainability issues are connected to long-term enterprise value, with these endeavors ultimately benefiting other key stakeholders. Under the Value Reporting Foundation, we will link the concepts between the <IR> Framework and SASB Standards even further.
The Value Reporting Foundation could eventually integrate other entities focused on enterprise value creation, and the Foundation and CDSB have jointly signalled interest in entering into exploratory discussions in the coming months.
“Information is the lifeblood of good decision making.”
The IFRS Foundation published this Consultation Paper to assess demands from stakeholders for a global set of internationally-recognised sustainability standards and understand the role IFRS Foundation should play in developing such standards.
The ‘group of five’ standards setters describe a comprehensive corporate reporting system comprising various types of reporting:
Concepts of nested materiality (which would later become synonymous with double materiality) and dynamic materiality govern the information presentation a cross the three types of reporting.
Defines how information flow proceeds through the various elements of the sustainability information ecosystem, including: reporters, software providers, auditors, frameworks and standards, data providers, analytics platforms, end users, and regulators.
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