ISSB needs to be radical

The International Sustainability Standards Board (ISSB) is a very new entity but is already under severe time pressure. The first exposure draft of IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, came out remarkably quickly, albeit not without some serious flaws (see my earlier critique in AB). The challenge now is to produce detailed standards with teeth, while the global environment deteriorates daily.

Effective sustainability standards will need to look very different from traditional accounting ones. One of the core IFRS principles is universality, with almost every industry following the same rules. Sustainability requires the opposite approach. The challenges facing, say, a bank and a carmaker are so different that we simply have to have sector-specific rules.

Supporting sectors

One of the ISSB’s predecessors, the Sustainability Accounting Standards Board (SASB), recognised this. The SASB published 77 standards covering the majority of industry sectors. Some of these are quite old now, and most were simplistic and riddled with holes.

For example, the standard for electronics hardware runs to just 25 pages – and only 11 if we strip out the generic stuff. This is one of the biggest, most complex and most polluting industries on earth and it gets only 11 pages. And they’re not even good pages.

There are so many gaps that it’s hard to know where to start. There is no mention of making products repairable or refurbishable. Am I the only person who is fed up with throwing away electric toothbrushes because you can’t change the battery?

Reporters have to declare the percentage of Tier 1 suppliers audited by ‘independent third-party firms’ approved by the Responsible Business Alliance (whose operations manual is ‘not publicly available’). There is no threshold, so the answer can be zero and you have complied fully with the standard. I could go on, but I hope you get the point.

The SASB did at least lay out a framework. It’s now up to the ISSB to take this false start and turn it into something that has some utility. I have a radical idea about how the ISSB can short-circuit the process.

Harness work of others

The damage that we are doing to the planet is becoming both more visible and more widely recognised. The growing awareness of the scale of the problem is not down to politicians, regulators or auditors; it is almost entirely due to charities, pressure groups and campaigners. We owe all these people a huge debt of gratitude. I have met quite a few of them and they certainly aren’t doing it for the money.

This disparate bunch has amassed enormous and diverse knowledge about the damage being done by companies and sectors. It is time to harness this knowledge to create better standards.

My suggestion is simple. The ISSB should choose some of the most polluting sectors and start working today on what needs to be done. It should launch an outreach programme to the relevant charities and pressure groups, and ask them for their views. Some of the feedback may be unworkable or contradictory but it will probably capture all the main issues.

The IASB has often struggled to get enough engagement from users and the result has been standards that are too heavily skewed towards preparers and auditors. We simply cannot afford for this to happen with sustainability standards.

Standard-setting was historically a linear process that was painfully slow to watch. If the ISSB is to serve a useful purpose, it has to advance on multiple fronts at the same time and to engage with people who don’t go to the same social events. It’s time to get radical.