The phenomenon of the ‘sophomore slump’ feels very real to us university lecturers. I regularly try to warn students that the leap to the second year is hard, with the first-semester grades in that year often being the lowest students score across their studies.
This phenomenon also spreads to English football, with ‘second-season syndrome’ being applied to teams who enter the Premier League and perform well in year one but struggle to replicate that form in year two.
However, the most appropriate example for the future work of the International Sustainability Standards Board (ISSB) may be the ‘second-album syndrome’ faced by musical artists who launch their career with great success.
The way forward involves implementation challenges in addition to new research projects
The ISSB recently announced its work plan for the next two years and, at the recent IFRS Foundation Conference in London, board member Richard Barker hinted at the ‘second-album syndrome’.
He acknowledged that the path for the initial two standards had been reasonably clear, with both IFRS S1 (general requirements for disclosure) and IFRS S2 (climate-related disclosures) being built on existing legislation and therefore able to be released relatively quickly. The way forward is a little more complex, involving implementation challenges in addition to new research projects and standard setting.
Implementation focus
A clear initial priority will be to support the implementation of IFRS S1 and IFRS S2, providing substantial guidance and support. This implementation programme will have the highest level of focus over the next two years, rather than prioritising what IFRS S3 or IFRS S4 should be.
The aim is to implement SASB standards as IFRS industry standards over time
The ISSB will develop and enhance educational materials explaining the core concepts underpinning the new standards and monitor the progress of relevant standard-setters to assess potential implications. It will convene the Transition Implementation Group to discuss companies’ questions relating to the implementation.
A jurisdictional application guide has been published to enable people to apply S1 and S2 in their jurisdictions. It will also outline where each jurisdiction is on the journey towards the application of the standards.
Acknowledging that one of the driving aims of the ISSB was to reduce the alphabet soup of disclosures, the board recognises that the situation of S1 and S2 launching at a similar time to the new European Sustainability Reporting Standards (ESRS) isn’t the ideal scenario. A key part of the initial work has been to help users who are wondering if or how to apply both of these.
Industry-specific guidance should be very helpful to preparers
As a result, the bodies have delivered a detailed interoperability navigation document to be able to navigate between ISSB and ESRS. Despite the potential issue of having such similar standards as ESRS and IFRS S2, the ISSB is happy to have produced a relatively concise document to help this, with it being 30 pages as opposed to something running into the hundreds.
SASB enhancements
The Sustainability Accounting Standards Board (SASB) standards, meanwhile,give more detailed guidance for specific industries; the ISSB notes that they are crucial to the way forward for sustainability reporting. Unlike IFRS Standards, different industries will have very different scenarios in relation to sustainability, and industry-specific guidance should be very helpful to preparers in looking at the disclosures that they should be making. This doesn’t mean that they must disclose all metrics that are included under the standards, but it gives some strong examples of sustainability challenges faced by different industries.
The ISSB announced two new research projects on biodiversity and human capital
While the SASB standards are currently not part of the IFRS reporting, the aim is to implement them as IFRS industry standards over time. This will involve the maintenance of the existing standards and adapting them over time as necessary.
Research projects
Finally, and perhaps most interestingly, ISSB announced two new research projects. The first is on biodiversity, ecosystems and ecosystem services, which can be seen as broadly equivalent to nature. The second is on human capital.
The biodiversity project could cover areas such as water, land-use, pollution, resource exploitation and invasive non-native species. The human capital project could cover worker wellbeing, diversity and inclusion, workforce investment, the alternative workforce and labour conditions in the value chain.
The ISSB will continue to play its original hits a little longer
According to Barker, this feels like the IASB’s project on intangible assets. (See my earlier article.) He noted that intangible assets and human capital have long been the two major areas of an entity that are not currently captured on the financial statements. Much like the IASB’s project on intangible assets, he acknowledged that they are not yet ready to move to standard-setting, as it is a huge project with difficult-to-quantify areas.
The nature of a research project is that work will be done on these two areas with a view towards future standard setting but without any commitment.
Overall, it seems like the ISSB will continue to play its original hits a little longer, rather than trying rush out a new piece of work. While fans of the ISSB may want them to move towards new things, the ISSB seems to be in no rush, and will hope that its next move will be closer to The Stone Roses' eponymous album than go the way of many one-hit wonders.
Watch and learn
Watch Adam Deller’s series of videos explaining the fundamentals of IFRS Standards, including IFRS S1
