My initial reaction to the International Sustainability Standards Board’s 60-page draft standard on climate-related disclosures (IFRS S2) was: ‘This is a long shopping list.’

Then I read the US SEC’s 490-page proposal on the enhancement and standardisation of climate-related disclosures for investors. Then I reviewed the EU’s impending corporate sustainability reporting directive, part of a ‘sustainable finance package’ that pursues political objectives ‘in the field of human rights … and environment’.

Sense of urgency

The ISSB’s sense of urgency in publishing the first two exposure drafts – IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 – is palpable. The drafts have been issued by the chair and vice-chair of a nascent board, under the IFRS Foundation, with the help of a ‘technical readiness working group’.

Thankfully, they are not reinventing the wheel. Several players, including the Sustainability Accounting Standards Board (born in the US) and the more global bodies of the International Integrated Reporting Council and Climate Disclosure Standards Board, have been folded into the ISSB. It also draws on the TCFD framework and the Greenhouse Gas Protocol.


Jane Fuller is a fellow of CFA Society of the UK and senior fellow of the Centre for the Study of Financial Innovation

Compliance costs could run to hundreds of thousands of dollars a year

IFRS S1 is admirably clear on both its audience – investors and lenders – and purpose: ‘to help them assess an entity’s enterprise value’. Information about sustainability-related risks and opportunities will help decisions about whether to fund a company or not. This is aligned with the IFRS Conceptual Framework and the SEC’s investor focus.

It differs fundamentally from the EU’s multistakeholder approach, but there is considerable overlap. Use of the GHG Protocol, for instance, means that the net is cast wide over a company’s external impact. Disclosures of Scope 3 indirect emissions run upstream and downstream through 15 categories of activity and relationship.

The ISSB aims to provide a global baseline that can be built on to meet the needs of other stakeholders. This is similar to the two-pillar approach to financial and sustainability reporting promoted by the Global Reporting Initiative, which influences the EU. To try to make the pillars complementary rather than competitive, the IFRS Foundation has signed an agreement with the GRI to ‘seek to coordinate their work programmes’.

Are unelected standard-setters being asked to do too much?

Materiality differences

But differences can be seen through the lens of materiality. The ISSB’s ‘dynamic’ definition envisages unquantified sustainability risks materialising in financial statements at some point. They already affect the cashflow forecasts and discount rates that feed into enterprise values and influence capital allocation decisions. The EU/GRI ‘double’ materiality concept disconnects a company’s external impacts from shareholder value.

What the initiatives share is a long shopping list of disclosures incurring compliance costs that the SEC reckons could run to hundreds of thousands of dollars a year for large companies. Hence the universal concern to mitigate the impact on smaller entities.

They also neglect the principle that corporate information should be reliable as well as relevant. Forecasting – from weather patterns to how an entity ‘expects its financial performance to change over time’ – is fraught with difficulty.

And are unelected standard-setters being asked to do too much when it is governments that have the power to ban or tax antisocial activity?

More information

See ACCA’s sustainability playbook for small and medium-sized practitioners