The profession is invested in supporting the ISSB and contributing to the development of high-quality standards (Getty Images/kate_sept2004)
This past March, the International Sustainability Standards Board (ISSB) issued its first two exposure drafts (EDs): IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2, Climate-related Disclosures (IFRS S2). The comment period for both closed July 29, 2022.
Here, Rosemary McGuire, CPA, vice-president of research, guidance and support at CPA Canada*, highlights some of the themes that emerged in the comments, as well as CPA Canada’s views on the proposals and the expected timeline for new ISSB standards.
CPA Canada: The consultation on the EDs drew more than 1,400 comments from around the globe. What were the main reactions from Canadian stakeholders?
Rosemary McGuire (RM): We saw a significant response, with more than 80 Canadian organizations submitting comments.
There was overwhelming support for the ISSB’s objective of creating a global baseline of sustainability standards. Canadian stakeholders also identified a number of concerns and opportunities for improvement.
With respect to IFRS S1, stakeholders were concerned with the overreliance on other standards, frameworks and guidance to identify significant sustainability-related risks and opportunities. Many respondents also asked for additional guidance and examples on some specific aspects of the proposals, including materiality and forward-looking information. More due process and guidance are also needed on the industry-based disclosure requirements.
Stakeholders generally supported alignment of the proposed climate standard (IFRS S2) with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). However, some issues were noted, particularly on the emissions side. Most supported Scope 1 and 2 GHG emissions disclosure requirements, but many believed it is premature to introduce mandatory requirements for climate scenario analysis and Scope 3 emissions, owing to concerns about the reliability and usefulness of this information and the lack of standardized methodologies to develop it. A phased-in approach was suggested by some.
Similar views were expressed by a number of stakeholders globally and we should expect to see further re-deliberations by the ISSB on the disclosure of GHG emissions because of the nature and volume of comments received.
CPA Canada: Given the different climate and sustainability disclosure proposals issued for consultation by the ISSB, the U.S. Securities and Exchange Commission (SEC) and the European Financial Reporting Advisory Group (EFRAG), do you think we can actually arrive at an agreed set of standards?
RM: Concerns have been raised over the fact that a number of similar but still different proposals have been issued concurrently. The ISSB has set up a jurisdictional working group that is looking at compatibility of jurisdictional initiatives on sustainability disclosures.
Generally, we remain hopeful that this initiative will narrow the differences and that work will continue toward establishing a comprehensive global baseline of sustainability standards. The path is not yet entirely clear, but we remain optimistic.
CPA Canada: CPA Canada has submitted comments to both the SEC and EFRAG on their proposals. What were your main messages?
RM: In Canada, we're very interested in both the SEC and the European proposals because of the cross-jurisdictional implications. There would be significant costs and confusion resulting from compliance with different reporting requirements on sustainability and climate change.
We believe investors would be best served by globally aligned sustainability disclosure and, over time, there will be a general convergence with the ISSB standards. We believe that companies that apply these standards should not have to apply other standards.
CPA Canada: Why has CPA Canada recommended the ISSB focus mainly on the climate standard in the short term?
RM: We do not believe it is feasible to address all the issues identified and finalize both standards by the end of the year or early next year.
Because of the urgent need for a climate standard, we believe the ISSB should prioritize its efforts on finalizing IFRS S2.
CPA Canada: How will the ISSB’s climate disclosure standard help investors assess companies’ efforts to achieve net zero by 2050?
RM: The climate disclosure standard will require companies to report more information on their targets and net-zero commitments. This will give users more insight on how credible the plans are and how successfully companies are performing against their targets. Qualitative information disclosed will also give users an understanding of what initiatives the company is taking to reach these targets.
CPA Canada: What can CPAs and other stakeholders expect in the months ahead?
RM: We anticipate a lot of activity in this last quarter of 2022. The ISSB’s initial target was to issue final standards before the end of 2022, but it appears that the timeline is being amended. A staff paper related to the proposed re-deliberations was discussed at the ISSB board meeting in September. The paper mentions that the objective is to publish IFRS S1 and IFRS S2 as early as possible in 2023.
The ISSB has also indicated that it will be launching a consultation soon on its work plan priorities. At its July 2022 meeting, the ISSB discussed its approach to preparing a request for information to consult on its agenda priorities, which will inform the development of its two-year work plan. The ISSB expects to publish the request for consultation before the end of 2022. It will be important for Canadian stakeholders to weigh in on this as well.
We expect to also hear updates from the Canadian Securities Administrators (CSA), SEC and EU in the fourth quarter. The CSA completed their own climate disclosure consultation earlier this year. The SEC’s initial goal was to adopt the climate disclosure rule by the end of 2022, while the EU had looked to adopt an initial set of European Sustainability Reporting Standards by mid-2023.
CPA Canada: Why is the development of sustainability standards so important from CPA Canada’s perspective?
RM: Support of standard setting is aligned with our public interest mandate. We also believe that sustainability will be core to a CPA’s role in the future. CPAs will be tasked with implementing the IFRS Sustainability Disclosure Standards and auditors may be asked to give an opinion on whether the company has correctly applied the standards. This is why, as a profession, we are so heavily invested in supporting the ISSB right from the start and contributing to the development of high-quality standards that are practical, operational and enforceable.
MORE ON SUSTAINABILITY-RELATED PROPOSALS
Learn more about CPA Canada’s response to the ISSB consultation on its first two EDs, as well as its submissions on other sustainability-related proposals. Plus, find links to useful ISSB updates and resources.
*This story was updated on October 27, 2022, to reflect a change in Rosemary McGuire’s title.