On Wednesday, 14 September 2022, Ms Sue Lloyd, inaugural vice-chair of the International Sustainability Standards Board (ISSB), presented the 83rd CPA Australia–University of Melbourne Annual Research Lecture, the oldest continuous lecture series in the University’s Calendar and the world’s longest-running annual lecture in the accounting discipline. For the third year running, COVID-19 constraints meant that the lecture was delivered online via Zoom.
The formalities commenced with the chair for the evening, Associate-Professor Brad Potter, head of the University’s Department of Accounting, introducing the speaker and detailing her extensive experience in standard setting, including membership of the International Accounting Standards Board (IASB) for eight years from 2014, latterly serving as its Vice-Chair while also chairing the IFRS Interpretations Committee from 2017.
The theme of the lecture was the work of the ISSB in establishing a global baseline of sustainability disclosures for capital markets, specifically the similarities and differences between the respective roles of the IASB and the ISSB. The presentation was organised around four sub-themes, namely
- structure
- aspects of the standard-setting process
- the global landscape
- the nature of the information that is going to be reported.
Structure is the area of greatest similarity between the two boards which are “sisters” through having the same parent (the IFRS Foundation) and sharing similar governance and monitoring processes. These similarities largely extend to board compositions, notably with each board possessing 14-members with a balance of geographical representation and relevant expertise. However, the broader role of the ISSB dictates a greater range of expertise among its members.
The ISSB has the same due-process requirements as the IASB and, like the IASB, its meeting are held in public. Similarly, board papers are published on its website and its work is subject to public consultation. Belonging to the same family creates opportunities for the IASB and ISSB to work together, linking financial and sustainability reporting.
There are also many commonalities in the bodies’ approaches to standard-setting. The ISSB’s key objective of infusing sustainability disclosures into mainstream corporate reporting is facilitated by employing the IASB’s concepts and terminology. Although the IASB’s recognition criteria are not relevant to the ISSB, the former’s investor-focus and reporting-entity and materiality concepts are. The ISSB can also leverage off the IFRS’s core skills in drafting and publication developed in connection with the IASB.
Neither body started with a clean sheet. The IASB inherited the work of its IASC predecessor. Similarly, the ISSB has been able to draw on material developed by bodies such as the Task Force for Climate-Related Financial Disclosures, the Climate Disclosure Standards Board and the FASB, influences which are evident in the ISSB’s first Exposure Draft.
In terms of the global reporting landscape, the 20-years younger ISSB 20 aspires to emulate the IASB’s success in having its standards accepted in 140 national jurisdictions. As with the IASB, global partnerships will be a crucial feature of the ISSB’s operations. To this end, it has already established a Jurisdictional Working Group, comprising representatives involved in sustainability reporting in China, Europe, Japan, the UK and the US.
That the ISSB has a broader remit than the investor/capital-market mission of the IASB has implications for its potential global impact and involvements. The sustainability disclosures generated by the ISSB, while primarily directed at the capital market, will also generate important public-policy externalities and provide building blocks for other purposes, which may involve jurisdictional variations in disclosures. In this way, the ISSB’s work will provide a global baseline for sustainability reporting.
An example of the ISSB’s public-policy links is provided by the European Commission’s “Green Deal” initiative, which pre-dated the ISSB’s creation, and inter alia includes a net-zero carbon target by 2050. To avoid confusion and duplication in reporting requirements, both the Commission and the ISSB are trying to align language and disclosure requirements as far as possible.
Background to the final sub-theme – the nature of the information to be reported – is that while the IASB and its standards evolved in an ethos of well-established practices in financial reporting, the ISSB is entering a more ill-defined space with weaker or non-existent reporting traditions.
The quality of extant sustainability information is highly variable around the world. Moreover, sustainability disclosures involves far more uncertainly and estimation than their accounting counterparts, posing measurement and assurance challenges. That industries differ in their sustainability impacts makes industry-specific standards inevitable. Overall, the ISSB may face even greater challenges than the IASB in formulating standards that embody appropriate proportionality and scale, fit for the reporting purposes of both large companies in developed economies and small corporates in emerging markets
While emphasising the many benefits to the ISSB from being part of the same family as the IASB, in her concluding comments, Ms Lloyd referred to yet another challenge in bringing the new element of sustainability into mainstream corporate reporting: the necessity for capacity building if a global baseline for sustainability disclosures is to be achieved.
Following the presentation, Associate-Professor Potter was the conduit for a lively Q&A session. In closing proceedings, Mr Brent Szalay, President of the Victorian Division of CPA Australia, emphasised the rich tradition of the lecture as well as complimenting the speaker on the presentation.
Written by Geoff Burrows