Setting Standards for the Standard-Setters: Recent Developments in the IFRS Foundation's Sustainability Reporting Project

On June 28, 2021, the Accounting Standards Advisory Forum (ASAF), a consultative and advisory group to the Trustees of the IFRS Foundation (Foundation), will meet to update its members on the status of the Foundation’s sustainability reporting project.

The ASAF update reported on (1) the April 2021 Feedback Statement (Feedback Statement) to the earlier September 2020 Consultation Paper and (2) the Exposure Draft (Exposure Draft) of proposed targeted amendments to the Foundation’s Constitution (Constitution) to accommodate a new International Sustainability Standards Board (ISSB) that would set proposed IFRS Sustainability Standards, comments on which are due by July 29, 2021.

The Feedback Statement describes the Trustee’s views relating to:

• Investor focus for enterprise value—The new board would focus on information that is material to the decisions of investors and other participants in the world’s capital markets.
• Sustainability scope, prioritizing climate—Due to the urgent need for better information about climate-related matters, the new board would initially focus on climate-related reporting while also moving quickly to work toward meeting the information needs of investors on other environmental, social and governance (ESG) matters.
• Build on existing frameworks—The new board would build on the well-established work of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), as well as work with the alliance of leading standard-setters in sustainability and integrated reporting focused on enterprise value.
• Building blocks approach—By working with standard-setters from key jurisdictions, the new board would issue standards that would provide a globally consistent and comparable sustainability reporting baseline, while also providing flexibility for coordination on reporting requirements that capture wider sustainability impacts.

The Exposure Draft proposes to amend the Constitution to expand the objectives of the Foundation to encompass the development of globally accepted IFRS sustainability standards and to outline the structure and function of the ISSB under the governance structure of the Foundation.

Under the proposed structure, the new ISSB would be a “sister” to the IFRS’ existing International Accounting Standards Board (IASB) and, like the IASB, subject to governance and oversight by the Foundation’s Trustees and Monitoring Board.

Under the Exposure Draft’s proposed amendments, the new ISSB would have 14 members to be appointed by the Trustees, a majority of whom must be full-time and all of whom are to be qualified by professional competence and relevant experience. Members may be appointed for an initial term not exceeding five years with renewal permitted up to a maximum of 10 years.

To ensure geographic diversity of the ISSB, three members must be from each of Asia-Oceania, Europe and the Americas, one member from Africa and four members may be from any area. The ISSB chair will be a full-time member appointed by the Trustees.

In the Consultation Paper, the Trustees noted that the success of any new board would depend on the adequacy of the Foundation’s governance structure. Assuming that the targeted amendments are adopted as proposed, the ISSB will then begin the significant work required to produce and maintain the proposed Sustainability Standards.