The International Sustainability Standards Board has released an update on its current working definition of the term ‘sustainability’ following its December meeting round in Montreal.
In the statement, the board said it had agreed to define sustainability as “the ability for a company to sustainably maintain resources and relationships with and manage its dependencies and impacts within its whole business ecosystem over the short, medium, and long term”.
It continues that the board has also clarified that “a company’s ability to deliver value for its investors is inextricably linked to the stakeholders it works with and serves, the society it operates in, and the natural resources it draws on”.
The description is intended to provide important context for companies applying the board’s new standards and making materiality assessments.
The release of the definition follows the board’s 13 December discussions which focused on its general sustainability reporting standard IFRS S1 General Sustainability-related Disclosures, which it released for public comment in March 2022.
The decision does not, however, change the ISSB’s decision to focus on single materiality as opposed to double materiality.
Nonetheless, the concept is central to the proposals, given that companies make materiality assessments to decide what information they report to the outside world.
Staff told the board’s 13 December meeting: “The original drafting of S1 contained a reference to the term ‘enterprise value’ in its objective and materiality assessment.
“The purpose of this was to suggest a broader set of information beyond what is currently included in financial statements, but also to narrow the scope of proposed disclosures, to identify, to include only information that is relevant to primary users.”
Feedback from constituents, however, suggested that the use of the terms had led to confusion.
The board identified the term as a topic for future discussion at its September 2021 meeting in Frankfurt along with the standard’s use of ‘significant’.
It subsequently decided in October to remove the definition of ‘enterprise value’ and the words ‘to assess enterprise value’ from the objective and description of materiality.
At the same time, it committed to discuss how better to articulate its thinking around the notion of ‘enterprise value’ at a future meeting.
The ISSB also tentatively agreed to drop the word ‘significant’ from its description of the materiality assessment.
In their meeting paper, staff explained that the decision to include references to enterprise value was intended to “widen the scope of relevant disclosures beyond current IFRS financial accounting and disclosures”.
At the same time, however, the board also wanted to capture only information about “sustainability-related risks and opportunities and their impacts that is useful to primary users in the decisions that they make”.
The staff paper goes on to remind the board that the purpose of the materiality assessment for both financial and sustainability reporting is “consistent”, even though the set of information that will be disclosed is different.
Ultimately, staff concluded that paragraphs 16 and 17 of the exposure draft set out much of the context that they had intended the phrase ‘enterprise value’ to deliver.
Additionally, they reasoned that it aligns the board’s work on context setting with the Integrated Reporting Framework for which the ISSB is now responsible.
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