Members of the International Sustainability Standards Board (ISSB) have welcomed initial efforts from the staff to develop educational material on the materiality concept within its new sustainability reporting standards.
ISSB member Verity Chegar said: “I’m very excited that, we’re going to develop some material because I also get a lot of questions.”
The guidance, she explained during the board’s February meeting round, would allow the ISSB to address these queries in a “concise” and “clear” way to “meet the needs of our stakeholders.”
The need for this guidance has become all the more pressing since the board released its first two sustainability reporting standards International Financial Reporting Standard S-1 and IFRS S-2 last year.
The first of the two standards deals with general sustainability reporting requirements, while the second addresses climate-change reporting.
Within those standards, the ISSB has adopted a single-materiality approach based on the former Sustainability Accounting Standards Board’s (SASB) focus on the financial impacts of sustainability issues for investors.
Others such as the European Union have opted for a wider double materiality approach which considers an entity’s wider impact on a broader group of stakeholders.
According to a staff presentation to the February board meeting, information is considered material in sustainability-related financial disclosures if its absence, misstatement, or lack of clarity could significantly influence the decisions of primary users, such as investors, lenders, and creditors.
Although IFRS uses an “aligned” definition of materiality, the educational material aims to differentiate these disclosures from traditional financial statements.
One way in which it will achieve this is to highlight the need for entities to focus on long-term impacts and the value chain, addressing specific information types and timeframes.
Staff emphasised that the guidance will explain that this timeframe is both different and longer than the one preparers will be familiar with from financial reporting.
ISSB chair, Emmanuel Faber, said the board is facing competition from an unnamed rival standard setter to explain the application of the concept and must act to “own that narrative”.
The board has also received a clear message from respondents to its recent agenda consultation to support implementation of IFRS S-1 and S-2 over developing new standard-setting projects.
Meanwhile, during a second meeting session, the ISSB confirmed six of the seven criteria proposed in their agenda consultation process for selecting new research and standard-setting projects for its work plan for the next two years.
However, the board agreed to modify Criterion 5 (page 3, Agenda Paper 2) to capture the interrelation of potential projects with both the board’s own work plan and standards produced by other standard setters.
The ISSB expects to conclude its agenda consultation process by mid-year.
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