ISSB’s approach to SASB standards wins qualified support, ESRS links an issue

The International Sustainability Standards Board (ISSB) has received broad support for its proposed methodology for updating the legacy rulebook it inherited from the Sustainability Accounting Standards Board (SASB) for an international audience.

ISSB staff member Keertana Anandraj said: “Almost all respondents agree that the methodology enhances the international applicability of the SASB standards and that the proposed revision approaches are sequenced appropriately.”

Her comments came during last week’s ISSB meeting at which staff presented their initial analysis of the feedback from constituents on the board’s planned updates to the SASB literature.

Meanwhile, ISSB chair Emmanuel Faber underlined the important role that the SASB standards have to play as the European Union reprioritises its approach to sector-specific sustainability standards.

The ISSB published an exposure draft detailing an approach for making the SASB standards more internationally relevant in May this year.

Five-step approach

The consultation proposed a five-step methodology following a cascade-type approach that starts by removing jurisdiction-specific references from the SASB standards and directing users to equivalent international requirements.

Where none exists, the methodology contains a hierarchy of alternatives such as substituting descriptive words to elicit a comparable disclosure as an alternative.

Critics of the SASB standards had argued that they were too focused on capital markets in the US to be relevant to an international audience.

The updated standards will play, however, an important role as industry-specific guidance for companies applying International Financial Reporting Standard S-1 (IFRS), General Sustainability-related Disclosures.

The board has already updated those SASB standards that are relevant to climate-change reporting under IFRS S-2, Climate-change Reporting, using the same methodology. 

Redington warning

The exposure draft did not ask for opinions on line-by-line changes to the standards but was instead focused on “procedural revisions and avoids substantive amendments to the SASB standards metrics’ original content”.

Speaking during the 14 September meeting, former SASB chair Jeff Hales acknowledged that there was a trade-off associated with each stage of the five-step methodology but agreed it was the most proportionate and principled way to enhance the international applicability of the standards.

Consultancy Redington said that while the proposals were welcomed, it believed it would only be possible to internationalise the standards by moving toward a “principles-based system rather than the rules-based focus of the current SASB approach”.

The firm warned that there was a “real risk of important disclosures being lost to investors through the current proposals”.

It added that the reliance on “local rules and requirements, where preparers operate in markets with low or no regulation in a particular area” could in practice add up to the “removal of any practical requirement to report”.

Potential loss of comparability

Accountancy and auditing firm Mazars warned that although the methodology “would improve the applicability of the metrics”, it would not, however, “result in full international applicability and consistency” which would “require a more comprehensive and lengthy exercise”.

Project manager Keertana Anandraj noted that one concern raised by current SASB users is that removing a metric from the standards could decrease comparability with previous reports.

However, she explained that this would only happen if the metric genuinely could not have fallen under one of the other revision approaches.

Another concern raised by both current and potential SASB users is that the revision approaches could increase reporting burdens for companies that are required to report jurisdiction-specific references or metrics. However, Anandraj noted that this would only apply to a very small group of companies.

In total, the board received more than 150 comment letters – the majority from Europe – representing a broad range of stakeholders, including companies, investors, standard-setters, regulators, and academics.

Ambiguity over Europe

Meanwhile, ISSB chair Faber told the meeting the SASB standards were important for achieving “interoperability with Europe” through the EU’s new European Sustainability Reporting Standards (ESRS) framework.

ESRS preparers and users will, he explained, be able to rely on the SASB literature as a source of sector-specific guidance during the transition to ESRS-based guidance.

This transition period, he added, was “very, very likely to be significantly longer than anticipated”, given that the EU was going to delay the release of a second set of sector-specific standards.

In March, the president of the European Commission, Ursula von der Leyen, delivered a speech in which she committed to reducing the regulatory burden on business by 25%.

Earlier this month, IPE reported that both the European Financial Reporting Advisory Group and the Global Reporting Initiative had agreed there was a high degree of interoperability between their respective standards.

The staff team said they would bring back a detailed analysis of the public comments to the October ISSB meeting.

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