An IFRS Foundation consultation related to the setting up of a sustainability reporting standards board has drawn mixed investor reactions, with some submitting objection-free responses and others raising clear concerns, but for seemingly diametrically opposed reasons.

Dutch investor group Eumedion, meanwhile, has made a suggestion to overcome possible confusion about the Foundation trustees’ intentions with regard to materiality.

The consultation in question is about proposed amendments to the Foundation’s constitution to accommodate a new board – provisionally dubbed International Sustainability Standards Board (ISSB) – to set sustainability reporting standards.

This follows a broader consultation last year about creating such a board under the IFRS Foundation’s governance structure. The proposed amendments to the IFRS Foundation constitution were published in tandem with a statement about feedback to the first consultation.

In the feedback statement, the trustees said they had decided the strategic direction for the new board would be to set standards focussed on information material to the decisions of investors and other participants in the world’s capital markets.

They also suggested the new board be tasked with setting standards on “sustainability matters that create or erode enterprise value”. This is as distinct from reporting on “all sustainability matters that reflects significant impacts on people, the environment and the economy”, and reporting on monetary amounts recognised in the financial statements.


Will the IFRS Foundation house a sustainability reporting standards board in addition to the International Accounting Standards Board (IASB)?

“The trustees understand that materiality is dynamic, and that investors’ information needs are broader than the climate priority and companies will, therefore, need to disclose information about other sustainability priorities,” they added.

The proposals for changes to the IFRS Foundation’s constitution relate to an expansion of the Foundation’s objectives, the structure and function of the envisaged new board, and aligning other parts of the constitution with the creation of the new board.

Bridgestone Hispania Pension FP, British Columbia Investment Management Corporation (BCI), CalSTRS, Eumedion, the Investment Company Institute (ICI), Norges Bank Investment Management, and PGGM are among investors and investor groups that responded to the consultation, which closed last week.

NBIM and PGGM did not articulate any objections in what were short letters responding to the consultation, but the others expressed concerns – either about too much or too little focus on investors.

Different perspectives

Bridgestone’s response to the consultation appears to be the same as that of three other Spanish pension funds, with their feedback following a campaign coordinated by the Committee on Workers’ Capital, an international labour union network. The Spanish funds in question have employer and worker representatives on the supervisory board.

In their responses, the Spanish pension funds – which have €1.4bn in combined assets under management – said they are concerned that the current criteria for membership of the new IFRS Foundation board, along with a focus on enterprise value, “would give outsized influence to experts from the corporate or investment spheres”.

Picking up on proposed wording about the envisaged standards needing to “connect with multi-stakeholder sustainability reporting”, the pension funds said trade union representatives and worker-nominated pension trustees could do so “from a unique vantage point”.

The Spanish pension funds also wrote that the proposed approach to focus on enterprise value “is too narrow for future ISSB-issued sustainability disclosure to have an effective, real world impact on sustainable development”.

“This confusion should be addressed right away in recognition of the fact investors will be the primary users of sustainability reporting”

Eric Pan, CEO of the Investment Company Institute

The larger – and North America-based – investors had a different take on the IFRS Foundation trustees’ proposals.

Referring to the wording about connecting with multi-stakeholder sustainability reporting, BCI wrote: “This language is not part of the objectives of the IASB, and it is not clear exactly what is meant by connect and potentially contradicts the IFRS Foundation’s strategic focus on investors.”

Referring to the same wording, Kirsty Jenkinson, investment director at CalSTRS, said the proposal was “concerning if the Foundation refers to audiences other than investors, creditors and lenders, insurers, financial regulators, and other financial stakeholders”.

“This direction would be a deviation from serving the market’s unmet need for sustainability reporting linked to enterprise value – the actual data that can inform capital allocation and vote decisions,” she added.

US fund management association ICI said there was a “disconnect” between the “finely tuned investor focus” of the trustees’ April feedback statement and the proposed section of the constitution with the wording about connecting with multi-stakeholder sustainability reporting.

CEO Eric Pan said ICI strongly supported plans to create an ISSB but urged IFRS to “ensure that the ISSB prioritises above all else the interests of the investors who will be relying on the standards it creates”.

“Currently, the draft objectives appear to conflate the sustainability information needs of investors with the information needs of other stakeholders. This confusion should be addressed right away in recognition of the fact investors will be the primary users of sustainability reporting.”

The UK’s asset management body, the Investor Association, meanwhile, said it encouraged the IFRS “to embed the importance of investor representation in the ISSB’s governance structure in the constitution”.

Eumedion makes a suggestion

Eumedion, a Dutch institutional investor group, also took issue with the phrase “connect with multi-stakeholder sustainability reporting”, which is in a proposed section about the IFRS Foundation’s objectives, and suggested dropping it.

“We subscribe to the notion that the ISSB will need to collaborate with existing frameworks and standard setters and jurisdictions to reach its objective, but we consider this more as a ‘how’ to get there and not as an objective on its own,” it explained.

“If the trustees do deem it part of the purpose of the ISSB, the trustees may consider to include such phrase as well in the purpose of the IASB.”

“We find that the term itself is not very clear and may have a narrower connotation than intended by the trustees”


In Eumedion’s opinion, there is misunderstanding surrounding the envisaged sustainability reporting standards because of the language used by the IFRS Foundation trustees, namely the references to “enterprise value” or “enterprise value creation” in relation to defining materiality.

“Although we concur with the […] explanations of what is meant by ‘focus on enterprise value (creation)’, we find that the term itself is not very clear and may have a narrower connotation than intended by the trustees,” Eumedion wrote.

“We would like to suggest the term ‘investor materiality’ as an alternative that may better communicate the Foundation’s stance.”

Martijn Bos, policy adviser at Eumedion, told IPE the suggestion was an “an effort to overcome possible confusion”. He referred to a national newspaper reporting – mistakenly, in Eumedion’s opinion – that the IFRS Foundation approach was focussed on so-called single materiality.

“To me it is crystal clear that the trustee’s recent feedback statement embraces what many people call double materiality, but the references to ‘enterprise value’ can be confusing,” said Bos. “Our intention is not to redefine what the Foundation should mean, we just put forward a suggestion for how they could perhaps better communicate what they mean.

“If you ask anyone what lens the Foundation has on financial reporting, it is the investor lens,” he said. “Therefore I expect people to be able to relate to ‘investor materiality’ more intuitively, whereby the impact a company has on society obviously needs to be considered.”

PensionsEurope also responded to the consultation, saying that, in general, it was in favour of the establishment of a global baseline of sustainability-related disclosure standards to meet investor needs, which would be made available for use by jurisdictions as a base for public policy needs.

BCI, CalSTRS and Eumedion separately also called for the future sustainability reporting standards board to take an industry-specific approach to setting standards.

Next steps

The IFRS Foundation trustees are to make a final decision about the creation of a new board after analysing the comments on the proposed constitutional changes. Assuming they decide to proceed, their plans to create a new board are due to be announced at the UN climate change conference in November (COP26).

The trustees have already launched a search for nominations for the chair and vice-chair of the proposed new ISSB; an update on this from 30 July was that they “continue” to seek these nominations.

If approved, the proposed changes to the IFRS Foundation constitution would allow the Foundation to secure the resources needed to create a new board, the trustees said in the consultation document. They are welcoming, by the end of August, expressions of interest from jurisdictions or organisations in providing seed capital for the ISSB “and widening the IFRS Foundation’s global footprint”.

According to minutes of a recent Foundation meeting, the Canadian government and a coalition of over 55 Canadian public and private institutions have already offered seed capital.

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