The International Sustainability Standards Board (ISSB) has voted to widen the remit of its planned public consultation on a project to look at the linkage between sustainability reporting and financial reporting.

A total of 13 board members voted in favour of the staff recommendation.

Explaining the rationale behind the shift in focus, ISSB vice chair Sue Lloyd said the board might “have been asking too specific a question […] which is ‘Do you think we should do a project with the [International Accounting Standards Board, IASB] on management commentary?’”

The ISSB agreed at its December 2022 meeting to consult on proposals for three research projects into biodiversity, human capital, and human rights in value chains.

The fourth project proposal was originally described as “a joint project with the IASB to develop comprehensive disclosure requirements and guidance that enable entities to report connected discussion and analysis of their financial statements and sustainability-related financial disclosures”.

The staff have now concluded it would be better to expand the remit of that effort to look at “integration in reporting to support integrated disclosures beyond [IFRS] S-1 and S-2” rather than as a project to “provide clarity about how the components of general purpose financial reports fit together”.

Second, they recommend including the requirements in IFRS S-1 and S-2 that address “connected information” to give “necessary context”.

Third, they suggest the board should describe the project as “an ISSB project that could be pursued jointly with the IASB.” Previously, the project has been described as a joint project with the financial reporting standard setter.

Finally, the staff proposed seeking views on whether the project should incorporate elements of the Integrated Reporting Framework, the IASB’s Management Commentary practice statement, or both.

The staff’s recommendations can be found in paragraphs 15 and 21 of the meeting paper.

The IFRS Foundation assumed ownership of the Integrated Reporting Framework after a merger with the Value Reporting Foundation.

Sue Lloyd at IASB

Sue Lloyd, ISSB

Lloyd warned, however, that it is important for stakeholders to understand that a wider project with more of a focus on integrated reporting would involve “trade-offs” on other aspects of the ISSB’s work and resources.

She said stakeholders must give the board “a clear steer on priorities because if we were to do the sort of integrated reporting slash connectivity style project that we’re talking about here, it won’t be a small piece of work”.

Alternatively, she explained, the board might look to fill in gaps in its literature on specific sustainability topics so that it was less “reliant on third-party materials through [IFRS] S-1”.

Staff member Greg Bartholemew added: “I do want to emphasise that those three projects […] are research projects and that the standard-setting outcomes of those projects will be determined via the research.”

The trustees of the IFRS Foundation earlier this month cleared the ISSB to consult on its agenda priorities on a 90-day comment period rather than the standard 120-day comment window.

Staff is currently drafting the request for information due process document that will form the basis for the consultation.

The ISSB plans to publish its agenda consultation document in May.

Meanwhile, the IASB will discuss a separate potential workstream on climate-related risks in financial statements during its March meeting round.

The project could explore whether and how financial statements can better communicate information about climate-related risks.

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