The International Sustainability Standards Board (ISSB) will finish the redeliberation of its first two draft standards next month, the board’s chair Emmanuel Faber revealed on Wednesday.

He said: “[W]e are very close to the objective of having made all substantive decisions about [standards] S1 and S2 before moving on in February to other aspects of our standard-setting work.”

His comments came as the board continued its work on International Financial Reporting Standard S1, General Sustainability-related Disclosures, and IFRS S2, Climate-change reporting.

Faber also announced that the board plans to set an effective date for the two standards in February. The ISSB originally claimed it would issue the two standards by the end of last year.

Then in September, it emerged in a staff paper that the board was aiming to issue the finalised standards “as early as possible in 2023.” The ISSB released IFRS S1 and IFRS S2 in March 2022 for public comment.

Many of the comment letters on the proposals were supportive of the proposals, although the board did attract criticism for its decision to adopt a single-materiality model.

Also during its January meeting round, the ISSB tentatively voted to include an exemption in IFRS S1 that in certain circumstances will allow entities to exclude commercially sensitive information from its sustainability disclosures.

The exemption will, however, be subject to gate-keeping requirements and entities must assess whether the conditions for applying it are met at each subsequent reporting period.

Emmanuel Faber at ISSB

Emmanuel Faber, ISSB

It will also only apply to sustainability-related opportunities and will not permit entities to avoid disclosing information about risks from its disclosures.

The ISSB first explored the topic of commercially sensitive information at its September meeting in the context of feedback from respondents to both S1 and S2.

Many respondents noted that S1 could require them to disclose commercially sensitive information and some asked the board to allow them to admit this information.

Staff added that a few respondents had raised similar concerns in the context of S2. Staff told the board there had been “a pervasive theme emerged regarding stakeholder concerns about being required to disclose commercially sensitive information related to opportunities”.

Such a disclosure, they argued, could force them to give away information that might benefit a competitor with adverse consequences for their business.

The issue is not a new one and the European Union, the Securities and Exchange Commission, as well as the Task Force on Climate-related Financial Disclosures have all been forced to address it.

Staff said they suspected that the concerns might in part stem from a misunderstanding of what the draft standard required.

Nonetheless, their proposed exemption targets the “particular situation (when disclosure about opportunities would be expected to prejudice seriously the benefits the entity can realise in pursuing the opportunity), with accompanying requirements.”

The staff acknowledged, however, that the exemption would create an asymmetry between the disclosure requirements for sustainability-related opportunities and those for risks.

ISSB vice chair Sue Lloyd said she backed the staff approach.

She said: “I think it’s a proportionate response because the commercial sensitivity is real. The value at risk is real for companies, and I would like to respect that, but in the safest way.”

“The value at risk is real for companies, and I would like to respect that, but in the safest way.”

Sue Lloyd, ISSB’s vice chair

The challenge of applying international standards in different jurisdictions such as the US is not new.

In a research paper prepared for a January 2020 meeting of the International Accounting Standards Board, staff wrote that “the US Financial Accounting Standards Board identified IAS 37 as [a standard] it thought might be […] a potential challenge to US adoption of IFRS.”

Even so, staff noted that foreign registrants had managed to apply IAS 37 in the US.

Earlier in the discussion, ISSB member Jenny Bofinger-Schuster queried how entities would apply the requirement and wondered how a disclosure about non-disclosure would work.

Staff said the purpose of the exception was to require some sort of acknowledgement of that fact through a disclosure. The alternative, they said, was “no additional disclosure”.

Faber, ISSB chair, noted that although he understood that his position would not be popular with chief executives and chief financial officers, it was important to remember that it would only apply to material information.

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