In April 2021, the IFRS Foundation Trustees (‘Trustees’) published for comment Exposure Draft ED/20215 Proposed Targeted Amendments to the IFRS Foundation Constitution to Accommodate an International Sustainability Standards Board (ISSB) to Set IFRS Sustainability Standards.
The proposal for the creation of an international sustainability standards board is a response to the 577 feedback received on the Trustees’ Consultation Paper on Sustainability Reporting (closed since December 31st, 2020) to assess the demand for global sustainability reporting standards in general.
The Trustees have reached the following views relating to:
Investor focus for enterprise value: the new board would focus on information that is material to the decisions of investors and other participants in the capital markets industry.
Sustainability scope, prioritising climate: the new board would at first focus on climate-related reporting while also working towards meeting the information needs of investors on other environmental, social and governance (ESG) matters.
Build upon existing frameworks: the new board would build on the well-established work of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, as well as collaborate with leading standard-setters in sustainability and integrated reporting focused on enterprise value.
Building blocks approach: collaboration with standard-setters from key jurisdictions, will help the new board develop standards based on globally consistent and comparable sustainability reporting baseline.
Summary of the proposed changes to the Constitution are as follows:
Proposal 1 - Expand the Foundation’s remit to create a new board that will set IFRS sustainability standards
The Constitution will be amended to include the development of globally accepted IFRS sustainability standards as well as outlined the structure and function of a sustainability standards board (the International Sustainability Standards Board (ISSB)) under the governance structure of the Foundation.
Proposal 2 - Create the International Sustainability Standards Board under the Foundation’s governance structure to set IFRS sustainability standards
The new board will be called the International Sustainability Standards Board (ISSB) and the related standards would be referred as ‘IFRS sustainability standards’.
If a new board is established, the Foundation will have oversight on both
The International Accounting Standards Board (IASB): standards helping investors and other participants in the capital markets to understand, compare and contrast a company’s financial performance and financial position with those of other companies.
The ISSB: that would help investors and other participants to understand, compare and contrast a company’s sustainability performance with that of other companies, and to determine how a company’s performance relates to its value creation.
Proposal 3 - Consequential amendment to the Foundation’s governance
To ensure clarity in the reporting line due to the two standards-setting boards, sections 60 and 61 of the Constitution would be amended to stipulate that the Executive Director of the Foundation be appointed by the Trustees, in consultation with the chairs of the IASB and the ISSB.
Comments are to be provided by July 29, 2021.