The International Financial Reporting Standards Foundation, which oversees the recently formed International Sustainability Standards Board, laid out its plans Wednesday for how it will be using the sustainability accounting standards and integrated reporting framework it is inheriting from the Value Reporting Foundation.
The foundation, which also oversees the International Accounting Standards Board, announced last November that it would be consolidating the Value Reporting Foundation and the Climate Disclosure Standards Board by the end of June 2022. The VRF itself merged together the Sustainability Accounting Standards Board and the International Integrated Reporting Foundation last year. The move is in line with an effort to bring together the various standard-setters in the environmental, social and governance area to agree on a common set of standards.
The ISSB issued exposure drafts of standards for climate and sustainability disclosures, drawing in part on the work of SASB, the IIRC and the CDSB, as well as the Taskforce on Climate-related Financial Disclosures and the World Economic Forum’s International Business Council. Last week, the G7 finance ministers and central bank governors endorsed the ISSB’s plan to create a global baseline of sustainability reporting standards and encouraged it to tackle other social and nature issues as well (
Exactly how the ISSB would use the SASB standards and the IIRC’s Integrated Reporting Framework and Integrated Thinking Principles it is inheriting from the VRF had been unclear, but on Wednesday, leaders of the IFRS Foundation, the ISSB and the IASB explained their plans.
Integrated Reporting Framework
The Integrated Reporting Framework will initially be positioned as a voluntary resource for preparers and will have a prominent place on the IFRS Foundation's website, and the foundation and the chairs of the IASB and ISSB will actively encourage the continued adoption of the framework.
In terms of governance, once the VRF is consolidated into the ISSB by the end of June, the IASB and the ISSB will assume responsibility for the framework. The two boards will work together to agree on how to build on and integrate the framework into their standard-setting projects and requirements. This work could include joint projects undertaken by the IASB and the ISSB to evolve and enhance the framework, resulting in the publication of materials applicable to both boards.
The IFRS Foundation will undertake an engagement program to help market participants understand the process of transitioning the framework to a resource used by both boards, as well as advocating for the use and development of Integrated Thinking Principles.
The IASB and ISSB will use principles and concepts from the Integrated Reporting Framework in their standard-setting work. That includes seeking opportunities to align and incorporate the concepts in the Integrated Reporting Framework with similar concepts in the IASB and SASB conceptual frameworks into a cohesive whole.
Market consultations would inform the timing and approach to the future development of the framework through the IFRS Foundation’s due process. On consolidation of the VRF, the current Integrated Reporting Framework Board would conclude, and its members would be invited to participate in advisory bodies established for projects that build on the framework to provide input on how principles and concepts from the framework could be used.
Integrated Thinking Principles
The Integrated Thinking Principles will also have a prominent place on the foundation’s website. The foundation and the IASB and the ISSB chairs will encourage the continued use of the principles and engagement by stakeholders in developing them as practical guidance that will enhance the quality of corporate governance and reporting.
Integrated Reporting Council
Once the VRF is consolidated into the ISSB, the Integrated Reporting Council will become an advisory body to the IFRS Foundation trustees and both boards, providing advice on how the reporting required by the IASB and the ISSB should be integrated and on how principles from the framework should be considered in relevant projects by the boards.
The council would continue in this role for two years, at the end of which the need for the separate council will be reviewed by the IFRS Foundation trustees. The considerations for their review would include the work undertaken to date in relation to the framework and the membership of the IFRS Advisory Council.
"We are convinced that the Integrated Reporting Framework drives high-quality corporate reporting and connectivity between financial statements and sustainability-related financial disclosures which improves the quality of information provided to investors,” said IASB chair Andreas Barckow and ISSB chair Emmanuel Faber, in a joint statement. “Therefore, we strongly encourage continued use of the Integrated Reporting Framework and the Integrated Thinking Principles underpinning it.”
SASB standards
SASB standards, including the industry-based approach used by the SASB, will be built upon and supported in a number of ways.
First off, the ISSB will embed the industry-based approach used by the SASB within its standard-setting process. The SASB standards are the source of the industry-based requirements in the climate-related disclosures exposure draft. On finalization, these would become a required component of the ISSB’s Climate Standard.
The General Requirements for Sustainability-Related Disclosures Exposure Draft proposes that entities provide material information on all significant sustainability-related risks and opportunities necessary to assess enterprise value. In the absence of specific IFRS sustainability disclosure requirements, this exposure draft requires companies to consider SASB standards to identify sustainability-related risks and opportunities and to develop appropriate disclosures. This enables IFRS sustainability disclosure standards to make use of the range of sustainability-related risks and opportunities covered by the SASB standards from inception with the status of implementation guidance.
Addressing the international applicability of the set of SASB standards will be a priority for the ISSB and forms part of its initial work plan. In line with this commitment the climate exposure draft includes proposals to improve the international applicability of the SASB’s industry-based climate-related requirements.
SASB’s ongoing work on international applicability (beyond climate) will be transitioned to the ISSB with the goal of the latter producing proposed changes to the SASB standards as soon as practical. The ISSB intends to improve the international applicability of the SASB standards prior to the finalized version of the general requirements exposure draft coming into effect.
SASB standards will serve as the starting point for the ISSB’s industry-based requirements. Once the VRF is consolidated into the ISSB next month, the SASB standards will have the status of implementation guidance (consistent with the status proposed in the general requirements ED. Upon consolidation of the VRF, the ISSB will assume responsibility for the evolution and enhancement of SASB’s 77 industry-based standards.
Ongoing projects by the SASB will transition to the ISSB and continue. The SASB is expected to publish proposed changes arising out of several of its ongoing projects prior to the ISSB assuming responsibility for the SASB standards and these proposed changes, along with the climate and human capital research projects and other current SASB projects, will be transitioned to the ISSB. The IFRS Foundation plans to advance these projects as they’re currently resourced, while the consultation on the ISSB’s agenda planned for 2022 will inform their detailed delivery plan.
The ISSB is actively encouraging preparers and investors to continue to provide full support for and to use the SASB standards during this transition phase.
“We are convinced that the industry-based approach used to develop the SASB standards is a market-validated model for the development of decision-useful and cost-effective sustainability disclosure standards,” Faber said in a statement. “Therefore, I strongly encourage continued use of the SASB standards and recognize their near-term priority role for preparers in the application of the proposed general requirements standard. Further enhancing and evolving the SASB standards will be a priority for the ISSB.”
IFAC, IIA document
The International Federation of Accountants and the Institute of Internal Auditors have been offering information on using the integrated reporting framework.
“The IFRS Foundation’s announcement on the future of integrated reporting and the International Integrated Reporting Framework confirms that the International Accounting Standards Board and International Sustainability Standards Board will assume responsibility for the framework from July,” said IFAC CEO Kevin Dancey in a statement Wednesday. “Within the IFRS Foundation, the framework will be further developed to help companies prepare an integrated report and support connectivity between the reporting required by the IASB and the ISSB. This installment of IFAC’s integrated reporting assurance series shows how directors can deliver confidence in integrated reporting through coordinated and connected internal and external assurance activities.”
IFAC teamed up with the Institute of Internal Auditors to develop
“As an integral component of effective organizational governance, internal audit plays a critical role in instilling trust and confidence in the completeness, accuracy, and reliability of the information that forms the basis of the organization’s integrated report,” said IIA president and CEO Anthony Pugliese in a statement. “As noted in the widely accepted Three Lines Model, internal audit provides objective assurance, independent from management, of internal controls critical to achieving organizational objectives, including objectives related to integrated thinking and reporting.”
