Content area
Purpose
In 2020, the IFRS Foundation’s public consultation on Sustainability Reporting provided an opportunity for stakeholders to share their opinions on the Foundation’s proposals. This paper aims to analyze the comment letters that would legitimize the IFRS Foundation to institutionalize the International Sustainability Standards Board (ISSB).
Design/methodology/approach
This study used Python to develop a model for analyzing all 577 submissions that the IFRS Foundation received, using a combination of quantitative and qualitative content analysis methods.
Findings
Support for the creation of the ISSB was not unanimous but reached 68%. Key supporting arguments were that the IFRS Foundation could harmonize sustainability reporting standards by leveraging its expertise in setting accounting standards, and use its existing relationships to enforce sustainability reporting. Key counterarguments were: the IFRS Foundation lacks expertise in the areas of sustainability and climate; sustainability reporting should be integrated into financial reporting rather than being disclosed separately; the proposals were limited in scope (single materiality, focus on investors’ information needs and climate change centrism); and the IFRS Foundation should aim to endorse already established frameworks instead.
Practical implications
A consensus between supporters and critics was the need to make sustainability reporting mandatory. Endorsed by IOSCO, the ISSB released its inaugural standards, focusing on climate-related disclosures, effective from 2024 in jurisdictions that choose to adopt them.
Originality/value
The findings show that the establishment of the ISSB by the IFRS Foundation only partially fulfilled the demand for the harmonization of sustainability reporting standards. As a result, broader and non-investor-centric sustainability information may continue to be reported under alternative frameworks.
1. Introduction
The objective of this research was to analyze the main arguments that would legitimize the International Financial Reporting Standards (IFRS) Foundation to institutionalize the International Sustainability Standards Board (ISSB). The increasing global demand for business to disclose sustainability information (
A few months after the conclusion of the public consultation, the IFRS Foundation released a feedback statement on the results, claiming the proposal received widespread support, using this last assertion as an argument to legitimize the creation of the ISSB (
According to legitimacy theory, organizations operate under a “social contract” between society and the organization (
The total number of 577 comment letters published on the IFRS website, comprising the population for this research, were analyzed. In the 2020 consultation paper on sustainability reporting, the Trustees proposed a questionnaire with 11 questions. Under question no. 2 the Trustees specifically asked whether a new board (the ISSB) should be established under the governance structure of the IFRS Foundation. The respondents explained their stance for or against the proposals. Our analysis was focused on identifying both supporting and opposing arguments on whether the IFRS Foundation should establish the ISSB under its governance structure. Our results indicate that 68% of the analyzed letters supported the establishment of a new board (ISSB) under the IFRS Foundation’s umbrella. However, key interest groups, such as individuals and academics, opposed the institutionalization of the ISSB.
It is important to highlight that our review of empirical literature identified a single study by
In the next sections, we briefly examine the origins and primary goals of sustainability reports and public consultations. We then describe the methodological steps and techniques adopted for our analysis, followed by results and a discussion of our findings.
2. Sustainability reporting: gaps and recent developments
The popularity of sustainability reporting is evidenced by the development of various frameworks, guidelines and standards in recent decades, to help businesses elaborate a report for investors and broad society about social and environmental accountability (
Among the main purposes of sustainability reports are: that they may help businesses achieve sustainable development, they may improve the organization’s risk management and regulatory compliance (gas emissions), and they may provide an overview of organizations’ activities and impacts on society and the environment. The current disadvantages are: that there is no mandatory reporting standard, they are not part of the financial statements, the organizations adopt the framework which suits their business (or investors’) needs, and that they are subject to “cherry-picking” (where positive aspects are disclosed, and negative ones are usually omitted) (
the need for a precise, clear and common scientific definition/understanding of sustainability;
the target audience: all stakeholder users versus some stakeholders;
what to address: climate first versus other sustainable development goals;
single materiality (the impact of the environment/society on businesses) versus double materiality (which also includes the businesses’ impacts on the environment/society);
voluntary reporting disclosure versus mandatory reporting disclosure;
what aspects give sustainability reporting legitimacy; and
the link between accounting and sustainability (
Another issue with existing voluntary frameworks is that organizations can choose what to report on, and even skip a year and not report at all on sustainability aspects (
Many corporations worldwide appear to be voluntarily issuing sustainability reports. However, while it is clear that such accountability is necessary, it is not clear whether these voluntary reports are actually increasing accountability or simply improving the appearance of accountability (
As addressing climate change is among the pivotal concerns in sustainability reporting, countries like the UK mandate companies to disclose climate-related financial information aligned with the Task Force on Climate-related Financial Disclosures (TCFD) (
Similarly, The European Commission (EC) launched the new Corporate Sustainability Reporting Directive (CSRD) in 2021, to advance its goals under the European Green Deal. This directive amended the Non-Financial Reporting Directive and tasked the EC with developing sustainability reporting standards. The EC sought technical advice from the European Financial Reporting Advisory Group (EFRAG), which formulated the European Sustainability Reporting Standards (ESRS). In 2023, the EC announced that the ESRS would become mandatory in the European Union (EU) under the CSRD, starting with the financial year 2024. Large EU companies and listed small and medium-sized enterprises (SMEs) will be required to publish their first sustainability reports by 2025 (
The rapid growth of corporate sustainability reporting tools, with different criteria and methodologies, has created major complications for stakeholders and organizations (
Finally, some of the literature we reviewed relates to the need for standards for sustainability reporting (
3. Public consultations: institutional legitimacy
Organizations, including not-for-profit entities such as the IFRS Foundation, seek to align the ethical principles related to their operations with society’s expectations (
Regarding the legitimacy of standard setting,
Transparency in standard-setting with public participation is essential to the IASB's legitimacy as a private-sector regulator (
[…] an institution must constantly meet the twin tests of legitimacy and relevance by demonstrating that society requires its services and that the groups benefiting from its rewards have society's approval.
It could, therefore, be argued that these are some reasons why the IFRS Foundation conducts public consultations, to obtain society’s approval of its standard-setting activities.
In relation to the engagement in the IASB’s due process and the development of standards,
In September 2020, the IFRS Foundation launched its public consultation around the proposed establishment of the Sustainability Standards Board (SSB). Its standard-setting due process should balance submissions equally (
Previous research has examined public consultations on the development of standards.
Although the IFRS Foundation’s/IASB’s technical knowledge is an advantage for setting accounting standards, the IFRS Foundation requires legitimacy for the IASB to achieve its objective of establishing globally accepted accounting standards (
4. Research methodology
In this item, we present the population, sample, analysis corpus, source and method of collecting evidence, and the analysis techniques used. The research was carried out using a questionnaire promoted by the IFRS foundation, consisting of topics that we classified into seven categories, namely:
IFRS Foundation’s engagement (with sustainability reports);
the creation of a new board (ISSB) under the IFRS Foundation;
relationships (with other organizations and regulatory bodies);
a climate-first approach;
focus on investors’ information needs;
auditing; and
other matters.
The questionnaire was made available on the IFRS Foundation website for anyone who wanted to access and respond after a call in various media channels about the public consultation. During a general reading of the letters and responses to the proposed questionnaire, we chose to analyze the comments relating to topics 1–5, which were assigned as codes for analysis purposes, as they relate to the main theme of this research. For analysis purposes of the selected excerpts and inferences, the five codes were then grouped into three broad themes, as shown in
Codes grouped in themes
The sample consists of the entire population of published comment letters which we downloaded directly from the IFRS Foundation’s website: www.ifrs.org/proje cts/completedprojects/2021/sustainabilityreporting/consultation-paper-and-comment-letters/#view-the-comment-letters (
The files were analyzed following the ascending numerical order provided by the IFRS Foundation. Our methodological steps were:
skim through the letters to get an overview of the main points of the texts;
identify the number of supporting/opposing comment letters about the creation of the ISSB (code 2);
identify the corpus (total body of data to be analyzed);
code and categorize the corpus into themes;
conduct quanti-qualitative content analysis of the comment letters; and
syntactic and semantic analysis of the opinions.
Regarding dealing with data such as comment letters submitted in response to public consultations, several studies were done using the content analysis method (
To analyze the contents of the comment letters, we adopted two technical procedures:
analysis using the model developed in Python; and
content analysis.
The computational model adopted NLP (also known as text mining), which according to
1st step: training, testing and validation.
For each code, 25 supportive and opposing paragraphs we sourced from the letters, totaling 50 original paragraphs which underwent data augmentation using the ChatGPT application (developed by OpenAI). In total, 1,050 paragraphs per code were used for model training. After, the validation stage assessed the model’s accuracy using unseen data. The model generated a histogram with the percentage distribution of the probabilities for each of the fractions between correct and wrong predictions, as shown in
Histogram distribution of probabilities
Figure 2 displays the frequency of each probability, with green indicating correct predictions and pink representing incorrect ones. A cutoff point of 97.5% was set, meaning predictions at or above this threshold were considered. However, sentences or paragraphs below this threshold were classified as having undefined sentiment and were excluded from the analysis. The model’s accuracy at or above the cutoff point was 63%, leading to the exclusion of 11.4% of sentences/paragraphs with probabilities below the cutoff point.
2nd step: After training and validation, all 577 letters were analyzed.
The letters were subjected and fed into the model for it to predict the sentiment (polarity: supportive, opposed or neutral) of each code.
3rd step: Results and analysis.
A final filter was applied to the results, to ignore the questions and sentences that contained fewer than 3 words, or 15 characters. The results were grouped by codes and sentiment (expressed in %) and the polarity found in the letters according to the trained model. Representative weighted examples of the arguments made by the respondents are discussed under the three broad themes.
5. Results
5.1 Descriptive analysis
We identified 20 stakeholder groups in the 577 submissions, as most respondents stated their credentials or the companies they represented. The distribution of stakeholder groups, ranked in descending order according to the number of comment letters submitted, is presented in
Submissions by stakeholder groups
| # | Stakeholder group | Total | % of letters |
|---|---|---|---|
| 1 | Individual | 123 | 21.3 |
| 2 | Association/confederation/institute | 96 | 16.6 |
| 3 | Private/corporate sector | 54 | 9.4 |
| 4 | Asset/investment manager | 50 | 8.7 |
| 5 | Accounts and finance regulatory body | 49 | 8.5 |
| 6 | Academic | 42 | 7.3 |
| 7 | Non-governmental/not-for-profit organization | 33 | 5.7 |
| 8 | Accountancy/consultancy firm | 22 | 3.8 |
| 9 | Research group | 21 | 3.6 |
| 10 | Bank/Central bank | 19 | 3.3 |
| 11 | Market regulator/regulatory body | 16 | 2.8 |
| 12 | Public sector | 14 | 2.4 |
| 13 | Intergovernmental organization | 8 | 1.4 |
| 14 | Student | 7 | 1.2 |
| 15 | Accountant | 6 | 1 |
| 16 | Stock exchange | 5 | 0.9 |
| 17 | University (director/dean) | 5 | 0.9 |
| 18 | Big four accounting firms | 4 | 0.7 |
| 19 | Auditing firm | 2 | 0.3 |
| 20 | Politician | 1 | 0.2 |
| Totals | 577 | 100 |
Source: Authors’ own work
The stakeholder group labeled as “Individual” consists of respondents who submitted their comments but did not state their profession or credentials. Their submissions represent 21%, the largest proportion of comment letters.
We also identified the top 20 jurisdictions from which respondents made their submissions, but it was not possible to establish the geographic locations for all cases due to incomplete information.
Submissions by jurisdiction
| # | Country / region | Total | % of letters |
|---|---|---|---|
| 1 | UK | 170 | 29.5 |
| 2 | USA | 58 | 10.1 |
| 3 | Canada | 36 | 6.2 |
| 4 | Australia | 25 | 4.3 |
| 5 | Germany | 24 | 4.2 |
| 6 | France | 20 | 3.5 |
| 7 | The Netherlands | 19 | 3.3 |
| 8 | Belgium | 18 | 3.1 |
| 9 | Brazil | 18 | 3.1 |
| 10 | South Africa | 17 | 2.9 |
| 11 | Hong Kong | 14 | 2.4 |
| 12 | Switzerland | 12 | 2.1 |
| 13 | Japan | 9 | 1.6 |
| 14 | Italy | 8 | 1.4 |
| 15 | Spain | 8 | 1.4 |
| 16 | New Zealand | 7 | 1.2 |
| 17 | Colombia | 6 | 1.0 |
| 18 | Malaysia | 6 | 1.0 |
| 19 | Sweden | 6 | 1.0 |
| 20 | Ireland | 5 | 0.9 |
| 21 | Others | 52 | 9.0 |
| 22 | Unknown | 35 | 6.1 |
| 23 | Multiple locations | 4 | 0.7 |
| Totals | 557 | 100 |
Source: Authors’ own work
As of 2023, IFRS Accounting Standards are required for use by 167 jurisdictions around the world (
Even though IFRS standards are not commonly adopted by domestic North American companies, 10.1% of submissions were submitted from the USA. Hence, another question could be on what motivated respondents from the USA to share their views if domestic North American companies aren't mandated to follow standards that are set by the IFRS Foundation. Finally, 15.8% of submissions are from other/unknown geographic regions, and therefore it is unknown whether these regions adopt IFRS Standards.
5.2 Evidence analysis
As detailed in
Results on whether the IFRSF should establish the ISSB
| # | Stakeholder group | Supportive (%) | Opposed (%) | N/A (%) | Totals (%) |
|---|---|---|---|---|---|
| 1 | Individual | 18.0 | 81.0 | 1.0 | 21.3 |
| 2 | Association / confederation / institute | 88.0 | 10.0 | 2.0 | 16.6 |
| 3 | Private / corporate sector | 74.0 | 26.0 | – | 9.4 |
| 4 | Asset / investment manager | 90.0 | 10.0 | – | 8.7 |
| 5 | Accounts and finance regulatory body | 96.0 | 4.0 | – | 8.5 |
| 6 | Academic | 31.0 | 67.0 | 2.0 | 7.3 |
| 7 | Non-governmental / not-for-profit organization | 88.0 | 12.0 | – | 5.7 |
| 8 | Accountancy / consultancy firm | 77.0 | 23.0 | – | 3.8 |
| 9 | Research group | 95.0 | 5.0 | – | 3.6 |
| 10 | Bank / Central bank | 95.0 | 5.0 | – | 3.3 |
| 11 | Market regulator / regulatory body | 100.0 | – | – | 2.8 |
| 12 | Public sector | 93.0 | 7.0 | – | 2.4 |
| 13 | Intergovernmental organization | 63.0 | 25.0 | 13.0 | 1.4 |
| 14 | Student | 43.0 | 57.0 | – | 1.2 |
| 15 | Accountant | 83.0 | 17.0 | – | 1.0 |
| 16 | Stock exchange | 100.0 | – | – | 0.9 |
| 17 | University (director/dean) | 100.0 | – | – | 0.9 |
| 18 | Big four accounting firms | 100.0 | – | – | 0.7 |
| 19 | Auditing firm | 100.0 | – | – | 0.3 |
| 20 | Politician | – | 100.0 | – | 0.2 |
| Totals | 68.0 | 31.0 | 1.0 | 100.0 |
Source: Authors’ own work
Based on these results, it could be argued that the IFRS Foundation obtained legitimacy from the responses received in the public consultation for its proposals to establish the ISSB under the IFRS Foundation’s governance structure. In other words, more than half of the respondents were in favor of, and would legitimize the institutionalization of the ISSB to set standards for sustainability reports in jurisdictions that adopt IFRS standards. However, we did not find a fair distribution in terms of interest groups, an important aspect considering the legitimization of an institution that represents social interests.
Similarly, as shown in
Results by jurisdiction on whether the IFRSF should establish the ISSB
| # | Jurisdiction | Supportive (%) | Opposed (%) | N/A (%) | Totals (%) |
|---|---|---|---|---|---|
| 1 | UK | 46.0 | 53.0 | 1.0 | 29.5 |
| 2 | USA | 83.0 | 17.0 | – | 10.1 |
| 3 | Canada | 97.0 | 3.0 | – | 6.2 |
| 4 | Australia | 56.0 | 36.0 | 8.0 | 4.3 |
| 5 | Germany | 83.0 | 17.0 | – | 4.2 |
| 6 | France | 55.0 | 45.0 | – | 3.5 |
| 7 | The Netherlands | 95.0 | 5.0 | – | 3.3 |
| 8 | Belgium | 78.0 | 22.0 | – | 3.1 |
| 9 | Brazil | 94.0 | 6.0 | – | 3.1 |
| 10 | South Africa | 88.0 | 12.0 | – | 2.9 |
| 11 | Hong Kong | 93.0 | 7.0 | – | 2.4 |
| 12 | Switzerland | 83.0 | 8.0 | 8.0 | 2.1 |
| 13 | Japan | 100.0 | – | – | 1.6 |
| 14 | Italy | 75.0 | 25.0 | – | 1.4 |
| 15 | Spain | 88.0 | 13.0 | – | 1.4 |
| 16 | New Zealand | 71.0 | 29.0 | – | 1.2 |
| 17 | Colombia | 50.0 | 50.0 | – | 1.0 |
| 18 | Malaysia | 83.0 | 17.0 | – | 1.0 |
| 19 | Sweden | 83.0 | 17.0 | – | 1.0 |
| 20 | Ireland | 80.0 | 20.0 | – | 0.9 |
| 21 | Others | 93.0 | 7.0 | – | 9.0 |
| 22 | Unknown | 9.0 | 89.0 | 3.0 | 6.1 |
| 23 | Multiple locations | 75.0 | 25.0 | – | 0.7 |
| Totals | 68.0 | 31.0 | 1.0 | 100.0 |
Source: Authors’ own work
Figure 3.The distribution of letters by jurisdiction of origin
The Trustees of the IFRS Foundation did not request participants to provide their identity, credentials, or geographical location. Even so, most participants provided personal information, allowing us to determine their jurisdiction of origin. The submissions did not enable us to correlate respondents’ positions, whether supportive and opposing, with their geographical locations. The UK, USA, and Canada had the highest number of submissions, with 53% of respondents from the UK opposing the creation of the ISSB. However, 97% sent from Canada and 83% sent from the USA were supportive. One reason that could explain such large engagement from the USA is that SASB originated in the USA. In parallel with IFRS Foundation’s public consultation in September 2020, a “Statement of Intent to Work Together toward Comprehensive Corporate Reporting” was published by the Climate Disclosure Project (CDP). The statement contained a summary of alignment discussions among the Climate Disclosure Standards Board (CDSB), GRI, IIRC, CDP and SASB indicating their readiness to collaborate with the IFRS Foundation (
5.3 Python model analysis results
We selected five codes for the computational analysis, and code no. 2 is the one we focused on during our manual analysis. The results of the Python model analysis are displayed in
Python model results
| # | Code | Opinion | % |
|---|---|---|---|
| 1 | IFRS foundation’s engagement | Supportive | 37.0 |
| Opposed | 63.0 | ||
| 2 | Establishment of a new board under the IFRS foundation | Supportive | 61.0 |
| Opposed | 39.0 | ||
| 3 | Existing relationships | Supportive | 61.0 |
| Opposed | 39.0 | ||
| 4 | A climate-first approach | Supportive | 73.0 |
| Opposed | 27.0 | ||
| 5 | Focus on investors’ information needs | Supportive | 41.0 |
| Opposed | 59.0 |
Source: Authors’ own work
The section highlighted represents the code where the computational analysis was validated by manual analysis. Our manual content analysis of all 577 letters referring to Code 2 – Establishment of a new board resulted in Supportive 68%, Opposed 31% and Neutral 1% (letters where the respondent did not address the topics presented). In comparison, the computer analysis resulted in Supportive 61%, Opposed 39% and Neutral: N/A (because neutral paragraphs were classed as “code 0 – other content”). A comparison between the two analyses is shown in
Comparison of the results for code 2
| Opinion | Manual content analysis (%) | Python model analysis (%) | Variance (%) |
|---|---|---|---|
| Supportive | 68.0 | 61.0 | (7.0) |
| Opposed | 31.0 | 39.0 | 8.0 |
| Neutral | 1.0 | N/A | N/A |
| 100.0 | 100.0 |
Source: Authors’ own work
The cause for the difference in results shown in
We observed that the model’s result for Code 1 (IFRS Foundation’s Engagement) contradicts the results for Code 2 (Establishment of a new board). Given this contradiction, we decided to explore the comment letters manually, and found that not all participants answered the proposed questions, but instead addressed other matters such as the tobacco industry, nuclear weapons, a book summary, or offered their services to the Foundation. The computational model might have encountered the term “IFRS Foundation” outside the research context and classified it under “opposed” sentiment. However, considering that 61% of the respondents were supportive of the creation of the new board (Code 2), therefore they, theoretically, agreed with the involvement of the IFRS Foundation, and would be expected to be supportive of the Foundation's involvement. This contradiction is found on comment letters where participants demonstrated their support or opposition by providing conditions to their stance, i.e. support/oppose the creation of the ISSB under certain conditions, thus elucidating the level of subjectiveness found in the comment letters and therefore encouraging us to conduct content analysis (manually).
We have managed to secure the results of our research by manually addressing and resolving the model’s weakness, as the artificial intelligence (AI) model showed deficiencies in analyzing the texts more subjectively. One of our objectives was to test the ability of AI to read and analyze the comment letters, however, the tools are not yet fully capable of detecting all subtleties in human text writing. The model (Python) presented objective results for which it was developed. Our manual analysis improved the results by observing details and aspects that may not be captured by a standard analysis of a computational model.
5.4 Content analysis of arguments
5.4.1 Theme 1 – obtaining legitimacy to establish the ISSB.
Theme 1 comprises our analysis of Code 1 – IFRS Foundation’s engagement and Code 2 – The establishment of a new board as these two codes elucidate the arguments that relate to how the IFRS Foundation obtained legitimacy from respondents for its proposals to establish the ISSB. The respondents referred to the board proposed by the IFRS Foundation as the SSB. The term “International” was added when the ISSB was officially launched. Representative supportive arguments identified by both computational model and verified by our manual analysis of the comment letters regarding the IFRS Foundation’s engagement include that:
a) the IFRS Foundation must act fast to integrate with work being developed in the EU, which is ahead in regulating sustainability information disclosure:
There is a strong momentum particularly in Europe to widen entities’ disclosures to sustainability information. If the IFRS Foundation does not act now, there will probably be little opportunity for action later. (Submission 149)
b) the IFRS Foundation’s expertise and success in developing accounting standards could be used to set and harmonize sustainability standards:
The IFRS Foundation should expand its mandate and endeavour to harmonise the standards which are most likely to affect the financial conditions of companies […] and the impacts on […] the economy, society and the environment. (Submission 31)
The IFRS Foundation, in light of its standard-setting experience and expertise, […] widespread acceptance of the International Accounting Standards Board, is ideally placed to take a lead in setting sustainability reporting standards. (Submission 221)
c) the IFRS Foundation already has a governance structure in place for the role and the it will create a link between sustainability reporting (non-financial information) and financial statements (financial information):
The governance structure of the IFRS Foundation is an appropriate approach to achieving the integration of the sustainability reporting on the financial reporting […] The two boards, IASB and SSB could develop links and create synergies between financial reporting and sustainability reporting. (Submission 397)
However, opposing arguments in relation to the IFRS Foundation’s proposals include:
a) Sustainability Reporting should be incorporated into Financial Reporting:
Sustainability reporting should be built into mainstream financial reporting, and not be treated as a separate issue, as you propose. (Submission 335)
b) The IFRS Foundation lacks experience in sustainability:
The IFRS Foundation is not the best placed to play this role because for a long time, the foundation ignored ESG topics, so it has a limited experience compared to other standards. (Submission 250)
c) There were flaws in the consultation paper and it did not present a neutral view:
The proposal […] claims to have ‘assessed the current situation’ but does not present a neutral view; this means than anyone reading the consultation paper could be led to believe there is no alternative view, which is not the case. (Submission 19)
In summary, the supportive arguments concerning the engagement of the IFRS Foundation include the perception that the Foundation was successful in establishing accounting standards, and this know-how toward setting standards could be used to set standards for sustainability reports. Also, because the IFRS accounting standards were accepted globally, the respondents expect that the IFRS sustainability standards will too, reducing the confusion of frameworks because the Foundation would harmonize the aspects of existing frameworks into one global standard.
However, the opposing arguments relating to the IFRS Foundation’s proposals to create a separate board include that sustainability reporting should be integrated into mainstream financial reporting and not be reported separately. The IFRS Foundation is not the ideal organization to lead this effort due to its longstanding neglect of economic, social and governance (ESG) topics and therefore lack of experience in this area, with related projects repeatedly delayed. Finally, the consultation paper had notable issues, such as emphasizing single materiality, prioritizing investors’ interests, and focusing on climate change over other sustainability concerns.
The most representative supportive arguments we identified in the comment letters regarding Code 2 – The establishment of a new board include the following points:
a) Financial Reporting (IASB) and Sustainability reporting (ISSB) should be under the same umbrella (IFRS Foundation) for consistency in standards and to prevent regulatory fragmentation:
The IFRS Foundation should create a new sustainability standards board alongside the IASB. A coordinated, global approach […] can prevent regulatory fragmentation, […] and can best foster consistency and global comparability. (Submission 34)
b) It would enable comparability between organizations and industries, and it would provide important information to investors and therefore enable enterprise value creation, for example:
We strongly encourage the IFRS Foundation to advance sustainability-related financial reporting and in doing so achieve the much-needed consolidation of value-creation-focused reporting efforts. (Submission 41):
The development of an SSB is an appropriate approach to achieving further consistency and global comparability in sustainability reporting […] Under the SSB approach, since it would act ultimately as a single point of reference for sustainability reporting, there would be no need for other initiatives to exist in parallel. (Submission 108)
c) A new board should be established to guarantee separate funding:
The new board should have a clear mandate, defined objectives, sufficient funding, and expertise to achieve the objective of producing consistent and comparable international standards. (Submission 216)
In summary, 68% of respondents agreed and encouraged the IFRS Foundation to establish a separate board (ISSB) rather than developing sustainability standards under the IASB. The main reasons include guaranteeing separate funding and that the IASB does not lose focus on developing accounting standards. The respondents also believe that the current three-tier governance structure of the IFRS Foundation is appropriate and can accommodate the ISSB, which will also be under the oversight of the monitoring board. Many respondents expressed confidence that the IFRS Foundation can take on this new role.
Opposing arguments relating to the creation of a new board under the IFRS Foundation include that:
a) that there are global standards already in place, most notably the GRI, therefore there would be no need to establish a new board (ISSB), for example:
The premise that a global set of sustainability reporting standards does not exist is not true […] the IFRS Foundation can use its strong and collaborative international relationships […] to help mandate existing sustainability standards and frameworks (such as the GRI standards, The International <IR> Framework, and so on). (Submission 347)
b) Instead of creating a new board/standard-setter, the IFRS Foundation should seek to endorse existing frameworks:
The Foundation’s approach should seek to build on (or endorse) the good work already done by others that meets (or can be refined to meet) the requirements. (Submission 284)
c) Sustainability Reporting should be incorporated into Financial Reporting; therefore, this task should be absorbed by the IASB instead of a separate board:
We recommend that the IFRS Foundation considers expanding the remit of the International Accounting Standards Board (IASB) to include sustainability reporting instead of creating a separate Sustainability Standards Board (SSB) (Submission 81).
The opposing arguments against the creation of new board are that there are sets of sustainability reporting standards which are used globally, such as the GRI and International IR Framework, and therefore there is no need to establish a new board/new standard but help endorse the existing ones. Again, opposers of the creation of the ISSB argued that sustainability reporting should be integrated into financial reporting; as a result, if the IFRS Foundation were to take on this role, the responsibility should fall to be IASB.
5.4.2 Theme 2 – the switch from voluntary to mandatory sustainability disclosures.
Theme 2 focuses on our analysis of Code 3 – Existing relationships. Comments were categorized under Theme 2 because respondents believe that due to the IFRS Foundation’s current ties with IOSCO and governments, sustainability reporting would likely become mandatory in jurisdictions that adopt the IFRS Standards. According to the Python model, 61% expressed support and 39% opposed the IFRS Foundation leveraging its existing relationships. Our content analysis revealed that those in opposition generally opposed the initiative as a whole, rather than specifically critiquing the IFRS Foundation’s relationships. Representative supportive arguments include that:
a) in the statement of intent, the group of 5 (GRI, CDSB, CDP, IIRC, SASB) announced their intention to develop a harmonized sustainability reporting framework, in collaboration with the IFRS Foundation, which means the Foundation can extensively use the expertise of the 5 rather than “reinvent the wheel” for sustainability standards:
[…] five sustainability standard setting institutions […] announced an intent to develop a joint sustainability reporting framework […] to work closely with the IFRS Foundation and IOSCO to contribute to a more comprehensive global sustainability reporting system. (Submission 136)
b) the IFRS Foundation’s initiative was encouraged by IOSCO (
IOSCO could facilitate the creation and application of global NFI (non-financial) standards to improve market transparency, as it did 20 years ago with IFRS. (Submission 62)
Some initiatives, such as GRI or SASB, are already relatively advanced with their reporting approaches, but most lack the endorsement of legislators and regulators. (Submission 369)
[…] sustainability reporting should become mandatory and the IFRS is well placed to advance mandatory disclosure through its reputation and relationships. (Submission 226)
c) the IFRS Foundation has existing good relationships with governments, which will speed up the adoption of its sustainability standards:
[…] the IFRS Foundation has longstanding relationships with large jurisdictions, such as the United States (US) and the European Union (EU). Support from these jurisdictions will build network effects and act as catalysts for adoption across the world. (Submission 74)
[…] the IFRS Foundation should seek close cooperation with EU authorities […] and to build a framework that is fully compatible with the work carried out by the European Commission and the EFRAG’s project task force developing an EU standard. (Submission 153)
We identified that a key aspect from the respondents about why the IFRS Foundation is best suited for the role is that the relationship with the group of 5 means the Foundation can count on the expertise of the 5 organizations to deliver sustainability reporting standards, and with the support of IOSCO, the standards would be enforced and likely to be made mandatory by local governments.
We did not find opposing comments about the IFRS Foundation making use of its existing relationships. We also found that, both supporting and opposing respondents agree that sustainability reporting should be made mandatory.
5.4.3 Theme 3 – the sustainability report under the ISSB.
Theme 3 comprises our analysis of Code 4 – A climate-first approach, and Code 5 – Focus on investors’ information needs. The comments were grouped under Theme 3 because the scope of the sustainability report addressed by the ISSB will focus on climate risk and investor’s needs, as discussed below and as per the strategy adopted by the IFRS Foundation. The model results returned that 73% were supportive and 27% opposed to a climate-first approach (Code 4) and the respondents stated that:a) There are many (voluntary) frameworks. Climate change is an urgent issue and global standards are urgently needed. For example:
Climate change is an urgent global issue and […] the SSB should start by developing a sustainability reporting standard on climate-related disclosures […] which improve the information provided by companies on their climate-related risks and opportunities. (Submission 170)
b) This approach is initially the most pragmatic because addressing other sustainability aspects would delay the delivery of standards:
[…] climate-related disclosures are among those areas, which urgently need global standards […] Thus, starting with sustainability standards on climate-related disclosures is a reasonable and pragmatic approach. (Submission 149)
[…] to secure support and widespread adoption, we believe it’s important that the standard focuses exclusively on climate related disclosures initially. […] to introduce an array of sustainability reporting measures all at once risks significantly reduced uptake. (Submission 39)
c) The standards developed by the Task Force on Climate-related Financial Disclosures (TCDF) have been globally accepted:
We agree that the SSB could in the first instance focus on climate-related disclosures and seek to consolidate the progress already made in this field by existing organizations, such as the TCFD. (Submission 92)
One advantage of the TCFD is that it already has broad global support from governments, regulators, central banks, public authorities, and investors. (Submission 74)
The supportive responses illustrate that the adoption of a climate-first approach by the IFRS Foundation was pragmatic, because the ISSB should have a starting point, and later expand to address other sustainability issues. As the IASB participated in the oversight of the TCFD’s work when the TCFD was established, the ISSB can both make use of the existing standards, endorse them, and deliver ISSB’s first standards quickly.
However, the counterarguments relating to a climate-first approach were that:
a) Other ESG aspects will go unaccounted for:
We view the climate first approach as a backward step. The purpose of sustainability reporting is to address societal concerns over corporate externalities. (Submission 190)
b) Sustainability reporting encompasses broader aspects other than climate risks:
While climate change is justly in the forefront of global public policy, other environmental aspects of sustainability are equally critical. (Submission 464)
c) The standards developed by the ISSB might add to the complexity of existing standards:
We believe there is a risk that it may add another set of standards to the existing alphabet soup of standard-setters […]. A climate-only approach will not provide a sufficiently robust global platform to support/accommodate jurisdiction-specific sustainability reporting initiatives such as the EU. (Submission 34)
The counterarguments, in summary, state that the narrow range of the proposals may result in inadequate accountability regarding other interconnected sustainable development issues, and this approach may complicate the existing standards landscape and may not support regional initiatives like the EU’s.
With regards to the Trustees’ proposals to initially focus its efforts on the sustainability information most relevant to investors (Code 5) and other market participants, the Python model results returned that 41% were supportive and 59% opposed this approach. Our analysis revealed that this topic elicited the most significant controversy among both supporters and critics of the ISSB’s establishment. The representative supportive arguments we identified in the comment letters include that:
a) Initially, the information on the standards developed by the ISSB should meet the needs of investors and other market participants:
Sustainability reporting standards viewed through the lens of investors and capital market participants) […] will attract the broadest range of global support and promote the international consistency needed by global capital markets. (Submission 17)
b) The remit of the IFRS Foundation has always been focused on financial information, and therefore it should continue to be so, and addressing the needs of other stakeholders would complicate things and make the standards “vague” and not good enough for any stakeholder groups. For example:
The sustainability information needs of all stakeholders […] cannot be fully satisfied by one specific set of reporting standards because their needs are divergent […], standards intended to be good for all will not be good for anyone as a result. (Submission 421)
Given the role and track record of the IFRS Foundation in the area of financial reporting, […] the primary audience for sustainability reporting should be capital market participants, with investors at the center […](Submission 14)
Among the responses that supported the creation of the ISSB by the Foundation, but opposed the investor-oriented approach, the key opposing arguments were that:
a) The developments in the EU by EFRAG adopt a double-materiality and multi-stakeholder approach, therefore if the ISSB did not follow suit, its standards would run the risk of not being accepted in the region:
[…] SSB may wish to consider dual materiality’s importance […] in light of the following developments: The European Union has taken a strong stance in favor of dual materiality […] A misaligned approach may undermine the uptake of corporates and investors from the region (Submission 211).
[…] European regulatory initiatives cover social and environmental risks and require a double materiality assessment […] IFRS Foundation should take advantage of and build on the work already done in more advanced jurisdictions like the European Union. (Submission 376)
b) Stakeholders other than investors also demand disclosure of sustainability aspects:
We are in favour of a multi-stakeholder approach, reporting on materiality should not be limited to investors needs/information […] it’s not only investors who are placing pressure on institutions to disclose non-financial impacts. (Submission 200)
Sustainability reports should be for the benefit of all stakeholders of a company and not just those in the financial community, who seem to be your main concern. (Submission 182)
In summary, the respondents believe that it would complicate things for the ISSB if the IFRS Foundation worked toward meeting the needs of stakeholders other than investors and that the remit/mandate of the IFRS Foundation is to provide financial information, and this should not change. On the other hand, this approach is limited when compared to EFRAG’s approach, where the needs of multiple stakeholders are addressed, and the concept of double materiality is employed. Therefore, in the respondents’ opinion, adopting a single materiality approach and keeping a focus on investors’ information needs may undermine the acceptance of the standards proposed by the ISSB in the EU.
6. Discussion
While the IFRS Foundation published a feedback statement in April 2021 asserting that “The responses illustrated widespread support for the IFRS Foundation to play a role in global sustainability reporting” (
The existing relationship with, and valuable endorsement of IOSCO, will mean adopting jurisdictions will very likely enforce the new standards and make the sustainability disclosure mandatory. Our analysis of the comment letters identified that both supportive and opposing respondents agree that sustainability reporting should be made mandatory. They are also in agreement with the conclusions of
As the sustainability reporting requirement switches from voluntary to mandatory disclosure, organizations that have established sustainability disclosure programs stand a good chance of meeting the increasingly stringent requirements of regulators and business stakeholders (
As highlighted by our analysis of the comment letters, mandatory adoption of the standards to be set out by the ISSB is undermined by the concerns about the mismatch in the approaches to developing sustainability reporting standards between the ISSB and EFRAG. EFRAG is a private entity established in 2001 at the encouragement of the EC (
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Our examination of the comment letters revealed that those who were supportive of the IFRS Foundation’s engagement with sustainability reporting hoped that this involvement would, in a way, potentially eliminate the need for alternative frameworks. Indeed, the creation of the ISSB formally consolidated the CDSB and the Value Reporting Foundation, resulting in the formation of a new global standards setter, which includes the IIRC and SASB Standards (
The IFRS Foundation/IASB has included formal public consultation as part of its accounting standard-setting process since its inception (
The IFRS Foundation announced the creation of the ISSB in November 2021, and they also announced that the new board will work closely with the GRI and the TCFD (
In February 2023, The ISSB announced that its initial IFRS Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (S1) and IFRS S2 Climate-Related Disclosures (S2), will become effective starting January 2024 in jurisdictions that choose to adopt them. The ISSB will provide support programs for companies applying its sustainability standards while infrastructure and market capacity is developed (
7. Concluding remarks
We conducted a quantitative-qualitative content analysis of 577 comment letters submitted to the IFRS Foundation’s 2020 public consultation on sustainability reporting. Our research focused on the supporting and opposing arguments regarding the establishment of the ISSB.
Our analyses of the responses shed light on the key arguments that would legitimize the IFRS Foundation to establish the ISSB. Our results show support for the creation of the ISSB was not unanimous but reached up to 68% approval, with 31% opposed and 1% neutral. Key supporting arguments were that the IFRS Foundation would harmonize sustainability reporting standards by leveraging its expertise in setting accounting standards. By integrating financial and sustainability reporting, and with the valuable endorsement of IOSCO, the ISSB would be well-positioned to regulate and enforce mandatory sustainability reporting standards. Important opposing views included criticisms that the IFRS Foundation lacks expertise in sustainability and climate matters, advocating for the integration of sustainability reporting into financial reporting rather than separate disclosures. Critics also pointed out that the proposals were narrowly focused compared to other initiatives.
Both supportive and opposing stakeholders agreed that sustainability reporting should be made mandatory. However, concerns were raised about the IFRS Foundation’s investor-oriented approach, which does not adequately address broader social and environmental responsibilities. As a result, the IFRS Foundation’s strategic choice to prioritize investors’ information needs over multi-stakeholder perspectives, and retain a single materiality approach, could potentially hinder the acceptance of the standards proposed by the ISSB.
In addition, with the creation of the ISSB, the IFRS Foundation has only partially attended the calls for the harmonization of frameworks. Information disclosure that goes beyond investors’ needs, single materiality and climate change will require additional frameworks that encompass a multi-stakeholder perspective, a double-materiality approach, and address broader social and environmental issues. Examples of such frameworks include those proposed by the GRI and EFRAG (ESRS).
Nevertheless, in 2023, the ISSB released its inaugural two standards for sustainability reporting (IFRS S1 and IFRS S2) that are set to come into force on January 1, 2024 in countries that decide to adopt them. According to IFRS S2, companies will be required to disclose information about risks and climate-related opportunities. However, as of 2024, the ISSB’s standards are not mandatory in any jurisdictions, although some are looking to adopt. In contrast, EFRAG has issued ESRS which are mandatory across the EU.
Future research could investigate whether IFRS S1 and IFRS S2 standards align across different industries and organizational contexts globally. In addition, research could investigate and assess current challenges associated with their implementation. Finally, there is an opportunity for research using alternative AI tools to analyze large volumes of textual data in this area.
In summary, the establishment of the ISSB marks a significant milestone toward sustainability reporting, and the responses to the consultation provided an interesting data set on several divergent issues related to the matter. The ISSB’s relative lack of legitimacy has recently prompted it to vigorously promote their standards, as the ISSB’s standards are not mandatory in any jurisdictions as of 2024. We believe that it will be necessary for the ISSB to undertake crucial further research and adaptation to fully meet diverse stakeholder expectations and comply with global regulatory requirements.
The authors are grateful to Coordenação de Aperfeiçoamento de Pessoal de Nível Superior–Brasil (CAPES).
References
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