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Omolola Fashesin:
Welcome to today’s webinar and thank you for tuning in.
My name is Omolola Fashesin and I am Principal, Sustainability Standards with the Canadian Sustainability Standards Board.
The purpose of this session is to provide you with a high-level overview of the two ongoing consultations of the International Sustainability Standards Board (ISSB).
To begin, I will provide an overview of the Agenda Priorities Project, including the project considerations, proposed topics, and assessment criteria. Next, I will present the International Applicability of SASB Standards project. I will conclude by discussing how you can share your feedback on the proposals.
We will now discuss the ISSB's request for feedback on their Agenda Priorities.
Before diving into the project details, here are some considerations to remember when evaluating the ISSB’s proposals:
Firstly, the goal of the Agenda Priorities project is to inform the ISSB's two-year work plan beginning in 2024.
Secondly -- and importantly -- the ISSB’s already committed to a range of substantive projects.
In the first instance, it will look to support the global implementation of its inaugural standards, IFRS S1 and S2. For those who need a refresher, IFRS S1 provides general requirements for sustainability related disclosures while IFRS S2 provides requirements related to climate disclosures.
The ISSB is also committed to continued capacity building. This means they are committing to providing advisory, educational, and other interactions with their partners to help develop the resources and interoperability across markets globally.
Finally, in the area of commitment, the ISSB will continue to support the enhancement and maintenance of the SASB Standards, which it has governed since the Value Reporting Foundation consolidated into the IFRS Foundation in August 2022.
Next, all projects are considered “large”, which means they’re “expected to require extensive research and analysis of both external resources and the ISSB’s resources to, first, reach consensus on the issues examined and, second, to advance to standard setting …”
With this in mind, the ISSB could limit itself to just one or two additional projects – if any – depending on feedback received.
All this to say, there are some very real -- and very reasonable -- constraints on the ISSB’s ability to take on new commitments over the next two years.
The good news is that projects not taken on board now could still ‘see the light of day’. In other words, even if they’re not selected now, they could be added in the future, so they’re not automatically eliminated from development.
Finally, the ISSB welcomes additional topics, particularly those that may be of jurisdictional interest or importance. And this is where we’re keen to hear from you. As staff support to the CSSB, we’re supporting a response to the ISSB on behalf of the Canadian market.
I’ll have more to say about how you can help shape Canada’s response at the end of this presentation.
In this Agenda Priorities project, the ISSB is asking for your feedback on its
- Strategic direction and activities
- Criteria to prioritize potential topics as well as the
- Scope and Structure of the proposed topics
At the high level, this Agenda Priorities project is about what work you want the ISSB to do next. The ISSB needs to build additional standards beyond S1 and S2 to create a fulsome set of sustainability standards. They want to get started and we at the CSSB want to make sure the next projects reflect the needs of Canadians.
It’s worth noting how this short list of projects was created. The ISSB started by analyzing an enormous amount of research about investors' interests. Their research base included:
- A summary of shareholder proposals filed during the 2022 US proxy voting season
- A database of details covering all earnings calls held between 2008 and 2020,
- The feedback from IFRS S1 + IFRS S2 responses
- As well as several other international publications from market-led initiatives.
This gives you more understanding of how the ISSB confirmed that these four topics listed here are important to investors and high functioning capital markets. It’s worth noting that you’re not limited to these topics alone in the prioritization discussion.
As mentioned earlier, these are really complex topics so each project is considered large. This might mean selecting only 1-2 projects for the next 2 years, but any project not selected now is not ruled out for future projects.
We saw the short list of projects – now let’s review each one of them and how they can impact businesses.
First, we have biodiversity.
In simple terms, biodiversity is the variety of living organisms and the way they interact with each other.
We need healthy and high functioning ecosystems because they supply us with oxygen and clean air so we can breathe, the pollination of plants so we can eat, wastewater treatment and many other ecosystem services.
Biodiversity and functioning ecosystems provide us with the ecosystem services that we rely upon.
We know that losses to biodiversity, ecosystems and ecosystem services are a threat to our global financial stability. In fact, according to the World Economic Forum, over half of the world’s GDP relies on biodiversity, ecosystems and ecosystem services - and that’s why this area has been highlighted as a topic that is material to businesses.
We also know that effective disclosure can help organizations, collectively, improve future resilience, in terms of accessing the quantity, quality and affordability of raw material supplies needed.
A few notable big investments in this space come out of COP 15 in Montreal which resulted in the creation of the "Kunming-Montreal Global Biodiversity Framework". In its 23 targets are commitments to:
a) protect 30% of terrestrial, inland water, and coastal and Marine ecosystems and
b) increase biodiversity related international financial resources to developing countries to at least $20 billion a year by 2025 and to at least $30 billion a year by 2030.
Potential subtopics proposed by the ISSB include water, land-use and land-use change (which includes deforestation), pollution (including emissions into air, water and soil), resource exploitation (including material sourcing and circular economy), as well as invasive non-native species.
Next on the list is Human Capital, and this is about the people that makes up the Potential subtopics include worker wellbeing; diversity, equity and inclusion; employee engagement; workforce investment; the alternative workforce; labour conditions in the value chain; workforce composition and costs.
An entity's human capital strategy impacts its ability to create products, attract talent, and increase productivity, which, in turn, impacts its value.
Next we have, human rights are the basic rights and freedoms that belong to every person by virtue of being a human being. Some of these rights include right to life, food, education, work, health and liberty.
A violation of human rights may negatively affect an entity's value, reputation or even its license to operate.
We are seeing a proliferation of human rights due diligence laws across the globe (for example, the European Commission’s Directive on Corporate Sustainability Due Diligence, France’s Corporate
Duty of Vigilance Law, the UK’s Modern Slavery Act, and the German Supply Chain Due Diligence Act)
In Canada we have the “Modern Slavery Act” formerly known as Bill S-11, which enacts the fight against forced Labour in Supply Chains. Entities will file their first report in May 2024.
Examples of human rights abuses affecting an entity’s value include Child labour, forced labour and unsafe work conditions as you can see, there is some intersectionality with Human Capital topics which can be explored.
Finally on the list is Integration in reporting essentially boils down to three fundamental concepts.
Firstly, the value a company creates for itself is inextricably linked to that created for others – and this, of course, includes society and the natural environment.
Secondly, to create value, a company relies on resources and relationships. And almost invariably, there will be interdependencies between these resources and relationships. In some cases, the dependencies will be synergistic in nature. In others, there will be trade-offs.
And this brings us to the third core concept underpinning integration in reporting: These assorted connections or relationships should be communicated in a clear, concise, and cohesive manner, to properly inform investor decisions.
At the end of the day this project is driving the effort to look at the financial accounting standards governed by the International Accounting Standards Board (IASB) and the sustainability standards issued by the ISSB and examining how to ensure these standards are not siloed. Without integration, it will be up to the investor to put all the pieces of a company’s value creation together themselves.
There are several ways this project could be managed:
First, The IASB could lead a project to better improve the link between sustainability standards and the financial accounting standards. They published an Exposure Draft in 2021 on Management Commentary which relied heavily on the Integrated Reporting Framework.
Another option would be for the ISSB to lead the project. The ISSB has led several pieces of integration already. For example, by utilizing the same definition of ‘materiality’ and ‘undue cost and effort’ as the IASB. These are ways the ISSB has ensured compatibility and synergies between Sustainability and Financial reporting
Finally, a third way this project could be executed is via an official joint project between the ISSB and the IASB. The advantage of this would be full synchronization of both organizations. However, this expected to be a large work effort and this model could mean a slower pace of development.
In order to assess the priority of new projects, the ISSB has proposed the following criteria:
- The importance of an issue to investors
- whether there are deficiencies in the way companies disclose on the matter
- The type of companies the matter is likely to affect, including whether it is more prevalent in some jurisdictions than others
- How pervasive or acute the matter is likely to be for companies
- The interaction with other projects on the ISSB’s work plan (or the IASB’s)
- The complexity and feasibility of the potential project and its solutions and
- Finally, capacity of the ISSB and its stakeholders to make timely progress
The ISSB is asking whether you agree with this list or if you think there should be other criteria used to prioritize.
We will now move on to the second project.
As a brief recap, the ISSB incorporated SASB content into its standards by:
Requiring preparers consider SASB when developing related disclosures pursuant to IFRS S1 if no relevant IFRS Sustainability Disclosure Standard is available.
And including industry-specific requirements, which are based on the SASB standards in Appendix B of IFRS S2
SASB Standards metrics, however, have jurisdiction-specific references, making them inapplicable globally.
Metrics that are not currently internationally applicable represent 20% of the approximately 1,000 metrics included in the SASB Standards.
To amend SASB Standards metrics that rely on jurisdiction-specific references, the ISSB proposes five revision approaches.
- First - Substituting available internationally applicable references for standards, definitions or calculation methods to replace jurisdiction-specific references. An example would be replacing a US Health & Safety reference with a World Health Organization reference.
- Second - Providing more generalized references for standards, definitions, or calculation processes to replace jurisdiction-specific references. For example, instead of referring to H1B Visa holders (which is an American type of visa for foreigners) they would replace that term with "employees who are foreign nationals".
- Adopting generalized jurisdictional references to enable preparers to use applicable jurisdictional laws, regulations, methodologies or guidance to replace jurisdiction-specific references. This looks like replacing an "Environmental Protection Agency reference" with a reference to "your local applicable law"
- Removing – in a limited number of cases – disclosure metrics that are ill-adapted for international application or have no identified international equivalents outside specific jurisdictions. It means that some metrics do not have an international reference and in cases where there are already several KPIs to disclose, the US-referenced one will be removed if removing it does not adversely affect the disclosure.
- Removing and replacing jurisdiction-specific metrics when a relevant replacement can be identified to preserve the disclosure topic’s integrity. Here's an example of this, there's a US Department of Transportation tool which is referenced, and a more internationally applicable reference would replace it.
It is now your turn to be heard!
We invite you to participate in our online survey on our Connect platform at connect.frascanada.ca. The platform is easy to use and allows you to contribute at your pace and on your terms.
Alternatively, you may send us an email with your views or a request to participate in a virtual event or discussion.
Both options augment our other feedback mechanisms and are part of our due process. Your input will be incorporated into our response to the ISSB.
To learn more, please visit our website at www.frascanada.ca.
That's all for now - thanks for tuning in - and have a great rest of the day.
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