Frequently asked questions on the Inaugural Jurisdictional Guide for the adoption or other use of ISSB Standards

The IFRS Foundation is providing responses to Frequently Asked Questions (FAQs) to ensure clarity on aspects of the Inaugural Jurisdictional Guide for the adoption or other use of ISSB Standards (Jurisdictional Guide) and to support users of the Roadmap Development Tool. Reponses to these FAQs are not interpretations of ISSB Standards and do not add to or change requirements of ISSB Standards. The FAQs should be read in conjunction with the Jurisdictional Guide and the Roadmap Development Tool. The FAQ responses refer to pages and paragraphs in the Jurisdictional Guide unless they explicitly refer to an IFRS Sustainability Disclosure Standard (shown as ‘IFRS S1’ or ‘IFRS S2’).

Terms that are defined in the Glossary of the Jurisdictional Guide are in italics the first time they appear in a question or its response. 

Regulatory process

Does adoption or other use of ISSB Standards require legislative action to introduce requirements into regulatory frameworks for sustainability-related disclosures? 

In the Jurisdictional Guide, adoption or other use of ISSB Standards is understood as requiring legal or regulatory action by a jurisdiction (page 28, paragraph 102). The nature of legal or regulatory action in a jurisdiction would depend, among other things, on the jurisdiction’s statutory approach to corporate disclosures and the related regulatory model. In some cases, legal or regulatory action might involve amending existing legislation or regulation, or might require other legislation or regulation (where none currently exist) to be implemented before the jurisdiction can adopt or otherwise use ISSB Standards.

Is legal or regulatory action the only step needed in a jurisdiction?  

Steps for adopting and implementing sustainability-related financial disclosure requirements will vary by jurisdiction, depending on, among other things, local business practices and applicable law or regulation. For this reason, and to provide clarity to stakeholders, it may be beneficial for a jurisdiction considering the adoption or other use of ISSB Standards to develop an adoption roadmap. The roadmap would consider the various factors and steps appropriate to that jurisdiction’s process for adopting and implementing its planned sustainability disclosure requirements.

Roles and responsibilities 

What is the role of jurisdictional authorities in the adoption process?

The introduction of sustainability-related disclosure requirements often involves coordination across multiple regulatory and other authorities and bodies in the jurisdiction (pages 18–19, paragraphs 52–54). Depending on individual authorities’ mandates, the introduction of sustainability-related disclosure requirements within the legislative framework may be the responsibility of a different authority (or authorities) than that (or those) responsible for monitoring and enforcing the requirements. 

Clarity on which authority is responsible for leading the adoption process in a jurisdiction can help to streamline communications and engagement between relevant authorities, with other stakeholders and with the IFRS Foundation. 

In some of the jurisdictions that have adopted ISSB Standards or made progress towards doing so, the process has been supported by the establishment of sustainability reporting steering committees or working groups that bring together stakeholders such as government authorities, securities exchanges, national standard setters, capital market authorities, other prudential regulators, and representatives of corporate associations. Which stakeholders should be part of such bodies will depend on the characteristics of the jurisdiction and the reporting ecosystem. 

To what extent do investors, preparers and assurers participate in shaping the direction of a jurisdictional journey towards adoption or other use of ISSB Standards? 

Depending on the requirements and practices in a jurisdiction, developing a roadmap or the details of the regulatory framework often involves consultations with various stakeholders, in particular with investors and preparers. Because ISSB Standards are designed to meet the needs of investors, outreach to this critical stakeholder group provides insight about their information needs and the implications of potential approaches to reporting. Preparers and representatives of corporate associations or industry bodies are well placed to provide input about the costs and benefits of adoption or other use of ISSB Standards in the jurisdiction, as well as on matters such as the state of preparedness of domestic entities.  

Assurance and other professional service providers that specialise in corporate disclosures or sustainability-related topics also can be a source of valuable insight due to their extensive and broad engagement with reporting entities. These service providers often have a breadth of insight into entities’ preparedness for external sustainability reporting and for making appropriate supporting evidence available to third-party assurance providers. Assurance providers and other professional services firms often have access to international networks that they can use to share experiences from other jurisdictions. Their collective experiences can also contribute to capacity building within jurisdictions and can improve comparability of disclosures across entities, industries and regions. Professional service firms also can be a resource for preparers as they design and implement reporting processes and procedures. 

Reporting entities 

What attributes could a jurisdiction consider when assessing whether entities subject to disclosure requirements are considered to be ‘all or most’ entities and those that have a significant weight in the jurisdiction? 

The Jurisdictional Guide states that in considering a jurisdiction’s approach to sustainability-reporting, the IFRS Foundation will consider sustainability-related disclosure requirements that apply to ‘all or most’ publicly accountable entities (page 31, paragraph 116(a)). For the purposes of the Jurisdictional Guide, the idea of ‘most’ publicly accountable entities mainly encompasses listed entities in a jurisdiction that are classified in the first and second tiers of the jurisdiction’s capital market, and entities that hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses (for example, banks, insurers and credit unions) and have a significant weight in the jurisdiction, regardless of their ownership structure or listed status. The concept of ‘all or most’ publicly accountable entities is also intended to capture the weight of the entities in relation to the economy or activity in the jurisdiction, rather than only the number of entities subject to the requirements.  

For listed entities, the concept of ‘all or most’ publicly accountable entities is based on the relative weighting of entities captured by the requirements in relation to the overall market capitalisation in the main equity index. 

Jurisdictions often classify publicly accountable entities that are listed (often also referred to as issuers, filers or registrants) according to domestic stock market segments that reflect specific parameters. These parameters include an entity’s size, its cross-border and global orientation based on its shareholder base, its volume of traded securities, or its financial, liquidity and corporate governance thresholds. Depending on the parameter used, publicly accountable entities might be classified into market tiers such as first tier—prime, premium or senior; second tier—standard; or third tier—growth, entry or venture.  

In describing a jurisdiction’s approach to adopting or otherwise using ISSB Standards, the IFRS Foundation generally considers the reporting requirements applicable to ‘all or most’ listed entities in the first and second tiers, focusing on whether the requirements capture large listed entities that have a significant volume of traded securities, a large shareholder base and high annual revenue. 

Requirements 

How does the IFRS Foundation determine whether local sustainability-related disclosure requirements (or standards) are designed to deliver functionally aligned outcomes to those resulting from the application of IFRS S1 and IFRS S2?

Local sustainability-related disclosure requirements (or standards) designed to deliver functionally aligned outcomes to those resulting from the application of IFRS S1 and IFRS S2 are those that are considered to provide the same information and outcomes on sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports.  

Appendix A of the Roadmap Development Tool provides examples of elements of local requirements (or standards) that jurisdictions might consider when evaluating the extent to which a jurisdiction’s approach is designed to deliver functionally aligned outcomes. In developing a jurisdictional profile, the IFRS Foundation collaborates with the relevant jurisdictional authority to understand the jurisdictional requirements to take into account when evaluating the extent of alignment, including any modifications of the elements listed in Appendix A of the Roadmap Development Tool. 

Can jurisdictional requirements that adopt or otherwise use ISSB Standards go beyond those required in ISSB Standards, for example to take into account specific jurisdictional or regional policy objectives for sustainability-related disclosures or the information needs of stakeholder other than investors? 

ISSB Standards require an entity to disclose material information on sustainability-related risks and opportunities that is useful to providers of capital when making decisions about providing resources to the entity. A jurisdiction might seek additional information that is not required by the ISSB Standards, but that it considers relevant to meet the needs of non-investor stakeholders or to meet jurisdiction- or region-specific policy objectives. Adding disclosure requirements that go beyond those required by ISSB Standards is sometimes referred to as a ‘building blocks’ approach.  

When a ‘building block’ of additional disclosure requirements is added to a jurisdiction’s legal or regulatory framework along with the requirement to use ISSB Standards, jurisdictional authorities should consider how the location, presentation and nature of the additional disclosures might affect the information provided to investors. Specifically, to assert compliance with ISSB Standards, IFRS S1 requires that the sustainability-related financial disclosures required by ISSB Standards are clearly identifiable and not obscured by that additional information (IFRS S1, paragraph 62 and B27). 

Readiness 

Can a jurisdiction phase in the requirements in ISSB Standards and scale requirements for different entities?  

The levels of investor demand and maturity of sustainability reporting differ across entities and jurisdictions. The ISSB Standards include proportionality mechanisms and transition reliefs to support the implementation of the Standards for entities of varying sizes, resources and expertise.  However, the pace for introducing the requirements in ISSB Standards can depend on the policy rationale for requiring sustainability reporting and on the jurisdiction’s assessment of market readiness. This assessment is influenced by factors including the jurisdiction’s maturity in sustainability-related reporting and entities’ familiarity with sustainability-related reporting standards or frameworks. The assessment might also consider the state of development of the wider sustainability reporting ecosystem.  

Jurisdictions might choose to consider scalability or the phasing in of requirements for various entities in a way that allows entities to progress over time in their understanding, governance, data collection and ability to assess sustainability matters, and for the system to mature. Scaling in requirements for different entities (for example, providing different effective dates based on the size of entities, or based on industry) may provide a suitable first step in the journey towards a jurisdiction adopting or otherwise using ISSB Standards. The Jurisdictional Guide sets out jurisdictional approaches that include those that reflect the phasing in of requirements (pages 40–41, paragraphs 168–173).