This new notice from the ISSB has some interesting developments. The organization:
- Voted unanimously to require company disclosures on Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions
- Will develop relief provisions to help companies apply the Scope 3 requirements. This relief will be decided at a future meeting and could include giving companies more time to provide Scope 3 disclosures and working with jurisdictions on so-called “safe harbor” provisions.
- Confirmed it will use the same definition of “material” as is used in IFRS Accounting Standards and will discuss at a future meeting the need for further guidance on how to determine what is material information.
- Confirmed use of the Task Force on Climate-related Financial Disclosures (TCFD) architecture as the basis for its Standards
Our view: The second and third points above are pretty important and could signal a change. This may be the beginning of a slow death for “double materiality” that is somewhat popular in the EU. The current definition of “material” under IFRS accounting standards is established in the October 2018 amendments to IAS 1 and IAS 8, which went into effect January 2020. This definition – which focuses on financial statement information – is:
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.
This seems to take us back to square one in terms of trying to decode “materiality” in accounting and disclosure regimes. As with so many other things, time will tell. With the ISSB standards expected to be finalized at the first of the year, we shouldn’t have too much longer to wait.
