banner image
Press Release

Sustainability standards must be phased to ensure businesses can comply

Grant Thornton International Ltd (GTIL) has submitted two comment letters to the International Sustainability Standards Board (ISSB), urging them to consider the needs of small and medium-sized entities (SMEs) when setting new standards.

The ISSB, formed by the International Financial Reporting Standards (IFRS) Foundation after last year’s UN climate change conference, COP26, published two exposure drafts (EDs) in March 2022 for comment - one on general requirements and a second on climate disclosures.

“We commend the efforts of the Board in producing both EDs in such short space of time, and believe they are a move in the right direction,” says Trent Gazzaway, global leader service lines & industries, GTIL.

“We support the ISSB’s prioritisation of climate over other sustainability topics and we support the use of the Task Force on Climate-Related Financial Disclosures (TCFD) framework in the proposed standard for climate-related disclosures – many businesses are already familiar with TCFD.

“However, after talking to experts around our global network, we believe there are some serious flaws in both EDs where improvement could be made.”

Phasing is required to support mid-market compliance

Grant Thornton has observed anxiety amongst its mid-market clients surrounding the implementation of the proposed standards in the general requirements ED. The Grant Thornton International Business Report [i] found nearly a third of mid-market businesses globally cited a lack of clarity around new regulations and requirements as a barrier to their progress on sustainability.

“We’re concerned that many mid-market companies, who do not have the same resources as larger companies, may crush under the weight of these changes in such a short period of time , especially as it intends to publish standards on environmental, social, and governance areas, in addition to these two EDs on general requirements and climate disclosures.

“Setting the bar too high is likely to affect the ability of the mid-market to comply. We believe that the ISSB should phase in the standards, particularly in areas which are complex, such as metrics and targets. They should also prioritise overall significant risks and opportunities, by implementing climate-related standards first, and then other environmental, social and governance standards later.

We note that it took six years from publication of the first international financial reporting standard in 2003, to the arrival of the IFRS standard for SMEs in 2009. “We applaud the fast pace that the IFRS Foundation is moving at so far regarding sustainability, but we believe it would be best to observe the lesson learned with IFRS and consider up front the differences between large and small-to-medium-sized entities. We cannot wait a similar six years to adjust for the mid-market’s needs and abilities.”

'Significant' confusion

Another area of concern for Grant Thornton is the lack of consistency between the use of the terms ‘significant’ and ‘material’, across both EDs, “Simply put, we would like to see ‘significant’ replaced by ‘material’ throughout the general requirements ED, because our view is the concept of materiality is better understood, particularly by preparers and those charged with governance.

Grant Thornton believes the use of the term ‘significant’ is confusing because businesses do not understand the disclosure objectives of the standard.
“We think the Board needs to clarify its intention of the proposed standards in terms of what businesses need to report. This may or may not result in the word ‘significant’ being removed.

“For example, our current reading of the proposed IFRS S1 and IFRS S2, is that entities would be required to complete two climate-related risk and opportunity assessments (one for each standard), which presumably is not the intention of the ISSB.”

Global alignment is key

“While we support the ISSB’s ‘building block’ approach and intention that these two standards form a baseline, much more work must be done to align them with standards proposed by other standard setters, so jurisdictions can build on them as envisaged by the ISSB.

“As they stand, the European Sustainability Reporting Standards (ESRS) proposed by the European Financial Reporting Advisory Group (EFRAG) sit alongside the ISSB’s standards – they do not build on them. Therefore, entities within the scope of both ESRS and ISSB Standards are unlikely to be able to claim compliance with both standards at the same time through the publication of a single sustainability report.

“For example, the ESRS uses a different assessment of materiality to the ISSB. It would be helpful for the ISSB to explain how dynamic materiality in its proposed standard can be reconciled to double materiality as it is defined in ESRS.”

The exposure drafts and Grant Thornton’s comment letters can be read on the IFRS Foundation website – see IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information Exposure Draft and Grant Thornton’s comment letter; and IFRS S2 Climate-related Disclosures Exposure Draft and Grant Thornton’s comment letter.


i. The International Business Report (IBR) is the world’s leading survey of mid-market companies. Launched in 1992, the IBR now provides insight into the views and expectations of around 10,000 businesses across 28 economies.

Copy text of article