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SEC Commissioner Hester Peirce urged the International Financial Reporting Standards ("IFRS") Foundation (the "Foundation") not to develop an International Sustainability Standard Board ("ISSB") because it would (i) inappropriately "equate sustainability standards with financial reporting standards," (ii) weaken the Foundation's existing investor-centered work and (iii) raise substantial governance concerns.
In a comment letter on the Foundation's proposed amendments to its Constitution to develop an ISSB to set IFRS sustainability standards, Ms. Peirce emphasized that sustainability standards are fundamentally different from accounting standards in that (i) the sole focus of financial reporting is to produce an accurate depiction of the finances of a company for investors through measurable, reportable and auditable factors, and (ii) there is no universally agreed upon or consistent objective of sustainability standard-setting and sustainability reporting. Ms. Peirce also stated that the addition of the ISSB will dilute the resources available to the International Accounting Standards Board ("IASB"), and the requirement that all Trustees support the ISSB will limit the "perspective diversity" of the IFRS.
Additionally, Ms. Peirce noted, certain proposed provisions may weaken the integrity of the ISSB, including:
- the provision enabling the ISSB to have more part-time members than the IASB is permitted to have, which increases concerns of conflicts of interest when taking into account the effect of outside employment on the objectivity of part-time members;
- the provision requiring only a simple majority for the approval of standards, as opposed to the required supermajority for the IASB, which implicitly acknowledges the obstacles involved in achieving a consensus on sustainability standards; and
- the provision allowing the ISSB to liaise with nonofficial stakeholders, as opposed to official standard-setters, which raises concerns of improper influence and independence.
Ms. Peirce also raised concerns as to the Foundation's (i) hasty approach to starting the ISSB, which, she underscored, may increase the possibility of design flaws in the board and the standards it publishes, and (ii) lack of specification with respect to how it will fund the ISSB. While acknowledging the benevolent intentions involved in developing uniform and globally accepted sustainability standards, Ms. Peirce emphasized that the objective is ultimately "unrealistic and may undermine the important concerns at the heart of this effort."
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