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Policy Proposals  Business Law Comments on ISSB Request for Information
"Consultation on Agenda Priorities"

September 1, 2023
Global Strategy Task Force on ESG Disclosure
Committee on Financial and Capital Markets

To: International Sustainability Standards Board (ISSB)

We appreciate the opportunity to submit public comments on Consultation on Agenda Priorities (hereinafter, the "RFI").

We endorse the ISSB's mission of delivering a global baseline as the sustainability disclosure standards. However, for the ISSB Standards to become a global baseline in the true sense, ensuring a certain degree of flexibility is essential. The ISSB should be fully mindful that imposing excessively uniform disclosure requirements could obstruct companies' free and flexible disclosure practices and constructive dialogue with investors based thereon.

Also, the series of corporate activities related to the disclosure of sustainability information should be positioned as part of efforts to boost enterprise value. For the information disclosure system to function effectively to bring forth great value for both investors and companies, it is extremely important that companies are convinced of the necessity of disclosing the information required to be disclosed. We expect the ISSB to conduct sufficient analyses regarding the ways in which investors utilize the information, and to communicate the results to the companies.

Our responses to the individual questions are as follows:

Strategic direction and balance of the ISSB's activities (Question 1)
  • Of the ISSB's activities enumerated in the RFI, higher priority should be given to "supporting the implementation of IFRS Sustainability Disclosure Standards (ISSB Standards)" set out in paragraph 19(b) and "ensuring interoperability of the ISSB Standards with other sustainability standards" (hereinafter, "Interoperability") listed in paragraph 19(f). To ensure Interoperability, it would be also useful to work from an early stage on "beginning new research and standard-setting projects" (hereinafter, "New Research") as referenced in paragraph 19(a).

    (b) Supporting the implementation of ISSB Standards

    • For the ISSB Standards to be broadly used as the global baseline, it is imperative to support the Standards' implementation as stated in paragraph 19(b), primarily by drafting and releasing appropriate guidance. The ISSB Standards that have already been finalized (IFRS S1 and IFRS S2) set disclosure requirements that exceed the existing corporate disclosure practices in many jurisdictions. Therefore, in the process of implementing those ISSB Standards, many issues are expected to be identified in the discussions in each jurisdiction going forward. Resolving these issues is essential from the perspective of ensuring the practicability of the ISSB Standards. In addition, providing good examples would be effective as an implementation support measure.

    (f) Interoperability

    • Requirements from multiple bodies to disclose nonfinancial information according to their respective standards would result in extremely inefficiency as companies would have to duplicate their efforts to understand each of the standards, collect sustainability information, and consider the disclosure content. Given that corporate resources are finite, Interoperability is paramount to reduce the work burden. In particular, ensuring interoperability with the European Union's Corporate Sustainability Reporting Directive (CSRD) is a pressing issue.

    (a) New Research

    • As disclosure standards for nonfinancial information beyond climate change are already under development in accordance with the CSRD, interoperability with the CSRD is a particularly essential issue. The sooner the ISSB initiates research on topics beyond climate change, the easier it will be to ensure interoperability with other standards. Hence, New Research is also important.
  • In regard to "enhancing the SASB standards" set out in paragraph 19(d), industry-specific standards formulated by the Sustainability Accounting Standards Board (SASB) can provide particular convenience for single-business companies. However, given factors such as the existence of numerous conglomerate corporate groups around the world and the impact of national culture on commercial customs and labor practices, sufficient attention should be paid to the difficulty of ensuring the practicability of industry-specific standards on a global level.

Criteria for assessing sustainability reporting matters that could be added to the ISSB's work plan (Question 2)
  • We consider "the importance of the matter to investors" stated in paragraph 24(1) to be a particularly critical assessment criterion. From the perspective of constraints on corporate resources as well, the ISSB should give consideration to restricting disclosure requirements to information that is really necessary for investors.

New research and standard-setting projects that could be added to the ISSB's work plan (Question 3)
  • The themes where each company finds importance differ greatly depending on the industry, business scale, and regional characteristics. For that reason, we do not prioritize the project proposals enumerated in Appendix A.

  • Among our Task Force's member companies, however, more companies tend to emphasize human capital. The main reasons are that human capital is essential to any business activity and hence important to every company, and that the topic has a narrower scope and thus presents a lower hurdle for disclosure, than the other topics. The topic of human rights also needs to be given some consideration in light of its relation with human capital.

Questions 4-7
  • We do not comment on the priority of subtopics. Which items should be prioritized depends on the environment in which the company operates. We would like to stress that under such circumstances, it is not efficient to require all companies to make uniform disclosures at the same level in compliance with the disclosure requirements of ISSB Standards. The ISSB should aim at designing a system that allows individual companies to focus more on the items they consider important to themselves and efficiently address the items they consider less important.

Other comments (Question 8)
  • Whereas discussions are underway based on existing disclosure standards and guidelines, we are concerned that this is not an approach conducive to uniformity and narrowing the scope down but one leading to exhaustive disclosure, which would increase the burden on companies and make it difficult for investors to assess enterprise value. We expect the formulation of standards that require companies to only disclose the minimum necessary information for investment decisions. To ensure that high-quality disclosure is made with the minimum necessary information, the ISSB should consider the overall balance of the disclosure system.

  • Since the start of the 21st century, it is technology companies and Asian companies that have greatly increased their market capitalization, and some of the former are among the top constituents of ESG indexes. If priorities are to be given for the topics to be considered, research should first be conducted on what are the sources of these high-growth companies' value and what disclosure items would be useful in understanding and analyzing them.

Business Law