Page 1 of 10Our Ref.: C/FRSCSent electronically through the IFRS Foundation Website (www.ifrs.org)
30 December 2020Mr Erkki LiikanenIFRS FoundationColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Mr. Liikanen,IFRS Foundation Trustees' Consultation Paper on Sustainability ReportingThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants, in Hong Kong. We are grateful for theopportunity to provide you with our views on the Consultation Paper on SustainabilityReporting (CP).The HKICPA considers that sustainability reporting is an area of increasingly urgentimportance both in Hong Kong and internationally. There are additionally varioussustainability initiatives already in place in Hong Kong. We hence greatly appreciate theinitiative of the Trustees of the IFRS Foundation to begin consultation in this area.We agree that there is an urgent need for a global set of sustainability reportingstandards, and that the IFRS Foundation is well positioned to be involved with settingthese standards. We furthermore agree that the development of a sustainabilitystandards board under the structure of the IFRS Foundation is an appropriate approach,with acknowledgement that there are requirements for success.We consider that it is important that the IFRS Foundation proceed rapidly with thisinitiative given the international demand. We recommend that the IFRS Foundationleverage on the expertise of existing initiatives to ensure that this urgent need isaddressed.Our detailed comments are provided in the Appendix.If you have any questions regarding the matters raised in this letter, please contact me,Cecilia Kwei, Director (ceciliakwei@hkicpa.org.hk) or Tiernan Ketchum, Deputy Director(tiernanketchum@hkicpa.org.hk) of the Standard Setting Department.Sincerely,Chris JoyExecutive Director, Standards and RegulationPage 2 of 10Work undertaken by HKICPA in forming its viewsThe Hong Kong Institute of Certified Public Accountants:
(i)
issued an Invitation to Comment on DP/2020/1 on 7 October 2020 to its membersand other stakeholders;
(ii)
sought input from its Sustainability Committee, which is comprised of a diverseselection of senior-level sustainability experts; and(iii)
developed its views through its Financial Reporting Standards Committee. TheCommittee comprises academics, preparer representatives from various industrysectors, regulators, as well as technical and industry experts from small, mediumand large accounting firms.This submission outlines the HKICPA's views and summarises our stakeholders'comments on the CP. You may access our stakeholder responses here:
https://www.hkicpa.org.hk/en/Standards-and-regulation/Standards/Our-views/pcd/financial-reporting-submissions/2020Detailed comments on the CPQuestion 1 – Need for a global set of sustainability reporting standardsStakeholders’ views
1.The vast majority of our stakeholders agreed that there is a need for a global set ofinternationally recognised sustainability reporting standards. The majority of ourstakeholders also agreed that the IFRS Foundation should play a role in settingthose standards.HKICPA analysis and recommendation
2.We agree with our stakeholders that there is a need for global sustainabilityreporting standards. We also consider that it is apparent, as is noted in the CP, thatglobal calls for sustainability reporting and global initiatives related to sustainabilityare growing in prominence.
3.We also agree that the IFRS Foundation should play a role in setting thesestandards. As noted further in our response to Question 2, we think that the IFRSFoundation is well suited to this role given its existing structure, processes andexperience with setting global financial reporting standards.Question 2 – Development of a sustainability standards boardStakeholders’ views
4.The majority of our stakeholders welcomed the development of a sustainabilitystandards board (SSB) under the governance structure of the IFRS Foundation.
5.One of our stakeholders commented that the SSB could build on the IFRSFoundation’s existing experience in international standard-setting, as well as itswell-established and supported processes and governance structure. Anotherstakeholder similarly suggested that there is no need to ‘reinvent the wheel’, as theIFRS Foundation already has an established structure, processes and track record.
6.Another stakeholder noted the ongoing efforts of other bodies in this area, andindicated that they would remain open-minded as to which framework ofsustainability reporting standards will ultimately come to be internationally dominant.AppendixPage 3 of 10HKICPA analysis and recommendation
7.We agree with our stakeholders that a new SSB within the structure of the IFRSFoundation would be an appropriate way forward. We think that the IFRSFoundation offers a robust governance structure with requisite processes, standardsetting experience, and key formal and informal relationships. We are neverthelesscognizant that there will be challenges to achieve success in establishing a globallyadopted set of sustainability standards, as we note further in Question 3.Question 3 – Requirements for successStakeholders’ views
8.We noted the following comments from stakeholders:
a.The SSB would need to integrate persons and organisations with appropriateknowledge of environmental and social issues into the standard settingprocess.b.The SSB’s structure must provide a robust way of developing reports thatfacilitates making investment decisions that lead toward sustainability goals(e.g. capital allocation must be consistent with the Paris Agreement’sobjectives).c.There is some lack of clarity as to how “success” is measured, specifically whatis the nature and extent of support that is required from key stakeholders, andhow the IFRS Foundation would respond if certain institutions challenged theSSB initiative.HKICPA analysis and recommendation
9.We observe that there is increasing and pressing international demand for high-quality, global and comparable sustainability reporting standards. Additionally,there are a number of significant initiatives being undertaken by other actors.Overall, it is hence of utmost importance that the IFRS Foundation work quickly toaddress this urgent demand.
10.In addition to our stakeholder’s comments above, we consider that the CP identifiesa number of relevant hurdles to success. At a high level, we consider that one ofthe most important issues will be ensuring the support of public and capital marketauthorities to promote adoption. The IFRS Foundation may consider the processby which global financial reporting convergence was achieved in this respect. At amore fundamental level, we think that resourcing and talent sourcing will be a keyissue. Consideration should be given to how the SSB can ensure that it will be ableto attract and retain high-quality, technical, sustainability reporting experts.
11.Noting that the SSB will aim to establish a global set of sustainability reportingstandards, it will be important for the SSB to set up appropriate groups andchannels to foster international collaboration and connection to relevant expertsand bodies. We discuss this further in Question 5 and 6.
12.We also think that diversity should be a key consideration in establishing the SSB,both with regard to the geographical representation of its board and staff, and withregard to its work with other initiatives and jurisdictions.Question 4 – Relationships with stakeholders to aid adoption and applicationPage 4 of 10Stakeholders’ views
13.Our stakeholders generally noted that the IFRS Foundation would be well placedto leverage its relationships with stakeholders to aid global adoption and application.
14.A couple of stakeholders commented that the IFRS Foundation could follow asimilar approach as to what was used in achieving global financial reportingstandards convergence.HKICPA analysis and recommendation
15.We think that one of the key strengths that the IFRS Foundation has in approachingsustainability reporting is its relationship with various stakeholders, including publicauthorities, policymakers and standard setters. Similar to what was required for theglobal convergence of financial reporting standards, we think that establishing a setof global sustainability reporting standards will require international buy-in. As such,working with relevant international stakeholders is pertinent not only to supportingadoption and application, but to the overall success of the initiative.
16.As a standard setter, we would particularly highlight the close relationships betweenthe IASB and jurisdictional and regional standard setters as a model that should beconsidered for the SSB. Standard setters like the HKICPA work with the IASBdirectly as well as through regional and international groups and forums to supportthe financial reporting standard setting process.
17.We recommend the IFRS Foundation consider formally replicating or expanding onthese relationships, groups, forums and consultation channels with respect to a newSSB.Question 5 – Building on and working with existing initiativesQuestion 6 – Building on and working with existing jurisdictional initiativesStakeholders’ views
18.The majority of our stakeholders commented that a new SSB should leverage offexisting initiatives.
19.We noted the following additional comments from stakeholders:
a.The SSB should collaborate with other existing initiatives to achieveconsistency and reduce complexity in reporting.b.There is a great deal of concepts in existence, but there is a lack of linkageand consistency amongst them. As such, a key point missing from existingsustainability reporting is consistency in reporting and the ability for users tocompare entities. The stakeholder suggested the IFRS Foundation can addvalue by providing a standardised way in which to structure reports, as well asto disclose and measure various sustainability items. Another stakeholdershared similar comments, and that there is a need for a body with sufficientauthority to combine the large amount of existing content in a harmonised way.c.Preliminary work may be required to take stock of the existing sustainabilityreporting landscape. Interaction with existing initiatives should be clarified withan aim of eliminating duplication where possible, and avoiding the SSBcontributing to an increase in complexity and fragmentation.d.The IFRS Foundation may need to consider if a different framework and dueprocess would need to be applied in adopting and building off existingPage 5 of 10sustainability standards, in comparison to developing new standards.e.One stakeholder commented that existing initiatives would not necessarilyneed to be consolidated. Instead, the setting of sustainability standards couldbe done in a manner similar to the global convergence of financial reportingstandards. Jurisdictions could then still retain flexibility to allow the use of ‘local’standards.f.In contrast to point (e), another stakeholder noted that the benefit ofestablishing the SSB as a global standard setter may be undermined if otheroverlapping or duplicate initiatives continue to exist after the establishment ofthe SSB.g.One stakeholder suggested that firstly a common set of principles should beestablished for defining the content and quality of reporting. Then, SSBstandards should be based on the work of Integrated Reporting (IR), theGlobal Reporting Initiative (GRI) and the Task Force on Climate-relatedFinancial Disclosures (TCFD) as the starting point.•IR is recommended given the overall framework it provides, itsfundamental concepts of value creation and types of capital, and itsguiding principles.•GRI is recommended because: (1) it has a flexible, principle-basedapproach that already allows for a number of levels of adoption, (2) GRI’ssystem of allowing format flexibility while requiring a ‘GRI Index’ to enableusers to find data is user friendly, and (3) it is used by the largest numberof entities.•TCFD is recommended as it provides a structure for assessing, managingand reporting on climate change risks. Its approach to covering longer-term issues is important and gathering support.h.A multilingual taxonomy should be established for sustainability reporting.HKICPA analysis and recommendation
20.We fully agree with the view of our stakeholders that the SSB should leverage offexisting initiatives. There is a significant amount of existing momentum andexpertise, and the IFRS Foundation should build on and consolidate theseinitiatives to leverage off the significant work already performed and to avoidduplication of effort. This is particularly key given the urgent need for the IFRSFoundation to move forward quickly with this initiative. In this respect, existingrecognised issuers of sustainability reporting recommendations and guidelinesshould be seen as important stakeholders.
21.In particular, we think that the SSB may consider performing a broad survey ofexisting initiatives (in which it could benefit from the IFRS Foundation’s existingrelationships) to take stock of the current reporting landscape.
22.As part of this, we believe that the SSB should endeavour to understand theobjectives of other initiatives in order to develop a holistic view of the reportingneeds by different stakeholders across different jurisdictions and industries, e.g.why were the different initiatives established in the first place? What gaps in thethen extant literature were they trying to fill? Then, through a due process ofconsultation, the SSB may determine how best to build on the existing work.
23.We think that the SSB’s sustainability standards should be principles-based.Overall, we recommend the SSB start by developing a conceptual framework withdefined principles for sustainability reporting based on the existing body of work,upon which detailed standards could be built in a harmonious and consistentmanner.Page 6 of 10
24.We suggest that the IFRS Foundation make reference to its history in establishinga global set of financial reporting standards for insight as to how it has benefitedfrom interaction with other jurisdictions and initiatives. We would also recommendthat the IFRS Foundation carefully consider its due process for building on otherwork so as to ensure that there is an appropriate level of exposure and consultation,and ensure that express effort is made to consider and incorporate geographicallydiverse jurisdictions and initiatives.
25.We also suggest that it is preferable for a global set of sustainability reportingstandards to be, as best as possible, comprehensive and self-contained (i.e.capable of being referenced in a consolidated SSB-issued format rather thanrequiring reference to other non-SSB sources). Any adopted resources should beincorporated under SSB copyright rather than left outside the SSB’s official remit.
26.There are various jurisdictional initiatives ongoing in Hong Kong. We wouldhighlight the following:
a.Since 2016, Hong Kong Exchanges and Clearing has required listedcompanies to issue an ESG report in accordance with its ESG ReportingGuide.b.In May 2020, a number of Hong Kong market authorities including the HongKong Monetary Authority and Securities and Futures Commissionestablished the Green and Sustainable Finance Cross-Agency SteeringGroup to co-ordinate the management of climate risks, and supportsustainable finance and Hong Kong’s climate strategies.c.In October 2020, the Securities and Futures Commission launched aconsultation on proposed requirements for fund managers to take climate-related risks into consideration in their investment and risk managementprocesses and make appropriate disclosures.d.In November 2020, the Council for Sustainable Development finalised itsreport on Hong Kong's long-term decarbonisation strategy with the view thatHong Kong should advance to net zero carbon emissions by 2050.Question 7 – Initially developing climate-related financial disclosuresQuestion 8 – Definition of climate-related risksStakeholders’ views
27.The majority of our stakeholders agreed with initially prioritising climate-relatedfinancial disclosures given the SSB’s limited time and resources, but also noted thatsustainability is a broad concept and there are other areas of sustainability reportingthat the SSB should ultimately expand into.
28.We noted the following additional comments from stakeholders:
a.The SSB should have a focused definition of climate-related risks given thereare different understandings in the market of what the scope of climate-relatedrisks encompasses.b.The SSB should use the work of the TCFD as a starting point.c.While priority may be given to climate risks given the urgent needs in this area,the SSB should consider expanding firstly into broader global environmentalareas, and then into local social and governance issues. A clear timeline,framework and roadmap should be established on how to achieve this gradualexpansion into broader ESG topics.d.As part of the expansion plan, given there are many different types ofPage 7 of 10sustainability, ESG and non-financial information in the market, it will be vitalfor the SSB to clearly define its scope of work and remit upfront. This could befacilitated with a clear and consistent glossary for usage of terms.e.The SSB’s work should facilitate reporting that adequately covers specialinterest issues (e.g. concerns raised by relevant international organisations onworking conditions or biodiversity).HKICPA analysis and recommendation
29.We agree with the view that the SSB should initially prioritise climate-relatedfinancial disclosures, and note that climate-related risks require the urgent attentionof the accounting profession. We also note and agree with our stakeholdercomments that sustainability is a broad topic, and that the ultimate objective of aglobal set of sustainability reporting standards should be to capture broader aspectsof sustainability.
30.This is again an area where we think the IFRS Foundation needs to work quickly toestablish itself. If a climate-first approach is taken, the SSB should have a clear andtimely path forward to address overall sustainability reporting needs, and avoidfurther ongoing fragmentation in the market as other actors continue to work toaddress unanswered sustainability reporting issues.
31.With this in mind, we suggest that IFRS Foundation should carefully consider theSSB’s work plan and resources to strike an appropriate balance between anultimate goal of broader sustainability reporting standards, and its ability to addressthe urgent reporting needs around climate-related risks successfully.
32.In this area in particular, we think that the SSB would be well served to utiliseexisting initiatives to help guide the determination of its initial scope of work. Weagree with our stakeholder comment that the work of the TCFD should bereferenced as a starting point.Question 9 – Approach to materialityStakeholders’ views
33.Our stakeholders expressed mixed views on the approach to materiality. Themajority of our stakeholders commented that material issues should be those thatimpact the value of an entity. Many of our stakeholders further commented that thevalue of an entity, and the ability of an entity to create value, can be impacted bybroader issues that may not be conceived under a traditional financial (inward)
materiality approach. As such, issues that impact the financial returns of an entitymay arise under both financial (inward) and double (inward and outward) materiality.These stakeholders would hence prefer a broader materiality approach that isfocussed on enterprise value creation. If that cannot be achieved initially in a timelymanner, it should be the ultimate objective.
34.We noted the following additional comments from stakeholders:
a.A few stakeholders suggested that the SSB should focus on a financialmateriality approach.•This would be consistent with the materiality concept under InternationalFinancial Reporting Standards in terms of which non-material financialinformation need not be disclosed in the financial statements.•One stakeholder noted that the IFRS Foundation’s primary stakeholdersPage 8 of 10have historically been users of financial information, and the IFRSFoundation’s strength lies with users of information for capital allocationdecisions. As such, the IFRS Foundation should focus on sustainabilityinformation that is directly relevant to financial decision making.•Nevertheless, one proponent of this approach suggested that it should bemade clear upfront that financial materiality is only one aspect of thebroader materiality concept in sustainability reporting and that the SSBshould set a timeline for broadening the scope of materiality in the future.b.Other stakeholders preferred an approach based on enterprise value creation.One of these stakeholders commented that there are certain items (e.g. certainenvironmental information) that may not meet the threshold of financialmateriality at a given reporting date, but that which may become moreimpactful as circumstances change over time. There are also environmentaland social issues that may materially impact the ability of an entity to createvalue, and hence the value of the entity over time. The first version of theSSB’s sustainability reporting standards should explicitly address this.c.Another stakeholder commented that the objective of sustainability reportingshould be to support capital allocation decisions. As such, the informationreported should be precise and directly related to whether the value of an entityis impacted (i.e., an approach focusing on enterprise value creation).d.One stakeholder suggested that a potential way forward would be to requiretwo reports, one ‘strategic report’ based on financial materiality, and thenanother ‘sustainability report’ based on a broader concept of materiality. Agood approach for the strategic report would be to take the InternationalIntegrated Reporting Council’s (now Value Reporting Foundation’s) frameworkas a basis, and then for the sustainability report to use GRI’s work as a basis.HKICPA analysis and recommendation
35.We generally agree with our stakeholders who take the view that a broaderdefinition of materiality focusing on enterprise value creation should be the ultimategoal for the SSB. We do however recognise that it may be reasonable to start withthe proposed approach focusing on financial materiality, particularly inconsideration of the need to proceed quickly. We think that if the IFRS Foundationpursues an approach based on financial materiality, it should note that such anapproach is preliminary, and that the longer-term objective of the SSB is to exploreand branch into broader materiality concepts.
36.At the moment it is not clear how the SSB would define a broader materialityconcept and how its threshold should be established. We would recommend thatthe SSB define with sufficient specificity and examples the materiality concept thatit has in mind.
37.Regardless of the approach taken, we would suggest that entities be required todisclose their policies and judgements made in determining materiality in this area.Question 10 – AuditabilityStakeholders’ views
38.One stakeholder commented that sustainability information should be auditable andsubject to external assurance, and that public accountability should be held at ahigh level. To achieve this, the information should be subject to audit using existingauditing frameworks.Page 9 of 10
39.Another stakeholder suggested that the standards should facilitate multipleassurance options in a way that provides recognition for more robust options.
40.Yet another stakeholder noted assurance on sustainability information might bemore challenging with respect to certain forward-looking or qualitative disclosures.HKICPA analysis and recommendation
41.We think that sustainability information should ultimately be auditable and capableof being subject to external assurance. We suggest that the IFRS Foundationleverage its relationships with the IAASB and audit profession to develop this goingforward.
42.In Hong Kong, listed companies are encouraged by the HKEX’s ESG ReportingGuide to seek independent assurance to strengthen the credibility of ESGinformation disclosed. Where independent assurance is obtained, the entity shoulddescribe the level, scope and processes adopted for the assurance given. InDecember 2020, the HKICPA published Technical Bulletin AATB 5 Environmental,Social and Governance (ESG) Assurance Reporting to provide practical non-authoritative guidance intended to assist practitioners in performing assuranceengagements on ESG information. AATB 5 is adapted from the IAASB’s ProposedGuidance: Extended External Reporting (EER) Assurance, and tailored withreference to the ESG reporting circumstances in Hong Kong. The basis of thereporting framework for AATB 5 is HKSAE 3000 (Revised), AssuranceEngagements Other than Audits or Reviews of Historical Financial Information,which is converged with ISAE 3000 (Revised).Question 11 – Other commentsStakeholders’ comments
43.We noted the following additional comments from stakeholders:
a.The SSB’s sustainability reporting standards should be designed taking intoaccount the differing levels of sophistication among entities. As such, therecould be basic layers of standards applicable to small and medium sizedentities, and more advanced layers applicable to larger entities. It would bedesirable to have principles in place to facilitate entities to move from morebasic layers to more advanced layers.b.The CP has not yet proposed much in the way of an overall framework. Thisstakeholder noted that there is a need for such a framework with agreedprinciples in key areas such as double materiality, completeness, andstakeholder inclusiveness.c.It would be beneficial if the SSB’s proposals are sufficiently advanced beforethe 2021 United Nations Climate Change Conference in November 2021, withthe goal of looking to receiving adoption support from that conference.d.There is currently a lack of sufficiently detailed climate scenarios formeaningful reporting. As such, it is important that the SSB provide, orotherwise support arranging, for high quality potential future climate changescenarios to be published and widely available. This will be important to helpsupport comparability.•It should however also be noted that entities may have overall legalconcerns about reporting forward-looking information and predictions. Aninstance where this concern arises is in the event that entities discloseforward-looking information that affects their share price, and thatprediction ultimately does not unfold, then they may be subject to legalPage 10 of 10action by shareholders. As such, it would be recommended that the SSBwork with appropriate parties to mitigate this concern; for example, byhelping to foster ‘safe harbour’ provisions that limit the liability of entitiesreporting information under such scenarios.e.There is a strong need for industry-specific standards in sustainability reporting.GRI Standards and other investor institutions already reflect this.f.The SSB should also consider whether, in addition to standard setting, it canprovide accreditation/certification and training. A globally recognisedaccreditation programme would in particular help to support consistency inapplication and the provision of assurance services.g.The term “sustainability” should be clarified. In particular, it is unclear whetherthe term “sustainability” as compared with the concept of “ESG” issynonymous, or whether “sustainability” is a narrower topic.h.The SSB should consider whether industry-specific guidance is needed, andwhether sustainability standards should be rules-based or principles-based.HKICPA comments
44.We think that the interaction between sustainability reporting and financial reporting,and hence the SSB and the IASB, would need to be carefully considered. So longas an SSB and the IASB exist as distinct entities under the IFRS Foundation, thereshould be formal procedures in place to enable each board to leverage off theother’s expertise in a due process-compliant manner. In addition, considerationshould be given to scope and to the question of how issues will be resolved in caseswhere there is scope-creep or overlap between financial reporting and sustainabilityreporting. Clarifying this interaction will furthermore be of benefit going forward asconsiderations arise around more broadly integrated reporting.~ End ~
IFRS Foundation Trustees' Consultation Paper on Sustainability Reporting
下载原件Page 1 of 10Our Ref.: C/FRSCSent electronically through the IFRS Foundation Website (www.ifrs.org)
30 December 2020Mr Erkki LiikanenIFRS FoundationColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Mr. Liikanen,IFRS Foundation Trustees' Consultation Paper on Sustainability ReportingThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants, in Hong Kong. We are grateful for theopportunity to provide you with our views on the Consultation Paper on SustainabilityReporting (CP).The HKICPA considers that sustainability reporting is an area of increasingly urgentimportance both in Hong Kong and internationally. There are additionally varioussustainability initiatives already in place in Hong Kong. We hence greatly appreciate theinitiative of the Trustees of the IFRS Foundation to begin consultation in this area.We agree that there is an urgent need for a global set of sustainability reportingstandards, and that the IFRS Foundation is well positioned to be involved with settingthese standards. We furthermore agree that the development of a sustainabilitystandards board under the structure of the IFRS Foundation is an appropriate approach,with acknowledgement that there are requirements for success.We consider that it is important that the IFRS Foundation proceed rapidly with thisinitiative given the international demand. We recommend that the IFRS Foundationleverage on the expertise of existing initiatives to ensure that this urgent need isaddressed.Our detailed comments are provided in the Appendix.If you have any questions regarding the matters raised in this letter, please contact me,Cecilia Kwei, Director (ceciliakwei@hkicpa.org.hk) or Tiernan Ketchum, Deputy Director(tiernanketchum@hkicpa.org.hk) of the Standard Setting Department.Sincerely,Chris JoyExecutive Director, Standards and RegulationPage 2 of 10Work undertaken by HKICPA in forming its viewsThe Hong Kong Institute of Certified Public Accountants:
(i)
issued an Invitation to Comment on DP/2020/1 on 7 October 2020 to its membersand other stakeholders;
(ii)
sought input from its Sustainability Committee, which is comprised of a diverseselection of senior-level sustainability experts; and(iii)
developed its views through its Financial Reporting Standards Committee. TheCommittee comprises academics, preparer representatives from various industrysectors, regulators, as well as technical and industry experts from small, mediumand large accounting firms.This submission outlines the HKICPA's views and summarises our stakeholders'comments on the CP. You may access our stakeholder responses here:
https://www.hkicpa.org.hk/en/Standards-and-regulation/Standards/Our-views/pcd/financial-reporting-submissions/2020Detailed comments on the CPQuestion 1 – Need for a global set of sustainability reporting standardsStakeholders’ views
1.The vast majority of our stakeholders agreed that there is a need for a global set ofinternationally recognised sustainability reporting standards. The majority of ourstakeholders also agreed that the IFRS Foundation should play a role in settingthose standards.HKICPA analysis and recommendation
2.We agree with our stakeholders that there is a need for global sustainabilityreporting standards. We also consider that it is apparent, as is noted in the CP, thatglobal calls for sustainability reporting and global initiatives related to sustainabilityare growing in prominence.
3.We also agree that the IFRS Foundation should play a role in setting thesestandards. As noted further in our response to Question 2, we think that the IFRSFoundation is well suited to this role given its existing structure, processes andexperience with setting global financial reporting standards.Question 2 – Development of a sustainability standards boardStakeholders’ views
4.The majority of our stakeholders welcomed the development of a sustainabilitystandards board (SSB) under the governance structure of the IFRS Foundation.
5.One of our stakeholders commented that the SSB could build on the IFRSFoundation’s existing experience in international standard-setting, as well as itswell-established and supported processes and governance structure. Anotherstakeholder similarly suggested that there is no need to ‘reinvent the wheel’, as theIFRS Foundation already has an established structure, processes and track record.
6.Another stakeholder noted the ongoing efforts of other bodies in this area, andindicated that they would remain open-minded as to which framework ofsustainability reporting standards will ultimately come to be internationally dominant.AppendixPage 3 of 10HKICPA analysis and recommendation
7.We agree with our stakeholders that a new SSB within the structure of the IFRSFoundation would be an appropriate way forward. We think that the IFRSFoundation offers a robust governance structure with requisite processes, standardsetting experience, and key formal and informal relationships. We are neverthelesscognizant that there will be challenges to achieve success in establishing a globallyadopted set of sustainability standards, as we note further in Question 3.Question 3 – Requirements for successStakeholders’ views
8.We noted the following comments from stakeholders:
a.The SSB would need to integrate persons and organisations with appropriateknowledge of environmental and social issues into the standard settingprocess.b.The SSB’s structure must provide a robust way of developing reports thatfacilitates making investment decisions that lead toward sustainability goals(e.g. capital allocation must be consistent with the Paris Agreement’sobjectives).c.There is some lack of clarity as to how “success” is measured, specifically whatis the nature and extent of support that is required from key stakeholders, andhow the IFRS Foundation would respond if certain institutions challenged theSSB initiative.HKICPA analysis and recommendation
9.We observe that there is increasing and pressing international demand for high-quality, global and comparable sustainability reporting standards. Additionally,there are a number of significant initiatives being undertaken by other actors.Overall, it is hence of utmost importance that the IFRS Foundation work quickly toaddress this urgent demand.
10.In addition to our stakeholder’s comments above, we consider that the CP identifiesa number of relevant hurdles to success. At a high level, we consider that one ofthe most important issues will be ensuring the support of public and capital marketauthorities to promote adoption. The IFRS Foundation may consider the processby which global financial reporting convergence was achieved in this respect. At amore fundamental level, we think that resourcing and talent sourcing will be a keyissue. Consideration should be given to how the SSB can ensure that it will be ableto attract and retain high-quality, technical, sustainability reporting experts.
11.Noting that the SSB will aim to establish a global set of sustainability reportingstandards, it will be important for the SSB to set up appropriate groups andchannels to foster international collaboration and connection to relevant expertsand bodies. We discuss this further in Question 5 and 6.
12.We also think that diversity should be a key consideration in establishing the SSB,both with regard to the geographical representation of its board and staff, and withregard to its work with other initiatives and jurisdictions.Question 4 – Relationships with stakeholders to aid adoption and applicationPage 4 of 10Stakeholders’ views
13.Our stakeholders generally noted that the IFRS Foundation would be well placedto leverage its relationships with stakeholders to aid global adoption and application.
14.A couple of stakeholders commented that the IFRS Foundation could follow asimilar approach as to what was used in achieving global financial reportingstandards convergence.HKICPA analysis and recommendation
15.We think that one of the key strengths that the IFRS Foundation has in approachingsustainability reporting is its relationship with various stakeholders, including publicauthorities, policymakers and standard setters. Similar to what was required for theglobal convergence of financial reporting standards, we think that establishing a setof global sustainability reporting standards will require international buy-in. As such,working with relevant international stakeholders is pertinent not only to supportingadoption and application, but to the overall success of the initiative.
16.As a standard setter, we would particularly highlight the close relationships betweenthe IASB and jurisdictional and regional standard setters as a model that should beconsidered for the SSB. Standard setters like the HKICPA work with the IASBdirectly as well as through regional and international groups and forums to supportthe financial reporting standard setting process.
17.We recommend the IFRS Foundation consider formally replicating or expanding onthese relationships, groups, forums and consultation channels with respect to a newSSB.Question 5 – Building on and working with existing initiativesQuestion 6 – Building on and working with existing jurisdictional initiativesStakeholders’ views
18.The majority of our stakeholders commented that a new SSB should leverage offexisting initiatives.
19.We noted the following additional comments from stakeholders:
a.The SSB should collaborate with other existing initiatives to achieveconsistency and reduce complexity in reporting.b.There is a great deal of concepts in existence, but there is a lack of linkageand consistency amongst them. As such, a key point missing from existingsustainability reporting is consistency in reporting and the ability for users tocompare entities. The stakeholder suggested the IFRS Foundation can addvalue by providing a standardised way in which to structure reports, as well asto disclose and measure various sustainability items. Another stakeholdershared similar comments, and that there is a need for a body with sufficientauthority to combine the large amount of existing content in a harmonised way.c.Preliminary work may be required to take stock of the existing sustainabilityreporting landscape. Interaction with existing initiatives should be clarified withan aim of eliminating duplication where possible, and avoiding the SSBcontributing to an increase in complexity and fragmentation.d.The IFRS Foundation may need to consider if a different framework and dueprocess would need to be applied in adopting and building off existingPage 5 of 10sustainability standards, in comparison to developing new standards.e.One stakeholder commented that existing initiatives would not necessarilyneed to be consolidated. Instead, the setting of sustainability standards couldbe done in a manner similar to the global convergence of financial reportingstandards. Jurisdictions could then still retain flexibility to allow the use of ‘local’standards.f.In contrast to point (e), another stakeholder noted that the benefit ofestablishing the SSB as a global standard setter may be undermined if otheroverlapping or duplicate initiatives continue to exist after the establishment ofthe SSB.g.One stakeholder suggested that firstly a common set of principles should beestablished for defining the content and quality of reporting. Then, SSBstandards should be based on the work of Integrated Reporting (IR), theGlobal Reporting Initiative (GRI) and the Task Force on Climate-relatedFinancial Disclosures (TCFD) as the starting point.•IR is recommended given the overall framework it provides, itsfundamental concepts of value creation and types of capital, and itsguiding principles.•GRI is recommended because: (1) it has a flexible, principle-basedapproach that already allows for a number of levels of adoption, (2) GRI’ssystem of allowing format flexibility while requiring a ‘GRI Index’ to enableusers to find data is user friendly, and (3) it is used by the largest numberof entities.•TCFD is recommended as it provides a structure for assessing, managingand reporting on climate change risks. Its approach to covering longer-term issues is important and gathering support.h.A multilingual taxonomy should be established for sustainability reporting.HKICPA analysis and recommendation
20.We fully agree with the view of our stakeholders that the SSB should leverage offexisting initiatives. There is a significant amount of existing momentum andexpertise, and the IFRS Foundation should build on and consolidate theseinitiatives to leverage off the significant work already performed and to avoidduplication of effort. This is particularly key given the urgent need for the IFRSFoundation to move forward quickly with this initiative. In this respect, existingrecognised issuers of sustainability reporting recommendations and guidelinesshould be seen as important stakeholders.
21.In particular, we think that the SSB may consider performing a broad survey ofexisting initiatives (in which it could benefit from the IFRS Foundation’s existingrelationships) to take stock of the current reporting landscape.
22.As part of this, we believe that the SSB should endeavour to understand theobjectives of other initiatives in order to develop a holistic view of the reportingneeds by different stakeholders across different jurisdictions and industries, e.g.why were the different initiatives established in the first place? What gaps in thethen extant literature were they trying to fill? Then, through a due process ofconsultation, the SSB may determine how best to build on the existing work.
23.We think that the SSB’s sustainability standards should be principles-based.Overall, we recommend the SSB start by developing a conceptual framework withdefined principles for sustainability reporting based on the existing body of work,upon which detailed standards could be built in a harmonious and consistentmanner.Page 6 of 10
24.We suggest that the IFRS Foundation make reference to its history in establishinga global set of financial reporting standards for insight as to how it has benefitedfrom interaction with other jurisdictions and initiatives. We would also recommendthat the IFRS Foundation carefully consider its due process for building on otherwork so as to ensure that there is an appropriate level of exposure and consultation,and ensure that express effort is made to consider and incorporate geographicallydiverse jurisdictions and initiatives.
25.We also suggest that it is preferable for a global set of sustainability reportingstandards to be, as best as possible, comprehensive and self-contained (i.e.capable of being referenced in a consolidated SSB-issued format rather thanrequiring reference to other non-SSB sources). Any adopted resources should beincorporated under SSB copyright rather than left outside the SSB’s official remit.
26.There are various jurisdictional initiatives ongoing in Hong Kong. We wouldhighlight the following:
a.Since 2016, Hong Kong Exchanges and Clearing has required listedcompanies to issue an ESG report in accordance with its ESG ReportingGuide.b.In May 2020, a number of Hong Kong market authorities including the HongKong Monetary Authority and Securities and Futures Commissionestablished the Green and Sustainable Finance Cross-Agency SteeringGroup to co-ordinate the management of climate risks, and supportsustainable finance and Hong Kong’s climate strategies.c.In October 2020, the Securities and Futures Commission launched aconsultation on proposed requirements for fund managers to take climate-related risks into consideration in their investment and risk managementprocesses and make appropriate disclosures.d.In November 2020, the Council for Sustainable Development finalised itsreport on Hong Kong's long-term decarbonisation strategy with the view thatHong Kong should advance to net zero carbon emissions by 2050.Question 7 – Initially developing climate-related financial disclosuresQuestion 8 – Definition of climate-related risksStakeholders’ views
27.The majority of our stakeholders agreed with initially prioritising climate-relatedfinancial disclosures given the SSB’s limited time and resources, but also noted thatsustainability is a broad concept and there are other areas of sustainability reportingthat the SSB should ultimately expand into.
28.We noted the following additional comments from stakeholders:
a.The SSB should have a focused definition of climate-related risks given thereare different understandings in the market of what the scope of climate-relatedrisks encompasses.b.The SSB should use the work of the TCFD as a starting point.c.While priority may be given to climate risks given the urgent needs in this area,the SSB should consider expanding firstly into broader global environmentalareas, and then into local social and governance issues. A clear timeline,framework and roadmap should be established on how to achieve this gradualexpansion into broader ESG topics.d.As part of the expansion plan, given there are many different types ofPage 7 of 10sustainability, ESG and non-financial information in the market, it will be vitalfor the SSB to clearly define its scope of work and remit upfront. This could befacilitated with a clear and consistent glossary for usage of terms.e.The SSB’s work should facilitate reporting that adequately covers specialinterest issues (e.g. concerns raised by relevant international organisations onworking conditions or biodiversity).HKICPA analysis and recommendation
29.We agree with the view that the SSB should initially prioritise climate-relatedfinancial disclosures, and note that climate-related risks require the urgent attentionof the accounting profession. We also note and agree with our stakeholdercomments that sustainability is a broad topic, and that the ultimate objective of aglobal set of sustainability reporting standards should be to capture broader aspectsof sustainability.
30.This is again an area where we think the IFRS Foundation needs to work quickly toestablish itself. If a climate-first approach is taken, the SSB should have a clear andtimely path forward to address overall sustainability reporting needs, and avoidfurther ongoing fragmentation in the market as other actors continue to work toaddress unanswered sustainability reporting issues.
31.With this in mind, we suggest that IFRS Foundation should carefully consider theSSB’s work plan and resources to strike an appropriate balance between anultimate goal of broader sustainability reporting standards, and its ability to addressthe urgent reporting needs around climate-related risks successfully.
32.In this area in particular, we think that the SSB would be well served to utiliseexisting initiatives to help guide the determination of its initial scope of work. Weagree with our stakeholder comment that the work of the TCFD should bereferenced as a starting point.Question 9 – Approach to materialityStakeholders’ views
33.Our stakeholders expressed mixed views on the approach to materiality. Themajority of our stakeholders commented that material issues should be those thatimpact the value of an entity. Many of our stakeholders further commented that thevalue of an entity, and the ability of an entity to create value, can be impacted bybroader issues that may not be conceived under a traditional financial (inward)
materiality approach. As such, issues that impact the financial returns of an entitymay arise under both financial (inward) and double (inward and outward) materiality.These stakeholders would hence prefer a broader materiality approach that isfocussed on enterprise value creation. If that cannot be achieved initially in a timelymanner, it should be the ultimate objective.
34.We noted the following additional comments from stakeholders:
a.A few stakeholders suggested that the SSB should focus on a financialmateriality approach.•This would be consistent with the materiality concept under InternationalFinancial Reporting Standards in terms of which non-material financialinformation need not be disclosed in the financial statements.•One stakeholder noted that the IFRS Foundation’s primary stakeholdersPage 8 of 10have historically been users of financial information, and the IFRSFoundation’s strength lies with users of information for capital allocationdecisions. As such, the IFRS Foundation should focus on sustainabilityinformation that is directly relevant to financial decision making.•Nevertheless, one proponent of this approach suggested that it should bemade clear upfront that financial materiality is only one aspect of thebroader materiality concept in sustainability reporting and that the SSBshould set a timeline for broadening the scope of materiality in the future.b.Other stakeholders preferred an approach based on enterprise value creation.One of these stakeholders commented that there are certain items (e.g. certainenvironmental information) that may not meet the threshold of financialmateriality at a given reporting date, but that which may become moreimpactful as circumstances change over time. There are also environmentaland social issues that may materially impact the ability of an entity to createvalue, and hence the value of the entity over time. The first version of theSSB’s sustainability reporting standards should explicitly address this.c.Another stakeholder commented that the objective of sustainability reportingshould be to support capital allocation decisions. As such, the informationreported should be precise and directly related to whether the value of an entityis impacted (i.e., an approach focusing on enterprise value creation).d.One stakeholder suggested that a potential way forward would be to requiretwo reports, one ‘strategic report’ based on financial materiality, and thenanother ‘sustainability report’ based on a broader concept of materiality. Agood approach for the strategic report would be to take the InternationalIntegrated Reporting Council’s (now Value Reporting Foundation’s) frameworkas a basis, and then for the sustainability report to use GRI’s work as a basis.HKICPA analysis and recommendation
35.We generally agree with our stakeholders who take the view that a broaderdefinition of materiality focusing on enterprise value creation should be the ultimategoal for the SSB. We do however recognise that it may be reasonable to start withthe proposed approach focusing on financial materiality, particularly inconsideration of the need to proceed quickly. We think that if the IFRS Foundationpursues an approach based on financial materiality, it should note that such anapproach is preliminary, and that the longer-term objective of the SSB is to exploreand branch into broader materiality concepts.
36.At the moment it is not clear how the SSB would define a broader materialityconcept and how its threshold should be established. We would recommend thatthe SSB define with sufficient specificity and examples the materiality concept thatit has in mind.
37.Regardless of the approach taken, we would suggest that entities be required todisclose their policies and judgements made in determining materiality in this area.Question 10 – AuditabilityStakeholders’ views
38.One stakeholder commented that sustainability information should be auditable andsubject to external assurance, and that public accountability should be held at ahigh level. To achieve this, the information should be subject to audit using existingauditing frameworks.Page 9 of 10
39.Another stakeholder suggested that the standards should facilitate multipleassurance options in a way that provides recognition for more robust options.
40.Yet another stakeholder noted assurance on sustainability information might bemore challenging with respect to certain forward-looking or qualitative disclosures.HKICPA analysis and recommendation
41.We think that sustainability information should ultimately be auditable and capableof being subject to external assurance. We suggest that the IFRS Foundationleverage its relationships with the IAASB and audit profession to develop this goingforward.
42.In Hong Kong, listed companies are encouraged by the HKEX’s ESG ReportingGuide to seek independent assurance to strengthen the credibility of ESGinformation disclosed. Where independent assurance is obtained, the entity shoulddescribe the level, scope and processes adopted for the assurance given. InDecember 2020, the HKICPA published Technical Bulletin AATB 5 Environmental,Social and Governance (ESG) Assurance Reporting to provide practical non-authoritative guidance intended to assist practitioners in performing assuranceengagements on ESG information. AATB 5 is adapted from the IAASB’s ProposedGuidance: Extended External Reporting (EER) Assurance, and tailored withreference to the ESG reporting circumstances in Hong Kong. The basis of thereporting framework for AATB 5 is HKSAE 3000 (Revised), AssuranceEngagements Other than Audits or Reviews of Historical Financial Information,which is converged with ISAE 3000 (Revised).Question 11 – Other commentsStakeholders’ comments
43.We noted the following additional comments from stakeholders:
a.The SSB’s sustainability reporting standards should be designed taking intoaccount the differing levels of sophistication among entities. As such, therecould be basic layers of standards applicable to small and medium sizedentities, and more advanced layers applicable to larger entities. It would bedesirable to have principles in place to facilitate entities to move from morebasic layers to more advanced layers.b.The CP has not yet proposed much in the way of an overall framework. Thisstakeholder noted that there is a need for such a framework with agreedprinciples in key areas such as double materiality, completeness, andstakeholder inclusiveness.c.It would be beneficial if the SSB’s proposals are sufficiently advanced beforethe 2021 United Nations Climate Change Conference in November 2021, withthe goal of looking to receiving adoption support from that conference.d.There is currently a lack of sufficiently detailed climate scenarios formeaningful reporting. As such, it is important that the SSB provide, orotherwise support arranging, for high quality potential future climate changescenarios to be published and widely available. This will be important to helpsupport comparability.•It should however also be noted that entities may have overall legalconcerns about reporting forward-looking information and predictions. Aninstance where this concern arises is in the event that entities discloseforward-looking information that affects their share price, and thatprediction ultimately does not unfold, then they may be subject to legalPage 10 of 10action by shareholders. As such, it would be recommended that the SSBwork with appropriate parties to mitigate this concern; for example, byhelping to foster ‘safe harbour’ provisions that limit the liability of entitiesreporting information under such scenarios.e.There is a strong need for industry-specific standards in sustainability reporting.GRI Standards and other investor institutions already reflect this.f.The SSB should also consider whether, in addition to standard setting, it canprovide accreditation/certification and training. A globally recognisedaccreditation programme would in particular help to support consistency inapplication and the provision of assurance services.g.The term “sustainability” should be clarified. In particular, it is unclear whetherthe term “sustainability” as compared with the concept of “ESG” issynonymous, or whether “sustainability” is a narrower topic.h.The SSB should consider whether industry-specific guidance is needed, andwhether sustainability standards should be rules-based or principles-based.HKICPA comments
44.We think that the interaction between sustainability reporting and financial reporting,and hence the SSB and the IASB, would need to be carefully considered. So longas an SSB and the IASB exist as distinct entities under the IFRS Foundation, thereshould be formal procedures in place to enable each board to leverage off theother’s expertise in a due process-compliant manner. In addition, considerationshould be given to scope and to the question of how issues will be resolved in caseswhere there is scope-creep or overlap between financial reporting and sustainabilityreporting. Clarifying this interaction will furthermore be of benefit going forward asconsiderations arise around more broadly integrated reporting.~ End ~