Global investor responses to the International Sustainability Standards Board draft sustainability and climate-change standards: sites of dissonance or consensus Free

This research examines global investor responses to the draft standards, International Financial Reporting Standards S1 (IFRS) (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) issued by the International Sustainability Standards Board (ISSB) in March 2022, and the subsequent ISSB summary stakeholder feedback in September 2022. Investor responses were derived from comment letters following the consultation period that ended in July 2022. This comparative analysis enables the research to identify core areas of consensus and dissonance between the draft standards and investors as a primary user group.

In issuing the draft standards [¹], IFRS S1 (IFRS Foundation, 2022a) and IFRS S2 (IFRS Foundation, 2022b), the ISSB asserted that the standards:

Further, the intention of the ISSB was to develop “a global baseline of disclosure requirements designed to give investors high quality, globally comparable sustainability information” (IFRS Foundation, 2021a) (emphasis added), which would help them make informed decisions. Hence, the views of investors should serve as a source of considerable interest to the ISSB in the development of their standards.

Comment letters, forming part of the lobbying process (Georgiou, 2004; Gipper et al., 2013; Reuter and Messner, 2015; Bamber and McMeeking, 2016) are viewed as an important means of stakeholder input into the development and legitimacy of new regulations such as accounting standards. Indeed, the IFRS Foundation (2023) explicitly recognises that:

This research is timely as it sheds further insights into a number of debates relevant to current policy and practice in relation to sustainability and climate-change reporting [³]. Indeed, Adams and Mueller (2022, p. 1328) explicitly call for research to examine the “views of corporate stakeholders, including investors concerning future sustainability reporting”. Moreover, Georgiou (2018, p. 1325) asserts that:

In total, 83 investor-related comment letters formed the corpus of this research, the analysis of which revealed the following key themes. There was a consensus of strong support for the ISSB and for the introduction of globally consistent and comparable reporting standards which, drawing on prior frameworks, promote interoperability of reporting. However, there were clear tensions regarding the basis and focus of reporting between investors and the ISSB proposals. While some respondents were happy with the IAS 1 definition of financial materiality (which ties directly into enterprise value), a sizeable group advocated double materiality and a greater alignment with the approach proposed by EFRAG (2022a). More generally, there was strong pushback regarding a lack of definitional clarity around the terms “significant” and “material”, and the lack of guidance beyond the IAS 1 definition (relevant to financial materiality). Further concerns were expressed about the apparent latitude given to preparers around what constitutes material in relation to sustainability. Similar definitional vagueness was also identified in relation to short-, medium- and long-term impact on enterprise value, again driven by financial materiality. Many investors highlighted the necessity of assurance if sustainability reporting was to be credible to them. Assurance had been included in the Consultation Paper (IFRS Foundation, 2020) [⁴] but was not explicitly referred to in either IFRS S1 or S2 or any of the related questions for discussion. Finally, there was support for the ISSB proposals for emissions reporting and specifically the reporting of Scope 3 emissions (in IFRS S2), although some investors raised concerns around its practical implementation and the credibility and comparability of disclosures.

We adopt the theoretical framing of dissonance (Stark, 2009; Berthoin Antal et al., 2015; Hutter and Stark, 2015) in our analysis of the emergent areas of tensions between the ISSB and investor opinion. Stark (2009, p. 23), in his work on sites of dissonance, highlights that dissonance occurs “as the proponents of different conceptions of value contend with each other”, which provides for empirical investigation (Hutter and Stark, 2015). Sites of dissonance have been used in prior accounting research to analyse fundamental or principled disagreement between parties reflective of values-based dissonance (Mennicken and Power, 2015), a dissonance of emphasis between parties (Georgiou, 2018) or translation/interpretative dissonance between the intentions of an author compared to users’ interpretations (Mazzi et al., 2022). We apply and extend the sites of dissonance in our analysis.

Additionally, the research provides insights into the implicit assumption that investors, as a primary user of reporting, are a homogeneous group. Notably, Adams and Mueller (2022, p. 1323) comment that the Foundation “incorrectly assumed that all investors have the same ‘perspective’on these matters or shared the perspective of the IFRS Foundation Trustees”. Abhayawansa et al. (2022) identified differences in the demand for higher frequency or real-time reporting between types of investor groups. Stratification by types of investor groups was also reported by Muniandy et al. (2016) and Sherman et al. (1998). Indeed, our findings display considerable heterogeneity across the range of investor responses pertinent to the thematic areas of analysis.

Our study makes a number of contributions. Firstly, we contribute to the comment letter literature through our analysis of investor comment letters. The prior financial reporting-based research on comment letters has been characterised by low levels of investor response and has largely been dominated by a preparer perspective (Durocher et al., 2007; Larson, 2007; Jorissen et al., 2012; Holder et al., 2013; Adhikari et al., 2014; Bamber and McMeeking, 2016; Wingard et al., 2016; Pelger and Spieß, 2017; Bhimani et al., 2019). This has largely precluded meaningful empirical analysis of investors as a primary user group. Our research directly addresses this empirical gap in the literature.

Secondly, the non-financial reporting setting for this investor-based analysis is unique to the literature. To our knowledge, the only other investor comment letter-based research on the development of reporting outside of a financial reporting context was that of Reuter and Messner (2015), who examined comment letters in relation to the International Integrated Reporting Council (IIRC) proposals. However, their analysis was necessarily restricted to preparers and auditors due to the very low level of response by investors common to that noted above. Accordingly, this research gives a unique insight into investor comments on the draft stage of standards and in a non-financial reporting context. We, therefore, make a contribution to the sustainability reporting literature by directly examining investor views on the development of reporting standards.

Thirdly, through our empirical analysis, we extend and develop sites of dissonance (Stark, 2009; Hutter and Stark, 2015; Mennicken and Power, 2015). Firstly, drawing on silence in reporting (Merkl-Davies and Brennan, 2007; Cooper and Slack, 2015; Boiral and Heras-Saizarbitoria, 2020) and distinct to values-based dissonance where opposing values are explicitly known, our comparative approach enables us to identify dissonance by omission. The ISSB raised the issue of assurance in their initial consultation, but despite demands by investors, and reflective in the ex post feedback summary, it was absent from the related discussion questions on the draft standards. Secondly, we highlight the need for upstream definitional clarity in developing standards – without this, it is likely that subsequent interpretative dissonance identified in prior financial reporting research (Mazzi et al., 2022) may emerge. While Mazzi et al. (2022) explore interpretative dissonance through the consequences of vagueness in an accounting standard (ex post), our research highlights this concern in the development of the standard itself (ex ante). Thirdly, practical dissonance is a variation of dissonance of emphasis (Georgiou, 2010) whereby, while supporting a proposal in principle, practical issues may serve to undermine its effective implementation. Finally, while values-based dissonance is well covered in the prior literature, we illustrate this in a sustainability reporting context in the principled clash between financial and double materiality.

The remainder of the paper continues as follows. Section 2 reviews the literature on comment letters as part of the lobbying process in the development of standards, and Section 3 reviews the theoretical framework of dissonance. Section 4 provides a background to the ISSB and the development of IFRS S1 and S2 with investors as a primary user group. Section 5 details the methods used in this study. Section 6 presents the findings and related analysis. Discussion and conclusions are presented in Section 7, along with the limitations of this study and areas for further research.

Comment letters are regarded by standard setters as a key input, acting as an important source of legitimacy in the standard-setting process and for the subsequent standard (Georgiou, 2004; Larson, 2007; Durocher et al., 2007; Georgiou, 2010; Durocher and Fortin, 2011; Holder et al., 2013; Anantharaman, 2015; Bamber and McMeeking, 2016; Reuter and Messner, 2015; Wingard et al., 2016; Pelger and Spieß, 2017). Pelger and Spieß (2017, p. 75), referring to the International Accounting Standards Board (IASB), comment that “consideration of users is important for the IASB’s input legitimacy, because this is the main target group of all the IASB’s endeavours” common to the proposed ISSB standards with investors as the primary user audience.

Through comment letters, stakeholder groups are enabled to express opinions and seek to exert influence over proposed regulations forming part of wider lobbying activities (Sutton, 1984; Weetman et al., 1996; Larson, 1997; Georgiou, 2004; Hochberg et al., 2009; Gipper et al., 2013; Bamber and McMeeking, 2016). Reuter and Messner (2015, p. 366) comment that “there is a general understanding that comment letters are used to try to influence the content of the standards eventually issued by the standard-setter”. More widely, standard setting is regarded as a political process (Sutton, 1984; Fogarty et al., 1994; Holder et al., 2013) between the standard-setting body and groups affected by the standard, which may have differing or conflicting views. Indeed, Orens et al. (2011) remark that comment letters can act as a mechanism to help address and alleviate potential conflicts prior to the issuance of the standard.

Empirically, prior research on comment letters considering an investor perspective has been necessarily drawn from financial reporting due to the relative lack of mandatory reporting requirements on sustainability reporting to date and the recent advent of the ISSB in 2021. Reuter and Messner (2015) is the only other research to examine investor comment letters in the non-financial reporting arena. Their study examines comment letters to the 2011 IIRC discussion paper. However, despite the orientation of IIRC and the Integrated Reporting Framework (IRF) to providers of finance (i.e. investors), they report a low level of investor response precluding any fine-grain analysis.

This low investor response is reflective of a general historic lack of investor engagement through comment letters to global standard setters. For instance, Holder et al. (2013) compared comment letter submissions to both the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) to their respective Exposure Drafts on accounting for contingencies. They report that for the FASB, 18 out of 245, and for the IASB, 7 out of 124, comment letters related to investors, with the largest groups representing preparers (42%) followed by accounting firms and professional bodies (22%). Overall, these findings of low investor engagement and the dominance of preparers are common with virtually all prior research in both a US/FASB setting (for instance, Yen et al., 2007; Hochberg et al., 2009; Adhikari et al., 2014; Anantharaman, 2015) and in an IFRS setting (Larson, 2007; Jorissen et al., 2012; Bamber and McMeeking, 2016; Wingard et al., 2016; Pelger and Spieß, 2017; Bhimani et al., 2019). Indeed, Jorissen et al. (2012, p. 720) comment on the need for IASB to “stimulate users to participate more actively” (and see Bengtsson, 2011) in reporting that only 47 out of 3,234 comment letters received over the period 2002 to 2006 were from users.

In view of this, perhaps it is not surprising that, from a user perspective, there are widespread criticisms regarding the actual role of comment letters being a rhetorical or symbolic device. For instance, Young (2003, p. 629) reflects that there is more rhetoric than substance in standard-setters’ reference to user needs such that users, despite being the primary audience of the resultant financial reporting, remain “shadowy figures within the paragraphs of financial accounting standards” (and see, Weetman, 2001; Young, 2006; Georgiou, 2010; Durocher and Fortin, 2011; Larson and Herz, 2013; Stenka and Jaworska, 2019; Stenka, 2022). Further, Georgiou (2018, p. 1297) laments that standard setters invoke “the imagined demands of an imagined user” in relation to “how accounting should be done and used, and hence what practices are to be considered valuable”.

Overall, despite the orientation of financial reporting standards towards investors and other providers of finance as primary users, the prior literature highlights a relative lack of investor input and a resultant lack of any subsequent research analysis of investor comments. In light of the current debates concerning the basis and focus of sustainability reporting (for instance, double vs single/financial materiality and enterprise value) and the significant increase in investor demand for sustainability reporting (discussed in Section 4), their notable participation in IFRS S1 and S2 directly considered in this research reflects a unique setting.

Drawing on the social sciences literature (Stark, 2009; Hutter and Stark, 2015; Mennicken and Power, 2015), we use the theoretical framing of dissonance to help explain the tensions between the standard setters’ draft standards (IFRS S1 and S2) and the views of investors. Dissonance reflects a range of coexisting logics and value frames pertinent to different criteria upon which to value the worth of something (Stark, 2009; Berthoin Antal et al., 2015). Three main forms are reflected in the prior literature, ranging from fundamental and opposing values reflecting incommensurable or antagonistic frameworks (values-based dissonance), positions of differing emphasis (dissonance of emphasis) or different interpretations of a subject matter (interpretative dissonance) as to the worth of something.

Forms of dissonance occur across a variety of “sites or moments of dispute” (Hutter and Stark, 2015, p. 10) where values or orders of worth are disputed, such as work-life balance, political viewpoints or the worth of a painting at discrete points in time. Values-based dissonance (Stark, 2009) can be commonly seen in fundamental economic or political disagreement, for instance, the commissioning of nuclear power plants. However, as Stark (2009, p. 18) recognises, such opposing but coexisting principled standpoints mean that “no standpoint can be taken for granted as the natural order of things”, as the site of dissonance persists, and the power of a party may change over time resulting in a future change of order. Dissonance of emphasis arises in sites where different ways of evaluating coexist but, unlike values-based dissonance, without being involved in a fierce contest of the order itself (Boltanski and Thévenot, 2006; Stark, 2009). It is a disagreement about what counts (Stark, 2009), for instance, the balance concerning the degree of state involvement in the promotion of economic growth. Finally, interpretative dissonance (Hutter, 2015) arises where different interpretations are evidenced between the intention of authors (the “authoring phase”) and the subsequent interpretations by users (the “reading phase”). Such dissonance may arise due to double meanings in the text (Stark, 2009) or vagueness such that the text is open to multiple interpretations by its audience, giving rise to alternative meanings.

While there are multiple forms of dissonance, as Stark (2009, p. 5) notes:

Such implied healthy debate produces organising dissonance whereby, as Clune and O’Dwyer (2020, p. 16) contend, “actors with different value frames […] stimulate productive collaborations yielding innovations altering existing institutional arrangements (Beunza and Stark, 2004; Stark, 2009)”. In contrast to organising dissonance through dialogue, Stark (2009, p. 23) warns that in sites of dissonance where “arguments displace action […] nothing is accomplished” and tension between parties persists.

Mennicken and Power (2015), on dissonance in accounting, cite Carruthers and Kim (2011, p. 253) that “we can think of accounting valuation as having a quality of plasticity […] [where] value is a contested and provisional judgment”. Indeed, Mennicken and Power (2015, p. 210) remark that accounting values and their worth are “sustained by an apparatus [i.e. the reporting environment and standards] which becomes visible in times of crisis and whose components are inherently malleable and contestable”. As such, a small number of studies in prior accounting research have used the concept of dissonance that are now discussed.

Firstly, values-based dissonance was evident in the principled clash between standard setters and preparers/users of accounting information over brand valuation on the balance sheet in the UK in the early 1990s (Mennicken and Power, 2015). The British Accounting Standards Committee fundamentally opposed brand recognition as an asset as they considered that the valuation of brands was unreliable and too subjective with no recognisable cost measurement. However, both preparers and their auditors increasingly included brands on the balance sheet in recognition of their market value. Subsequently, in direct contrast to the position of the standard setter, brand accounting and recognition “became part of a new and powerful ‘order of worth’ (Boltanski and Thévenot, 2006)” (Mennicken and Power, 2015, p. 217) as the new natural order. Similarly, Mennicken and Power (2015) and Dichev et al. (2013) highlight the dissonance between advocates of fair value versus historic cost accounting such that “it was a source of considerable dissonance within the accounting profession, and beyond” (Mennicken and Power, 2015, p. 220). Dichev et al. (2013) reported the popularity of the matching principle and conservative accounting and the limited support for fair value accounting by CFOs. In direct contrast, the FASB’s official position was supportive of fair value accounting (Barth, 2007). Dichev et al. (2013, p. 21) conclude that “this is perhaps our clearest finding of dissonance between the views of standard setters and the most important producers of financial reports”.

Secondly, dissonance of emphasis between parties. In this regard, Georgiou (2018), examining fair value, found that standard setters (IASB) emphasised its use as a basis for valuation compared to investors who emphasised fair value as a measure of performance. He concluded that the findings revealed a “situation of disharmony on the use of fair value”, as accounting is not used in practice in the way expected by standard setters, but that this was due to “different principles of evaluation” (p. 1299) and, importantly, not arising from a principled dispute as to whether fair value itself should be used.

Thirdly, translation or interpretative dissonance was used by Mazzi et al. (2022) in their examination of the signalling effect of capitalised development costs to investors under IAS 38. They reported that investors do not regard such assets (capitalised development costs) as providing an adequate signal of future value creation to them, even though this was an expectation of the standard setters. This was attributed to translation dissonance inherent in the vagueness or ambiguity of the standard and a lack of definitional clarity, to be applied by preparers (and subsequently consumed by users), in setting out the six conditions specified in the standard for capitalisation.

More generally, Young (2003, p. 621) highlights that when considering standard setting, “through inclusion by measurement and disclosure, importance and relevance are assigned to some matters and objects; and through exclusion, immateriality and insignificance are ascribed to others”, giving rise to omission or differential positions of principle, emphasis or translation in practice. Indeed, Mennicken and Power (2015, p. 214) highlight that the relationship between accounting and presumed communities of users remains “a very complex one since accounting constitutes both objects and subjects of value, the latter being ‘accounting users’ as they are commonly called (Young, 2006)” and the focus of this research.

A multitude of primarily voluntary-based frameworks have emerged relating to sustainability and climate change reporting (ACCA, 2016; Arvidsson, 2023). EY (2022) estimated that there are 600 environment, social and governance (ESG) reporting bodies and guidelines globally, with the more prominent including Carbon Disclosure Project, Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), IRF, Sustainability Accounting Standards Board (SASB) and the Task-Force on Climate-Related Financial Disclosures (TCFD):

This plurality of reporting frameworks (so-called “alphabet-soup”) has led to criticism concerning a lack of comparable, consistent and relevant information for investor decision-making (CFA Institute, 2017; Friede, 2019; Pinney et al., 2019; McKinsey, 2019; World Resources Institute, 2019; Tett, 2020; Slack, 2022). Canlas (2019) reported:

Further, Baboukardos et al. (2022, p. 5) comment that the range of different frameworks “do not necessarily attempt to link sustainability-related information with financial information and hence are not always viewed as being directly relevant to capital markets”.

Nonetheless, it is increasingly recognised that sustainability and associated reporting are fundamental to investment decision-making (Dawkins, 2018; Financial Reporting Council, 2019; Schroders, 2021; Investment Association, 2022; PwC, 2022; Ilhan et al., 2023) consistent with the increasing importance of ESG rating data for investors (Abhayawansa and Tyagi, 2021), with agencies calling for greater reporting standardisation (Adams and Abhayawansa, 2022). Indeed, EFAMA (2022, p. 24) highlighted the importance of capital markets as “[a]sset managers have become key contributors to the transition to a sustainable economy by incorporating ESG factors in their investment processes”.

Reflecting the importance of ESG investment, PwC (2022) reports an increase in global assets under management from $2.2tn in 2015 to $18.4tn in 2021, a trend accelerated due to COVID-19, with assets forecast to grow to $33.9tn by 2026 representing over 20% of total assets under management. For instance, UBS (2020, p. 2) noted that “COVID-19 has elevated the importance of how companies operate and accelerated the already increasing relevance of ESG considerations to investors”. The impact of COVID-19 on the increase in ESG-related investment was no doubt helped by the outperformance of ESG-focused funds during that crisis episode (Albuquerque et al., 2020; Ferriani and Natoli, 2020; Singh, 2020; Abhayawansa and Mooneeapen, 2022) prompting further investor demand for capital-markets based ESG/sustainability reporting. More critically, Adams and Abhayawansa (2022) highlight concerns regarding the privileging of investors, with an emphasis on financial materiality. They argue that COVID-19 and the increase in ESG investing provided a further rationale exploited by capital markets-based proponents (such as Accountancy Europe, 2019, 2020; World Economic Forum, 2020) for the harmonisation of reporting under the auspices of IASB and subsequently ISSB [⁵].

Against this background of potentially competing and/or overlapping frameworks, but also cognisant of investor demand for sustainability-related reporting, in September 2020, the International Financial Reporting Standards (IFRS) Foundation initiated a consultation process regarding global sustainability standards, receiving over 750 responses across stakeholder groups and geographies. The feedback (including responses received from investors) generally supported and emphasised the need for the development of global sustainability-related standards led by the Foundation to improve reporting consistency and comparability (IFRS Foundation, 2021b) (c.f. Adams and Abhayawansa, 2022; Adams and Mueller, 2022) resulting in the formation of ISSB in November 2021. Thereafter, to help coalescence global sustainability standards, the IFRS Foundation completed its consolidation with the CDSB and the Value Reporting Foundation (comprising the IRF and the SASB). Further, in March 2022, the IFRS Foundation and GRI [⁶] announced a Memorandum of Understanding to join each other’s consultative bodies related to sustainability reporting and to align, where possible, terminology, standards structure and metrics to help reduce the reporting burden for companies (IFRS Foundation, 2022c).

The ISSB issued Draft IFRS S1 (IFRS Foundation, 2022a) and Draft IFRS S2 (IFRS Foundation, 2022b) in March 2022. For both proposed standards, the primary users were identified as “existing and potential investors, lenders and other creditors” (IFRS Foundation, 2022a, p. 40), clearly being capital market-orientated (De Villiers et al., 2022; Giner and Luque-Vílchez, 2022; Stolowy and Paugam, 2023).

A thematic content analysis research method was adopted to capture the ex ante position of the ISSB (issue of draft standards, March 2022) in comparison to the investor views expressed in their comment letters submitted during the consultation period (March to July 2022) supplemented with the initial ex post feedback summaries, although largely collective across all respondents (ISSB staff papers, September 2022). This comparative approach enables us to examine the extent to which we can observe investor consensus, or dissonance, with the ex ante position adopted by the ISSB.

Following the issue of the draft standards in March 2022, a virtual platform was set up for comment letters through the ISSB website, with comments to be received by 29 July 2022 and held as a public record. Each draft standard contained detailed questions for response. In total, 735 and 700 comment letters were submitted in respect of IFRS S1 and S2, respectively. Both researchers independently reviewed the list of comment letters to identify those that related to individual investment companies and investment associations (Georgiou, 2010). This resulted in relevant comment letters for 56 investment companies and for three investment associations. Of these, 33 out of 56 (and two out of three) were single comment letters addressing both IFRS S1 and S2; the remainder provided separate comment letters individually covering IFRS S1 and S2. The comment letters were often very detailed responses running to over ten sides. For instance, Scotia Group (IFRS 1: 15 sides, IFRS 2: 22 sides) and NEI Investments (IFRS 1: 9 sides, IFRS 2: 15 sides), and for consolidated responses, Capital Group (14 sides), DWS (15 sides) and PGIM (17 sides).

Overall, this evidences a substantial investor engagement in the feedback process, allowing for meaningful analysis compared to the relatively low absolute levels reported in the prior literature on financial reporting standards reflected in Section 2. Recognising both single and dual submissions, all comment letters were saved as pdf files for analysis. A manual content analysis method was adopted consistent with the approach taken in the prior literature (Yen et al., 2007; Larson, 2008; Holder et al., 2013; Anantharaman, 2015; Reuter and Messner, 2015; Bamber and McMeeking, 2016).

Initially, both researchers independently reviewed the comment letters covering IFRS S1 and S2 for six investment companies (Amundi, Fidelity International, HSBC UK Pension Fund, Calpers, Calvert and Vanguard Group). This purposive selection covered active and passive funds, pension funds and SRI-orientated investment, allowing us to cover all major categories of investment management rather than, for example, only selecting active funds. Following this, both researchers met to compare their individual results and to agree on common themes for subsequent analysis across the remaining comment letters (including those in the initial sample to ensure consistency of final coding analysis). Table 1 serves as an exemplar to illustrate the process of thematic coding and sub-coding for one of our themes (Enterprise Value). This underpins the analysis which we present in Section 6.2. We performed similar coding for analysis for all of the other themes discussed in Section 6.

In common with the approach taken by Larson (2008), Anantharaman (2015) and Reuter and Messner (2015), the first identified coding area was binary, specifically whether the comment letters expressed overall support or opposition to the ISSB and their development of sustainability-related standards. Secondly, commonly reported themes were identified, highlighting areas of tension between the proposed standards and investor responses. This was partially informed by the authors’ a priori background reading (for instance, on double versus single materiality) as well as their independent reviews of the six comment letters (this is consistent with the approach of Holder et al., 2013; Adhikari et al., 2014; Bamber and McMeeking, 2016). This enabled key themes to be agreed upon, together with supporting illustrative qualitative comments relevant to each, to inform all subsequent coding. These themes were common across the sample comment letters and subsequent coding of the full sample, with no new prevalent themes emerging. Some of the themes contained a number of distinct elements.

Theme 1 comprised investor views on the ISSB primacy of enterprise value and relatedly financial versus double materiality. Theme 2 related to the basis for reporting, and specifically, within the draft standards, the continued references to “significant” and “material” in reporting. Further, matters deemed as “material” are linked to IAS 1 definition of financial materiality [⁷], promulgating a focus on the financial impact of sustainability-related reporting on enterprise value from Theme 1. Theme 3 considers the time horizon of reporting and the ISSB’s proposed use of short-, medium- and long-term for sustainability-related impacts on enterprise value. Theme 4 relates to Scope 3 emissions reporting as proposed in IFRS S2. Finally, Theme 5 is investor views on assurance. As discussed, a coding sheet for each theme was set up to help analyse all comment letters. The analysis was facilitated by the use of keywords to search the pdf comment letters (for instance, enterprise, materiality, significant, assur*, scope and medium) to help capture all of the investors’ views by theme along with indicative quotes to highlight the issue being referred to.

Directly following the consultation period, two IFRS staff papers were prepared for the ISSB meeting held in September 2022 relating to the draft standards IFRS S1 (IFRS Foundation, 2022d) and S2 (IFRS Foundation, 2022e). These staff papers play an important role in summarising the collective responses received during the consultation period. Although they do not contain any direct responses by the ISSB to the points raised by investors and other stakeholders, they provide insights into the ISSB’s ex post interpretations of the general feedback they had received. For instance, over what is given prominence and the level of detail provided. This adds a further stage to our analysis of the key themes we identified. Collectively, they offer some triangulation of the identified key issues raised by stakeholders, albeit at an aggregated level and also help contextualise our more fine-grained analysis of investor responses.

The presentation of the findings by theme follows a consistent format. Firstly, the ex ante positioning of the ISSB is presented as set out in IFRS S1 (IFRS Foundation, 2022a) and S2 (IFRS Foundation, 2022b). This is followed by a discussion of the views expressed by investors in their comment letters in respect of the key themes outlined above. Finally, the ex post summary of the consultation feedback of the ISSB drawn from IFRS Foundation (2022d) and IFRS Foundation (2022e) is shown.

A first noteworthy finding from our analysis was the high level of investor engagement we observed; this is echoed in IFRS Foundation (2022d, p. 2), which highlights both the high volume of responses and the diversity of respondents. As described in Section 2, a core theme of the prior comment letter literature is the typically low level of engagement in public consultations by users, and specifically investors. Our experience is very different: not only did we see a relatively high level of engagement with the consultation process in terms of the number of participating investment firms, asset owners and industry bodies, but, as the excerpts quoted below make clear, the depth and quality of the submissions was generally very high. We might attribute this level of user engagement to the increasingly strong degree of investor interest in sustainability and related reporting highlighted in Section 4.

The ISSB’s draft standards were warmly welcomed in principle by all the responding investment companies and investment associations. The response from BMO Global Asset Management was typical:

The central point here was echoed by many respondents: the need for globally comparable standards as opposed to what Invesco termed the current “fragmented sustainability reporting landscape” reflective of the so-called alphabet soup criticisms. The proposed introduction of a global baseline standard would “finally provide investors with critical information needed to adequately assess sustainability information, thereby improving the efficiency and transparency of capital markets” (Neuberger Berman). This positive reaction to “a pivotal turning point for the industry” (Northern Trust) echoes comments made by Mary Schapiro, Head of the TCFD Secretariat (IFRS Foundation, 2022f):

This broad support for the ISSB was prominently highlighted in the IFRS staff paper (2022d, p. 2), which notes that “[a]lmost all respondents supported the ISSB’s overall aim to develop a comprehensive global baseline of sustainability-related financial disclosures for the capital markets” (emphasis added). It is notable that this re-enforces the positioning of the standards to serve the needs of the capital markets. Despite this support for the ISSB, nonetheless, many respondents highlighted tensions and the need for further debate and development of the draft standards, which we present in the following analysis.

The clear focus of the ISSB’s proposals is on financial materiality and enterprise value:

Under the proposals, reporting entities would be required:

Material information is defined in IFRS S1 (2022a, p. 6) as being “in alignment with the definition in IASB’s Conceptual Framework for General Purpose Financial Reporting and IAS 1”.

This privileging of financial materiality by ISSB is at odds with the double materiality approach traditionally used in sustainability reporting (Adams and Abhayawansa, 2022; Adams and Mueller, 2022) and at a regulatory level consistent to that advocated by GRI (see Adams et al., 2021) and subsequently EFRAG (2022b) [⁸]. As highlighted by van de Wijs (GRI Chief External Affairs in Adams et al., 2021, p. 2), “the GRI Standards, with a focus on the impacts of organizations on people and planet, is the only global sustainability reporting framework that captures comprehensively that outward impact”. Indeed, this tension between single and double materiality reveals a significant fault line within the investor responses. While 27 respondents expressed support for the ISSB’s proposal, 16 directly opposed it, and a further 16 either expressed a mixed view (with some support for both financial and double materiality) or did not offer a clear opinion.

In our analysis, four main positions emerged. Firstly, those supporting the ISSB’s position on financial materiality and enterprise value emphasised the financial nature of their fiduciary responsibilities. In this vein, both CalSTRS and Capital Group deployed an argument based on their fiduciary responsibilities to underline their need for information which would help them to achieve their investment objectives:

In direct contrast, a second position are those who advocated double materiality, united around a single argument: that the enterprise value/financial materiality approach is too narrow and hence incapable of capturing the broad range of sustainability-related issues. Like DWS in the quote below, a number of respondents highlighted that the double materiality approach has already been advocated by global corporate reporting bodies such as GRI and European Financial Reporting Advisory Group (EFRAG), and that the new ISSB standards should conform with existing “best practice” frameworks:

Building on this, the third position highlights the consequences of a narrow financial materiality approach being inadequate in providing the information which investors need. This view was expressed by, among others, BMO Global Asset Management, Calvert, Amundi and the HSBC Bank Pension Trust:

The message here is clear: the single materiality approach which the ISSB is advocating will not provide the information investors need to understand the sustainability-related impact of an organisation rather than solely the financial impact on the investee company.

Finally, a smaller, fourth group highlighted the practical problems associated with the calls for the introduction of a double materiality approach. For AIA, “there is significantly less clarity and established practice in applying materiality judgements to sustainability-related financial disclosures”. Dimensional Fund Advisers argued that the increased costs associated with reporting based on double materiality did not justify the benefits. While Fidelity International shared these practical concerns, they advocated a steady, gradualist move towards double materiality reporting.

Overall, the views expressed by the proponents of a double materiality approach illustrate the extent of the fundamental disagreement on the appropriate definition of materiality within the investor community, and hence the existence of a significant dissonance between a sizeable sub-group of investors and the position of the ISSB. This is an example of what Mennicken and Power (2015) and Dichev et al. (2013) refer to as a values-based dissonance arising from an explicit fundamental clash of principles between groups. The disagreement between investors over single and double materiality originates in very different views of the role and purpose of the investment industry. For the advocates of single materiality, the purpose of the investment industry is clear: maximisation of financial returns to investors – the fiduciary argument highlighted above. The strong advocates of double materiality, by contrast, frame the purpose of the investment industry in a much broader context: talking about addressing global sustainability issues and, importantly, the entity’s impact on (rather than how it is affected by) sustainability.

This values-based dissonance is reflected in the ISSB’s staff papers. IFRS Foundation (2022d, p. 18) clearly signposts the pre-established ISSB position by starting its commentary by reporting that (albeit at an aggregate level) many respondents supported the ISSB’s adoption of the definition of materiality from the IASB’s Conceptual Framework. The papers subsequently acknowledge the tension on this point: “respondents provided mixed feedback on whether the proposed definition and application of materiality is likely to capture the breadth of sustainability-related risks and opportunities relevant to the enterprise value of a specific entity”, with some respondents reported as expressing concerns that “the ISSB’s proposed definition of materiality and the focus on enterprise value could potentially be too narrow to capture the breadth of information that is relevant and decision useful for investors”. However, in relation to the second and third positions of investor comments, there is no explicit reference to double materiality in either document or of a gradual movement in that direction (IFRS Foundation, 2022d, 2022f). Hence, based on the investor responses, this values-based site of dissonance is likely to persist.

IFRS S1 requires an entity to “disclose material information about all of the significant sustainability-related risks and opportunities to which it is exposed” (IFRS Foundation, 2022a, p. 9) (emphasis added). The basis for reporting was mentioned by 32 of the responding institutions, and in almost all cases in critical terms. A common criticism centred on the lack of precision and clarity in the terminology used and their apparent interchangeability:

Other responses went further still: not only are the terms “significant” and “material” poorly defined, but so too is the concept of sustainability:

Though investors do not use the term, the criticism here is one of tautology: the interchangeable use of “significant” and “material” can lead to an understanding that something should be considered significant if it is material and material if it is significant. This critique is grounded in the IFRS’ requirement (IFRS Foundation, 2022a) that companies provide material information on all significant risks and opportunities. A solution proposed by DWS is to adopt the EFRAG ESRS 1 (EFRAG, 2022b) principle, whereby the terms have the same meaning when referring to impacts, risks and opportunities.

Several investors discuss why this confusion or tautology is problematic. The inconsistent use of terminology causes “ambiguity” (State Street Global) and risks damaging the usability of the standards for investors (Fidelity International). Further, that definitional vagueness “is likely to lead to subjective interpretations and inconsistency across disclosures” (PGIM), a point developed by CIBC Asset Management:

The critique here is an emphatic one. The failure to define what is meant by “significant” and “material”, and their difference, will make it possible for companies to self-select disclosure and associated metrics, reflective of criticisms as to a lack of balance in reporting (Slack, 2022). Potentially, this would serve to undermine the purpose, rationale and integrity of the ISSB’s mission.

IFRS Foundation (2022d) reflected the general demand, including that of investors as users, for greater definitional clarity, especially in relation to “significant” and its positioning to, and distinction from, materiality. Further, the ISSB acknowledged the “mixed feedback on whether the definition of ‘sustainability-related financial information’ is clear” (p. 9), with respondents asking for clarification on the definition of terms including “enterprise value” and “sustainability-related risks and opportunities”.

It is clear from our analysis that investors are highly critical of the vague, interchangeable and tautologous use of terms such as “material”, “significant” and “sustainable” in the draft standards. We frame this tension as arising from an upstream lack of definitional clarity, which, if not resolved, may result in subsequent interpretative dissonance (Hutter, 2015). Over time, this risk undermining the usefulness of sustainability-related reporting, as noted by CIBC in their response shown above. A lack of ex ante definitional clarity can hence be seen as a precursor to ex post interpretative dissonance – a point implicitly made by Mazzi et al. (2022) when drawing on interpretative dissonance.

The draft standard specifies that:

We find here similar definitional vagueness reported by investors regarding the quantification as to what is meant by short-, medium- or long-term.

Respondents proposed a number of different solutions to this issue. The most popular was the adoption of a precise definition, a recommendation made by, among others, Wellington and DWS:

Wellington’s argument is that without standardisation, the reports of different companies (in the same industry) will be inherently difficult to compare with each other and will, therefore, be of limited use in informing investors’ decision-making. As they did in reference to the materiality/significance issue, DWS pointed out that EFRAG has already addressed this issue in their ESRS 1 (EFRAG, 2022b) and that there hence exists a ready-made precedent.

Other solutions proposed include the idea of a set of indicative date ranges (Amundi) or a requirement for issuers to explicitly disclose how they interpret short-, medium- and long-term time frames (Aware Super). Others argue for a more flexible interpretation, as we find in Temasek’s submission:

Finally, some investors viewed time horizons reporting as an “excessive requirement with limited utility” for users of the reports, exemplified by the response of Scotia Group:

This is a further instance of heterogeneity between investors, with some investors expressing a high degree of related concerns but others, such as Scotia Group, challenging the utility of the exercise. The ISSB acknowledges that “[m]any respondents asked for clarification on the time horizons applicable to the short, medium and long term” (IFRS Foundation, 2022d, p. 11). Hence, as with that observed in Section 6.3, without resolving this ex ante definitional issue, it may result in consequential ex post interpretative dissonance, again potentially impairing the usefulness of reporting to investors.

IFRS S2 (IFRS Foundation, 2022b) sets out the requirements for reporting Scopes 1, 2 and 3 emissions. In respect of the reporting of Scope 3 emissions, the draft standard makes a number of proposals: entities should include both upstream and downstream emissions in their measure of Scope 3 emissions; should disclose the activities included within their measure of Scope 3 emissions; and should provide some explanation as to which emissions associated with their value chains they have chosen to include and/or the basis on which such emissions have been excluded. These proposals are consistent with those set out by the TCFD and build upon the requirement by SASB (SASB, 2017) that companies evidence the consolidation of reporting as demanded by investors. Again, a number of positions were evident in our analysis.

Firstly, those respondents who expressed support for the proposals arguing that they should be implemented as soon as possible. Data on Scope 3 emissions, as Capital Group argues, is essential for informed decision-making and, as the HSBC Bank Pension Trust describes, the current reporting framework is not fit for purpose:

Other respondents related the proposals to existing frameworks, Wellington stating a strong view that reporting entities should be required to use the GHG Protocol to define and measure Scopes 1, 2 and 3 emissions, and Northern Trust urging the ISSB to go beyond “the strong encouragement of TCFD’s recommendations”. Finally, NGS Super emphasised the importance of a prompt implementation of the proposals:

This first group of respondents all expressed a position of strong support for the disclosure of Scope 3 emissions like NGS Super giving little credence to negative arguments raised by preparers about the practical challenges associated with such disclosures.

A second group of respondents, while remaining broadly supportive of the proposal, placed a greater emphasis on the trade-off between the benefits and usefulness of Scope 3 emissions reporting to users and its practical costs and challenges. For instance, Australian Super recommended a phased-in approach:

BlackRock proposed one solution to the inconsistent quality of the data available, that issuers be allowed to limit their reporting to the Scope 3 categories which they deemed material to their business (although raising issues of self-determination of reporting):

Thirdly, those who opposed the proposal did so not on principle but because they felt that the practical costs and challenges associated with Scope 3 reporting outweighed the benefits. For example, the Investment Association and PGIM both argued that Scope 3 reporting has not yet developed to the point where it is sufficiently robust and, therefore, useful:

The concerns expressed here around data availability and the lack of calculative methodologies were noted by others, including AIA, Vanguard and Invesco. Further, Temasek referred to the prohibitive cost of any such reporting while Future Super based their opposition on the risk that multiple interpretations of the guidance would hurt comparability. The most vehement opponents, however, were those respondents who, because of the unreliability of data, saw no benefit in the reporting of Scope 3 emissions, among them Dimensional Fund Advisers:

The staff paper relating to draft S2 (IFRS Foundation, 2022e) reports that most users agreed with the proposal that all entities disclose absolute gross Scope 3 GHG emissions. Our analysis, although broadly supportive, illustrates a number of different user stances. Reflective of the observed heterogeneity of investor responses, we frame the dissonance we observe here as an example of practical dissonance: while generally supporting a proposal in principle, different respondents place different salience on practical issues or challenges, which may undermine the effective implementation of that proposal and its subsequent use. This form of dissonance is a variant of the dissonance of emphasis discussed by Georgiou (2018). Supporters of the disclosure of Scope 3 emissions may have questioned its usefulness to them by invoking practical challenges but, because they placed a higher emphasis on the former over the latter, ended up expressing support for the proposal. In contrast, a second group used these practical considerations to support their arguments against the introduction of Scope 3 reporting (the emphasis here was reversed); in its most extreme form, this comes close to a values-based dissonance. Here, perhaps more than anywhere else in our study, we see the rich and heterogeneous views expressed by investors.

The ISSB’s Consultation Paper (IFRS Foundation, 2020, para 52) reports that “to achieve globally consistent sustainability reporting practices, sustainability information reported by companies will ultimately need to be subject to external assurance”. The statement here as to the importance of external assurance, however, is qualified by the recognition that there are “conceptual and practical challenges to achieving such assurance, including the need for a consistent global framework and the difficulties of setting out qualitative sustainability-related disclosure requirements”. We recognise that assurance falls outside the jurisdiction of standard setters and is the remit of other independent bodies, such as the International Auditing and Assurance Standards Board (IAASB). Nonetheless, it is interesting that while assurance was explicitly raised as a question in the consultation phase, it was excluded from the draft standard discussion questions to ascertain its importance to users and, hence, the decision-usefulness of the reporting to them.

Notably, despite this exclusion, assurance emerged as a prominent key theme, with 24 of the responding institutions explicitly discussing the topic. Within this group, a large majority strongly advocated the incorporation of some form of assurance into the ISSB’s framework for reasons (credibility, consistency and interoperability) which are summarised well in the responses of Aviva and CalPERS:

Further, investors identified a number of organisations with whom the ISSB could constructively collaborate, such as the Public Company Accounting Oversight Board (PCAOB), the IAASB or the International Ethics Standards Board for Accountants (IESBA).

Though a large majority of investors expressed positive support for the incorporation of assurance into the ISSB’s framework, a smaller number expressed some dissent, whether on the grounds of cost (Schroders), the absence of a suitable framework for auditors to use (State Street Global) or a more general lack of competence within the auditing and assurance profession:

While the subject of assurance is not addressed in the draft standards or questions, it is referred to in the staff papers. IFRS Foundation (2022d, p. 8) indicates substantial differences of opinion between respondents: feedback was “mixed […] on whether the requirements provided in [draft] S1 would provide a suitable basis for auditors and regulators to determine whether an entity has complied with the requirements”. Many users (which implicitly includes investors) “noted the importance of effective and robust assurance in ensuring confidence in the integrity of the disclosure of sustainability-related financial information” (ibid, p. 8). However, many other respondents (i.e. preparers and auditors) highlighted the practical challenges involved in complying with various aspects of draft S1.

We find here a different form of dissonance from those discussed in previous sections; we term this dissonance by omission. Dissonance by omission is important as it recognises that standard setters can and should expect challenges on what they leave out of their proposals, or related consultation questions, as much as on what these contain. We note the relevance of Young (2003) in her contention as to the apparent levels of (in)significance of matters conveyed to users ascribed through their presence or apparent exclusion. Given that many investors share the view expressed by Aviva that assurance is the key to the credibility of sustainability reporting, such omission may undermine the foundations of the ISSB’s project towards decision-useful reporting for capital market users.

Based on our findings and analysis, we now discuss our contributions set out under two main headings: insights into the comment letter literature and especially that concerning non-financial reporting and contributions to the dissonance literature.

Firstly, by studying the consultation process (primarily the ISSB’s ex ante draft standards compared with investors’ comment letters), we are able to offer new insights into the comment letter literature. Specifically, relating to non-financial reporting, only a very small number of papers (Reuter and Messner, 2015; Adams and Mueller, 2022) have examined stakeholder comment letters during consultation processes. While Reuter and Messner (2015) examined integrated reporting, only 16 comment letters related to investors, so that their subsequent analysis reflected primarily that of preparers and the accounting profession. This low level of investor response is perhaps even more surprising when compared to the Integrated Reporting Framework (IIRC, 2013, p. 4), which states, “the primary purpose of an integrated report is to explain to providers of financial capital how an organization creates value over time” (emphasis added) serving “to improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital”. The only other research in this area is that by Adams and Mueller (2022) who analysed academic responses to the initial IFRS Consultation on Sustainability Reporting. Our analysis of investor comment letters sheds light on their views, as primary users, relevant to a significant development in sustainability reporting unique to the literature.

Further, we contribute to the comment letter literature through our analysis of the corpus of investor comment letters. The more prevalent prior financial reporting-based research on comment letters has been characterised by consistent low levels of investor response (Jorissen et al., 2012; Holder et al., 2013; Adhikari et al., 2014; Wingard et al., 2016; Pelger and Spieß, 2017; Bhimani et al., 2019). Indeed, Bamber and McMeeking (2016, p. 68) report a “passive user (investor) community at least in the public phase of consultation”. Reflective of the low levels of prior investor engagement, Durocher and Georgiou (2022, p. 2) remark that “standard setters prefer to ‘imagine’ financial statement users’ needs during standard-setting processes, rather than obtain these empirically”. Our research addresses this lacuna, showing in this instance that investor groups demonstrated a high level of engagement with the consultation process and offered a depth of response, enabling a fine-grained analysis which contradicts the past characterisation of them as passive and disinclined to engage with the process.

Secondly, theoretically, we based our study on sites of dissonance, a framing which is particularly relevant given the tensions we have identified between the ex ante position of the ISSB and the views expressed by investors. In Section 6, we identified three forms of dissonance which were inductively derived from our study: values-based dissonance, practical dissonance and dissonance by omission. We also report that a lack of definitional clarity ex ante can serve as a precursor to subsequent interpretative dissonance ex post (Mazzi et al., 2022). Values-based dissonance is well understood in the existing literature (Stark, 2009; Dichev et al., 2013; Mennicken and Power, 2015) but we apply it for the first time to a discussion of sustainability reporting, and specifically the principle-based clash between financial and double materiality. We explored practical dissonance in the context of Scope 3 emissions, framing the concept as a variant of dissonance of emphasis (Georgiou, 2010) in which, in our case, different groups placed different emphasis on the practical challenges associated with timely and accurate Scope 3 reporting and its subsequent consumption by them.

The final form of dissonance we derive is new to the literature. Dissonance by omission emerged from our comparative research method in the discussion of assurance in Section 6.6. Without a comparative approach, omission cannot be identified (Cooper and Slack, 2015). This is distinct from the values-based dissonance discussed in Section 3 where there is an explicit and known fundamental disagreement between parties based on issues of principle (Dichev et al., 2013; Mennicken and Power, 2015). Likewise, dissonance by omission is distinct from the dissonance of emphasis whereby different parties place a very different value on particular issues. Rather, dissonance by omission has more in common with the concepts of selectivity, omission and silence, which have been explored by accounting scholars in the context of impression management (Merkl-Davies and Brennan, 2007; Cooper and Slack, 2015) and sustainability reporting (Boiral and Heras-Saizarbitoria, 2020). The latter is most relevant to our framing of dissonance by omission: Boiral and Heras-Saizarbitoria (2020, p. 11) discuss how silence on key reporting aspects creates conditions that may contribute to “problems which could undermine [their] legitimacy” and without resolution, for instance through disclosure, can persist.

We noted earlier that an important implication of dissonance by omission is that standard setters should expect to be held as accountable for what they omit from a proposed standard and related consultation as much as for what they include. While recognising that assurance is outside the remit of the ISSB, nonetheless, we also noted the apparent puzzle that assurance was included in the ISSB’s initial Consultation Paper (IFRS Foundation, 2020) but not in the subsequent Exposure Drafts or related questions (IFRS Foundation, 2022a, 2022b), and that the staff papers (IFRS Foundation, 2022d, 2022e) reported significant concerns over this omission from certain stakeholder groups. Unlike the antagonistic positions in value-based dissonance, what is not explicitly shown is the view of ISSB on assurance. Moving forward, we suggest that one way of resolving this dissonance constructively would be for subsequent staff papers to show a pathway for the consideration of assurance and its scope through possible collaboration with other external bodies such as PCAOB or IAASB.

As Clune and O’Dwyer (2020) describe, in a positive scenario, there is what they term an “organising dissonance” which helps to bring about a “productive collaboration” between standard setter and users, similar to the argument by Orens et al. (2011) that comment letters can facilitate constructive debate. Rather, recalling Stark’s (2009, p. 23) “danger […] that arguments displace action and nothing is accomplished”, the risk facing the ISSB is that, in the absence of a positive response, investors’ calls for double materiality and assurance may remain sites of dissonance. These may cast into doubt the usefulness of the resultant reporting to them and potentially undermine the claims made in IFRS 1 (2022a, p. 5) that the new standards “respond to calls from primary users (investors, lenders and other creditors)” for sustainability-related information. In this regard, our paper makes no comment on the effectiveness of those response letters but rather was designed to report on investor engagement with the process and to identify sites of consensus or dissonance.

Arising from the findings, we also provide further evidence as to the heterogeneity of investors. While there was broad agreement on the importance of a sustainability reporting framework and a shared critique of key terms, we showed that there were also clear areas of disagreement within the investor community, for example, in their preference for reporting based on single or double materiality or their attitudes towards Scope 3 reporting. This finding on the heterogeneity of investor responses is not new. Adams and Mueller (2022) challenged the IFRS Foundation’s assumption that there is an “investor view” shared by a homogeneous community of investors. Further, Abhayawansa et al. (2022, p. 14) argued that “[r]egulators and policymakers need to recognise the diversity in capital market participants and understand how that diversity of users manifests in their specific information requirements before making policy decisions”. We also found considerable heterogeneity in the responses of investors and within the same broad groups of investor type (such as active or passive funds) evident in our findings and reported in Section 6.

What is surprising, however, are the instances where investors criticise the ISSB for not going far enough in mandating the disclosure of information. Prima facie, we might expect the ISSB’s proposals to be broadly welcomed by investors. Indeed, they might even represent some form of regulatory capture, as critically described by a respondent quoted in Adams and Mueller (2022, p. 1326), who suggested that the “proposals represent the capture of the standard-setting process by powerful groups such as large accounting firms and large asset managers”. The concerns expressed by investors vis-à-vis the standard setter (Georgiou, 2018) refute this and suggest rather that there are gaps, some of which are principles-based, between the needs and desires of a diverse investor group and the draft standards.

We end by discussing some of the limitations of our study and suggestions for further research. From an empirical point of view, we accept there is a degree of overlap between our findings and those summarised by the IFRS in their two staff papers (IFRS Foundation, 2022d, 2022e). Importantly, we move beyond the staff papers and contribute to both the sustainability reporting literature and the comment letter literature by our analysis. As noted, the ISSB staff papers do not separately analyse investor responses; rather, the staff papers present an amalgam of all responses not identified by specific groups of respondents. These are naturally dominated by the perspectives of preparers and the accounting profession, as highlighted in prior comment letter research. These groups have different interests and modus operandi. In contrast, we offer a fine-grained analysis with a sole focus on investors, as primary users, such as their range of views on single and double materiality or Scope 3 emissions. This enables our research to show clear themes and discrete sub-themes within their responses. Through this, we highlight sites of dissonance between the positions of the standard setter and those of investors. Our paper is the first to do this.

From a methodological perspective, Krippendorff (2018) warns against the potential unreliability of self-applied investigator-developed recording instructions. We attempted to address concerns over reproducibility and reliability with the use of independent coding at the pilot stage to identify the emergent themes through detailed thematic coding sheets and regular meetings during the main coding phase to critically challenge and discuss those themes. Further, as part of research dissemination to practice, several informal meetings were held to elicit feedback with members of domestic standard setting and other regulatory bodies globally. These informal meetings helped to confirm the overall sense-check of our findings. Nevertheless, as Weber (1990, p. 62) notes, “interpretation (of text) is in part an art”; our results should be viewed with this limitation in mind. Finally, we recognise that our ex post analysis is necessarily time limited to the initial ISSB staff letters on their summaries of the consultation feedback. These do not reflect the final deliberations of the ISSB with regard to the subsequently issued standards that, as noted, future research could fruitfully examine and, hence, comment on the effectiveness or otherwise of the consultation process.

Since our empirical focus was solely on the content of comment letters, we did not explore any other lobbying methods by which investors might engage with standard setters, such as formal meetings or informal conversations. We acknowledge this as a limitation and suggest that it might be an avenue for other researchers to explore. In a similar vein, we suggest that an exploration of indirect lobbying around this consultation process would complement this study and that it would also be interesting to study the tone of the response letters. Finally, we see rich opportunities for cross-border studies engaging with investors, for example, on their perspectives on the interoperability of GRI, EFRAG, SEC and ISSB standards when applied to a global portfolio of reporting investee companies.

Thank you to Paul Druckman and Russell Picot for their initial thoughts and comments on a very early version of the paper development as well as feedback received from various global reporting bodies. Thank you to the editor and associate editor for their encouragement of the work and the two reviewers for their tenacious support, critical for the fruition of the research.