April 26, 2024
Ms. Gabriela Figueiredo Dias
Chair
International Ethics Standards Board for Accountants

Re: Exposure Draft “Proposed International Ethics Standards for
Sustainability Assurance (including International IndependenceStandards) (IESSA) and Other Revisions to the Code Relating to
Sustainability Assurance and Reporting”
Dear Ms. Dias,

The Sustainability Reporting Committee (SRC) of the Securities Analysts Association of Japan(SAAJ) is pleased to comment on the Exposure Draft “Proposed International Ethics Standards for
Sustainability Assurance (including International Independence Standards) (IESSA) and Other
Revisions to the Code Relating to Sustainability Assurance and Reporting” (hereinafter referred to as
the “ED”) published by the International Ethics Standards Board for Accountants (IESBA) on January
29, 2024.
The SAAJ is a not-for-profit organization for professionals in the areas of investment and finance,
offering education and certification programs in these fields. Its certified member analysts (holding
the CMA designation) number around 29,000.
The SRC is a standing committee of the SAAJ established in March 2021. It is composed of ten
members including equity and credit analysts, portfolio managers, public accountants, and academics.
On the same date, we also submitted a comment letter on the Exposure Draft “Using the Work of
an External Expert” published by the IESBA on January 29, 2024

General Comments
We welcome that the IESBA has published the ED. Sustainability information is becoming
increasingly important for analysts and investors in forecasting future cash flows and performance.
Representing the interests of users of sustainability information, we have been advocating the urgent
need for high quality, consistent, and comparable global sustainability disclosure standards.
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Therefore, we welcomed the publication by the International Sustainability Standards Board (ISSB)
of its inaugural IFRS Sustainability Disclosure Standards (ISSB Standards) in June 2023. We also
welcomed the IAASB’s Exposure Draft on International Sustainability Assurance Standards 5000
(ED-5000), which will provide a global baseline for ensuring the reliability of sustainability
information. We submitted our comment letter on ED-5000, basically agreeing with the proposals.
With the publication of the ED, there will be a complete set of disclosure standards, assurance
standards and ethics and independence standards for sustainability information. We hope that thesethree standards will work together to make sustainability reporting effective in the financial and capital
markets.
While we basically agree with the main proposals of the ED, we provide below our generalcomments and suggestions for improvement from the perspective of analysts and investors as users.

Main Objectives of the IESSA
1.

Do you agree that the proposals in Chapter 1 of the ED are:(a) Equivalent to the ethics and independence standards for audit engagements in the extant
Code? [See paragraphs 19 and 20 of this document](b) Profession-agnostic and framework-neutral? [See paragraphs 21 and 22 of thisdocument]

2.

Do you agree that the proposals in Chapter 1 of the ED are responsive to the public interest,
considering the Public Interest Framework’s qualitative characteristics? [See paragraph 23 ofthis document]

We basically agree with the four main objectives of the IESSA: Equivalent to Audits, ProfessionAgnostic Standards, Framework-Neutral Standards, and Public Interest Framework.
Sustainability information faces the same challenges as financial information, including managing
conflicts of interest. Therefore, we believe that the objective of equivalent to audit, which requires thesame level of ethics and independence standards as those for financial statement auditing, isparticularly important. This objective will also help ensure connectivity between financial andsustainability information, which is emphasized in the ISSB Standards and others.
Given that sustainability assurance is already performed not only by professional accountants (PAs),
but also by a variety of practitioners who are not professional accountants (non-PAs), the objective ofprofession-agnostic standards, which aims to apply to all sustainability assurance practitioners, is also
important.

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Multiple sustainability disclosure standards are expected to coexist globally, including the ISSB
Standards, jurisdictional standards based on the ISSB Standards, European standards, and U.S.
standards. While we expect standard setters and regulators in each jurisdiction to improve theinteroperability of these standards, we also believe that the objective of framework-neutral standards
is important given this coexistence.
However, for the IESSA to function as a global baseline ethics and independence standard, it willneed to be adopted in most jurisdictions. In addition, to achieve the objective of profession-agnostic
standards, each jurisdiction will need to establish an infrastructure, including qualifications andcontinuing education, to raise the awareness and level of assurance practitioners other than PAs.
Therefore, we encourage the IESBA, in cooperation with the IAASB, to work on this matter with theInternational Organization of Securities Commissions (IOSCO) and the regulators in each jurisdiction.

Scope of Proposed IESSA in Part 5
4.

The IESBA is proposing that the ethics standards in the new Part 5 (Chapter 1 of the ED) cover
not only all sustainability assurance engagements provided to sustainability assurance clients
but also all other services provided to the same sustainability assurance clients. Do you agreewith the proposed scope for the ethics standards in Part 5? [See paragraphs 30 to 36 of thisdocument]

5.

The IESBA is proposing that the International Independence Standards in Part 5 apply tosustainability assurance engagements that have the same level of public interest as audits offinancial statements. Do you agree with the proposed criteria for such engagements inparagraph 5400.3a? [See paragraphs 38 to 43 of this document]

We basically agree with the scope of the proposed IESSA as follows:(1) Scope of the ethics standards
All sustainability assurance engagements

Any other services that the practitioner provides to the same sustainability assurance client(2) Scope of the independence standards


Assurance engagements on sustainability information that meets the following criteria:(a) Reported in accordance with a general purpose framework; and―3―

(b) Required to be provided in accordance with laws and regulation; or publicly disclosed
to support decision-making by investors or other stakeholders
Under the objective of profession-agnostic standards, we believe that it is a balanced approach thatthe scope of the ethics standards includes not only all sustainability assurance engagements, but also
any other services that the practitioner provides to the same sustainability assurance client.
While we believe that the scope of the independence standards is also appropriate, we have thefollowing suggestions for improvement from the user’s perspective:•

Regarding the criterion of sustainability information that is “required to be provided inaccordance with laws and regulation; or publicly disclosed to support decision-making byinvestors or other stakeholders”, we encourage the IESBA to clarify the definition of “tosupport decision-making by other stakeholders”. There is already a common understanding of“to support decision-making by investors” in financial information. On the other hand, since“to support decision-making by other stakeholders” used in sustainability information is arelatively new concept, we believe that a clarified definition is necessary to promote a common
understanding.

•

To reduce diversity in practice among sustainability assurance practitioners and to improve theunderstandability of users, we encourage the IESBA to provide an explanatory memorandumwith examples of sustainability information that meets certain criteria. For example, integrated
reports that are not intended for a limited audience and can be widely used by the public should
be subject to the independence standards.

NOCLAR
7.

Do you support the provisions added in extant Section 360 (paragraphs R360.18a to 360.18a
A2 in Chapter 3 of the ED) and in Section 5360 (paragraphs R5360.18a to 5360.18a A2 in
Chapter 1 of the ED) for the auditor and the sustainability assurance practitioner to consider
communicating (actual or suspected) NOCLAR to each other? [See paragraphs 56 to 67 of
this document]

We basically agree with the proposal to add a requirement for the communication of (actual orsuspected) NOCLAR between the auditor and the sustainability assurance practitioner for assurance
engagements on sustainability information that meets certain criteria and to waive confidentiality insuch cases.
Under the objective of profession-agnostic standards, it is important to add the requirement for thecommunication of NOCLAR to maintain high quality assurance and to meet the need for connectivity―4―between financial and sustainability information. As users, we believe that, in addition to responding
to NOCLAR, additional requirements are needed to prevent material inconsistencies between the two
sets of information. In this regard, paragraph 65 of the Explanatory Memorandum indicates that thecommunication in a broader sense other than the context of NOCLAR is a matter for the relevant
assurance standards to determine and that the IESBA will coordinate with the IAASB on this matteras needed. We hope the IESBA’s coordination with the IAASB, such as encouraging the IAASB toprovide additional requirements on this matter.
However, we have the following suggestions for improvement:To respond more effectively to NOCLAR, we encourage the IESBA to require “shallcommunicate NOCLAR to each other” rather than “shall consider communicating NOCLAR
to each other”. Under the provision “shall consider communicating NOCLAR to each other”,
the decision whether to communicate NOCLAR depends on the judgment of the assurance
practitioner and the auditor. Therefore, there is concern, in particular, as to whether theassurance practitioner who is not a PA can make the appropriate judgment. We believe that“shall communicate” would strengthen the checks and balances on the preparer. Even if thestandard is finalized with “shall consider communicating”, we encourage the IESBA toconsider measures to enhance the effectiveness of responding to NOCLAR, such as providing
guidance to auditors and assurance practitioners in making appropriate judgments. The same
applies to the requirement for the communication among sustainability assurance practitioners
as stated in the third bullet point.

Also, to respond more effectively to NOCLAR, we encourage the IESBA to provide guidanceon the communication between the sustainability assurance practitioner and the auditor andmanagement or those charged with governance (TCWG). Firms with various backgrounds
other than audit firms are likely to become sustainability assurance practitioners under theobjective of profession-agnostic standards. We believe that there is a need for easy-tounderstand guidance that considers assurance practitioners who are not PAs and do not haveexperience in financial statement audits. In addition, there would be many cases where thesustainability assurance practitioner and the auditor belong to different firms, given the current
situation where firms other than audit firms widely provide sustainability assurance
engagements. However, as communication is likely to be more difficult when they belong todifferent firms than when they belong to the same firm, we encourage the IESBA to provide
guidance to clarify how to communicate to each other when belonging to different firms.



In the case of sustainability disclosure standards that require an entity to disclose informationon all material sustainability-related risks and opportunities, such as the ISSB Standards, a―5―

single firm would be the sustainability assurance practitioner, using the work of external
experts. In Japan, sustainability disclosure standards are to be developed and legislated basedon the ISSB Standards. In this situation, it may be sufficient to add provisions on thecommunication between the sustainability assurance practitioner and the auditor. However, inthe transition period until the practice on statutory sustainability disclosures is well established,
there may be multiple sustainability assurance practitioners in voluntary and other reports. As
users who emphasize connectivity between financial and sustainability information, we preferthat a single firm be the assurance practitioner, even for voluntary and other reports. That said,
given the objective of framework-neutral standards and the emphasis on connectivity between
topics of sustainability information, we encourage the IESBA to add a requirement for thecommunication among sustainability assurance practitioners, with due consideration to laws
and regulations and security requirements on information in each jurisdiction.
To strengthen the response to “greenwashing”, we encourage the IESBA to provide guidance
and an explanatory memorandum to clarify that NOCLAR includes material misstatements instatutory disclosures as non-compliance with laws and regulations. The laws and regulations
subject to the NOCLAR provisions are indicated in paragraph 5360.3 as “(a) Laws andregulations generally recognized to have a direct effect on the determination of material
amounts, impacts and disclosures in the client’s financial statements or sustainability
information” and paragraph 5360.5 A2 provides examples of laws and regulations dealing with“securities markets and trading”. Based on these provisions, we understand that material
misstatements in statutory disclosures that could constitute non-compliance under laws andregulations dealing with securities markets or trading are included in NOCLAR. However, we
do not believe that this understanding is readily apparent to many stakeholders. Thisclarification that NOCLAR includes not only non-compliance with laws and regulations
dealing with environment and human rights, but also non-compliance with laws andregulations due to misstatements in statutory disclosures, would enable assurance practitioners
to take further actions to prevent misstatements or mitigate the effects of misstatements.

Group Sustainability Assurance Engagements
10. The IESBA is proposing that the International Independence Standards in Part 5 specificallyaddress the independence considerations applicable to group sustainability assurance
engagements. [See paragraphs 86 to 92 of this document](a) Do you support the IIS in Part 5 specifically addressing group sustainability assurance
engagements? Considering how practice might develop with respect to group―6―sustainability assurance engagements, what practical issues or challenges do you
anticipate regarding the application of proposed Section 5405?
(b) If you support addressing group sustainability assurance engagements in the IIS in Part5:(i)

Do you support that the independence provisions applicable to group sustainability
assurance engagements be at the same level, and achieve the same objectives, as
those applicable to a group audit engagement (see Section 5405)?

(ii) Do you agree with the proposed requirements regarding communication between
the group sustainability assurance firm and component sustainability assurance
firms regarding the relevant ethics, including independence, provisions applicableto the group sustainability assurance engagement? [See paragraph 88 of thisdocument](iii) Do you agree with the proposed defined terms in the context of group sustainability
assurance engagements (for example, “group sustainability assurance engagement”
and “component”)?
Using the Work of Another Practitioner
11. Section 5406 addresses the independence considerations applicable when the sustainability
assurance practitioner plans to use the work of another practitioner who is not under theformer’s direction, supervision and review but who carries out assurance work at asustainability assurance client. Do you agree with the proposed independence provisions set
out in Section 5406? [See paragraphs 93 to 101 of this document]
We basically agree with the following proposal for the independence of group sustainability
assurance engagements, which categorizes cases in which the group sustainability assurance firm isable to or not able to direct, supervise and review the work of the component sustainability assurance
firm.
(1) In the case where the group sustainability assurance firm is able to do so, Section 5405 Group
Sustainability Assurance Engagements applies for independence requirements.
(2) In the case where the group sustainability assurance firm is not able to do so, Section 5406
Another Practitioner Involved in a Sustainability Assurance Engagements for a Single Entity orGroup applies for independence requirements.
However, we have the following suggestions for improvement:•

With a wide variety of firms performing sustainability assurance engagements, many of which
are likely to cross jurisdictional boundaries, there will be differences in independence between―7―the cases where the group sustainability assurance firm is able to or not able to direct, supervise
and review the work of the component sustainability assurance firm. Therefore, we suggestthat the IESBA encourage the IAASB to include relevant assurance procedures in ISSA 5000
to avoid material differences.
•

Since the provisions on the independence of group sustainability assurance engagements are
too conceptual and difficult to understand only by text, we encourage the IESBA to provide
guidance with specific categorization methods and an explanatory memorandum with
illustrative examples and diagrams to improve the understandability of preparers, users, andassurance practitioners. In addition, since the IAASB is considering adding requirements andapplicable guidelines on group sustainability assurance, mainly with reference to theInternational Standard on Auditing (ISA) 600, we encourage the IESBA to cooperate with the
IAASB in developing guidance and an explanatory memorandum on independence for groupsustainability assurance engagements.

Assurance at, or With Respect to, a Value Chain Entity
12. Do you support the proposed definition of “value chain” in the context of sustainability
assurance engagements? [See paragraphs 102 and 103 of this document]
13. Do you support the provisions in Section 5407 addressing the independence considerations
when assurance work is performed at, or with respect to, a value chain entity? [See paragraphs
104 to 110 of this document]
14. Where a firm uses the work of a sustainability assurance practitioner who performs theassurance work at a value chain entity but retains sole responsibility for the assurance reporton the sustainability information of the sustainability assurance client:(a) Do you agree that certain interests, relationships or circumstances between the firm, a
network firm or a member of the sustainability assurance team and a value chain entity
might create threats to the firm’s independence?
(b) If yes, do you support the approach and guidance proposed for identifying, evaluating,and addressing the threats that might be created by interests, relationships orcircumstances with a value chain entity in Section 5700? What other guidance, if any,might Part 5 provide? [See paragraphs 111 to 114 of this document]―8―

We basically agree with the proposals for the following three types of assurance procedures
performed by the sustainability assurance practitioner at, or with respect, to a value chain entity(paragraph 106 of the Explanatory Memorandum), and the independence requirements for each type.
(a) Perform the assurance work at the value chain entity;(b) Use the work of a sustainability assurance practitioner who separately performs the assurance
work at the value chain entity; or(c) Perform the assurance work on the sustainability information of the value chain entity provided
by the sustainability assurance client without carrying out assurance work at that entity.
Also, we basically agree with the proposal that, recognizing that the level of the threats to
independence that might be created by interests, relationships or circumstances involving a value chain
entity will generally be lower, such threats be addressed on a “knows or has reason to believe” principle
basis.
However, we have the following suggestions for improvement:The reporting boundary for sustainability information is broader than the reporting boundary
for financial statements because the former includes value chain entities. On the other hand,
we understand that the IAASB’s ED-5000 does not clarify assurance procedures at, or withrespect to, value chain entities and that the above types (a), (b) and (c) are determined only by
the IESBA. Since the assurance and independence standards should operate under the samedefinition of categorization, we suggest that the IESBA encourage the IAASB to include in
ISSA 5000 the same definition of categorization of assurance procedures and how they operateat, or with respect to, value chain entities. In particular, as it is unclear whether type (c) can beconsidered an effective and independent assurance for sustainability information of value
chain entities, we encourage the IESBA to clarify this matter.



As it may be possible for types (a), (b) and (c) to be combined in the same value chain entity,
we encourage the IESBA to clarify the treatment of such cases.

In assurance engagements at, or with respect to, value chains, there is a wide variety of value
chain entities and their assurance practitioners. However, the proposed provisions on
independence are too conceptual and difficult to understand only by text. To improve theunderstandability for preparers, users, and assurance practitioners, we encourage the IESBA
to provide guidance with specific categorization methods and an explanatory memorandumwith illustrative examples and diagrams.

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

The “knows or has reason to believe” principle may be a well-established concept in financial
statement audit engagements, but for the objective of profession-agnostic standards, we
encourage the IESBA to provide an explanatory memorandum with illustrative examples toreduce diversity in practice among sustainability assurance practitioners other than audit firms
through consistent application of the standard and to improve the understandability of users ofsustainability information.



Since there are no procedures at, or with respect to, value chain entities for auditing financial
statements, we believe that new methods of supervision and monitoring need to be establishedin each jurisdiction regarding the independence of sustainability assurance engagements at, orwith respect to, value chain entities. In this regard, we encourage the IESBA to cooperate with
the IOSCO on this matter.

Sincerely yours,

George Iguchi
Chair
Sustainability Reporting Committee―10―