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ISSB publishes first drafts of sustainability disclosure standards for consultation

The International Sustainability Standards Board (ISSB) has published the first set of its draft  sustainability disclosure standards for consultation (see press release). 

Chaired by Emmanuel Faber (previously CEO at Danone), the ISSB was set up by the IFRS Foundation in November 2021 during COP26 in order to develop comprehensive global standards for companies’ climate and other sustainability-related disclosures (see our previous blog post).

What has been released? 

The ISSB has released two draft standards for consultation:

The Draft Standards are accompanied by a:

  • Snapshot document, providing a high-level summary of the requirements, which includes FAQs on the format of sustainability disclosures, the proposed interaction between the IFRS Accounting Standards and the Draft Standards, and overall timing.
  • Memo, which compares the TCFD recommendations with the Draft Standards and notes that there are some instances where the Draft Standards go further than the TCFD Recommendations (for example, requiring disclosure of performance against previously disclosed sustainability targets and an analysis of trends or significant changes in performance).

Overview of Draft  Standards 

Exposure Draft IFRS S1 on General Requirements for Disclosure of Sustainability-related Financial Information sets out the core content for a complete set of sustainability-related financial disclosures. It requires companies to disclose material information about all significant sustainability-related risks and opportunities to which they are exposed. The materiality judgement is made in the context of the information necessary for investors to assess 'enterprise value'. Information that could be relevant to the assessment of enterprise value is broader than information reported in the financial statements. According to the ISSB snapshot document, this includes information about a company’s impacts and dependencies on people, the planet and the economy when relevant to the assessment of the company's enterprise value. The sustainability-related financial information disclosed would be centered on a company’s consideration of its governance, strategy and risk management and the metrics and targets it uses to measure, monitor and manage significant sustainability-related risks and opportunities. This approach is consistent with the TCFD recommendations, but extends them to sustainability-related risks and opportunities beyond those just related to climate. The Draft Standard would also require disclosure of material information about sustainability-related risks and opportunities across a company’s value chain.  

Exposure Draft IFRS S2 on Climate-related Disclosures uses the same approach as IFRS S1, requiring companies to center disclosures on the consideration of the governance, strategy and risk management of its business, and the metrics and targets they use to measure, monitor and manage their significant climate-related (physical and transition) risks and opportunities. Again, the focus is on information that would enable an investor to assess the effect of climate risks and opportunities on the company's enterprise value. Interestingly, companies would be required to disclose absolute gross Scope 1, Scope 2 and Scope 3 emissions (e.g. supplier and customer emissions). This approach is more stringent than the TCFD recommendations, which only require disclosure of Scope 1 and Scope 2 emissions. However, Scope 3 emissions have been included in the ISSB draft standard as companies will be required to disclose information across the company's value chain. Faber has acknowledged that there is still no generally accepted methodology for calculating Scope 3 emissions but hopes that the ISSB’s push for disclosure and standards will drive progress in this area (see here). Also, the Draft Standard includes industry-based disclosure requirements based on the SASB standards. 

Sustainability-related disclosures under the Draft Standards would be required to be published at the same time as the financial statements (as part of companies’ general purpose financial reporting).  

What next? 

The ISSB is currently seeking feedback on the Draft Standards until 29 July 2022 and plans to finalise the two standards by the end of this year.

Corporates and investors will be waiting to see whether governments decide to adopt the ISSB standards in their national frameworks or develop their own bespoke standards. 

At the EU level, the European Financial Reporting Advisory Group (EFRAG), which is charged with developing the EU’s sustainability reporting standards under the proposed Corporate Sustainability Reporting Directive (CSRD), has already published working papers on its proposed EU sustainability standards (which draw on the four pillars of the TCFD Recommendations: strategy, governance, risks management and metrics and targets). EFRAG intends to update and release official drafts of its standards later this year. It will be interesting to see how much of the ISSB standards are reflected in the new EU standards.

In addition, the ISSB also plans to consult on its standard-setting policies, seeking feedback on the sustainability-related information needs of investors when assessing enterprise value and on the further development of industry-based requirements (for example, building on SASB Standards). 

To facilitate digital consumption of the information, the IFRS Foundation is developing initial proposals for an IFRS Sustainability Disclosure Taxonomy, which are due to be published “shortly”. That would enable electronic tagging of a company’s sustainability disclosures. 


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