Latest developments on draft ISSB standards

The International Sustainability Standards Board (ISSB) is expected to publish the final version of the climate and general disclosures standards in June. For more information on the drafts, see our previous blog post. 

It will also consult on a series of issues, including reporting on biodiversity, human capital and human rights, as well on the connectivity of financial reporting with sustainability reporting.

The ISSB has said it will allow omission of commercially sensitive information where it is not already public and when disclosing the information could “be expected to prejudice seriously” the economic benefits the company could otherwise expect from pursuing the opportunity. Reporting entities would be required to state their use of the clause and say why it chose to do so.

Last year, the ISBB decided that reporting entities should be required to use scenario analysis to prepare information about their resilience to climate change but “acknowledged that scenario analysis would encompass a range of practice, from qualitative scenario narratives to complex statistical modelling”. The ISSB has now approved a definition that requires an entity to conduct analysis that will enable it to consider all information “that is available without undue cost or effort” to understand how climate change could materially affect its value. 

The intention is to help reporting entities “advance through [three] stages of progression” in terms of sophistication of scenario analysis:

• “just beginning” – including qualitative scenario narratives;
• “gaining experience” – with scenarios and associated analysis using quantitative information; and
• “advanced experience” – with greater rigour and sophistication in the use of data sets and mathematical models to support statistical analysis and quantitative, entity-specific outputs.

The ISSB said it would require the use of a method “commensurate with the entity’s circumstances”. The starting point for climate-related scenario analysis “may take the form of publicly available, off-the-shelf scenarios [and] is likely to provide a minimum basis for the assessment at almost no cost or effort”. However, it has said that some entities in the most carbon-intensive sectors (such as extractives and minerals processing), which are likely to have been working on climate-related scenario analysis for years, can be expected to undertake the most sophisticated analysis.

Also, as a result of feedback, the ISSB has decided to remove references to “enterprise value” so as to avoid confusion. The ISSB has updated its definition of “sustainability” as “the ability for a company to sustainably maintain resources and relationships with and manage its dependencies and impacts within its whole business ecosystem over the short, medium, and long term”. And it has clarified that “a company’s ability to deliver value for its investors is inextricably linked to the stakeholders it works with and serves, the society it operates in, and the natural resources it draws on”. However, the decision does not change the ISSB’s decision to focus on single materiality as opposed to double materiality.

The ISSB has also voted in favour of a package of “relief provisions” for Scope 3 emissions disclosures, which includes a temporary exemption from the proposed requirement to disclose Scope 3 emissions for a minimum of one year.

The ISSB and IFRS have also been working closely with the International Organization of Securities Commissions (IOSCO) and expect the organisation’s endorsement of the ISSB first set of sustainability standards “relatively soon”. 

In the meantime, the US SEC is expected to publish its new climate disclosure rules in April.