ISSB global sustainability disclosure proposals published

Published Date
Mar 31, 2022
The International Sustainability Standards Board (ISSB) published its much-anticipated proposals for a global sustainability disclosure baseline today.

Regulatory fragmentation and the "alphabet soup" of various sustainability disclosure requirements/frameworks have long been cited as barrier to better incorporation of sustainability-related risks into businesses and channelling of capital towards the sustainability transition of the global economy.

The ISSB was established last year after calls for better international cooperation on this front. Sitting alongside the IASB, it aims to produce a global baseline on sustainability reporting, which can either be voluntarily used by organisations or adopted by policymakers as the foundation for their sustainability disclosure regimes.  This approach has been widely endorsed by policymakers and standards-setters, including the G20 and the International Organization of Securities Commissions (IOSCO), whose sustainability reporting workstream is co-chaired by the UK's Financial Conduct Authority.

The ISSB is working with a number of international policymakers with a view to incorporating the global baseline into local mandatory disclosure requirements. Given the close relationship between the EU's European Financial Reporting Advisory Group and the ISSB, and the fact that some jurisdictions have already committed to ISSB-aligned disclosure frameworks, today's draft proposals are an important indicator of the direction of travel in sustainability disclosure policy.

Building on TCFD and SASB

The proposed requirements build on the Task Force for Climate-related Financial Disclosure (TCFD) framework, which as we noted last year is fast becoming the basis for mandatory climate disclosure, risk management and governance requirements across the globe. The TCFD framework is not a corporate reporting standard, but rather a framework for approaching the impact of climate-related risk on organisations, centred around the organisational pillars of governance, strategy, risk management and metrics & targets.
The proposals also incorporate industry-based recommendations derived from the Sustainability Accounting Standards Board (SASB) Standards. The SASB Standards provide quantitative metrics for performance on climate risk and other sustainability issues. The SASB industry standards provide specific disclosure requirements for the consumer goods, extractive & minerals processing, financials, food & beverage, health care, infrastructure, renewable resource & alternative energy, resource transformation, services, technology & communications and transportation industries.

Double materiality

"Double materiality" is an emerging feature of sustainability policy and frameworks, including the EU's proposal for a Corporate Sustainability Reporting Directive and the Taskforce on Nature-related Financial Disclosures. The approach means entities need to not only disclose how they depend on and are affected by sustainability-related external factors, but how the entities impact them in turn. The ISSB proposals include a version of this concept1 - in this context, to reflect the fact that both scenarios could affect enterprise value. For instance, a business that depends on a natural resource could be adversely affected if the quality of that resource deteriorates, and if the business is responsible for that deterioration it could translate into direct financial risks such as regulatory sanction.

General sustainability disclosure requirements

Draft IFRS S1 General requirements for disclosure of sustainability-related financial information (the General Disclosure Requirements) provide the overarching disclosure requirements. They require disclosure of all material information about all significant sustainability-related risks and opportunities, as comprised in the "sustainability-related financial information". This could include information about:

  • governance of and strategy for sustainability-related risks and opportunities;
  • decisions that could result result in future inflows/outflows that are not yet covered by financial statements;
  • reputation, performance and prospects related to its relationships with people, the planet and the economy, and its dependencies and impacts on them; and
  • development of knowledge-based assets.

Where a specific standard does not yet exist on a sustainability topic, entities are directed to consider a number of different sources to identify sustainability-related risks and opportunities, including the disclosure topics in the SASB industry standards, the ISSB's non-mandatory guidance, recent pronouncements by other standard-setters and those risks/opportunities identified by geographical or industry peers.

The core disclosure requirements align with the organisational pillars in the TCFD (albeit expanded beyond climate). Specific elements include a requirement to consider the impact of significant sustainability-related risks in the value chain (mirroring the approach of the EU's CSRD proposal and the complementary proposed Corporate Sustainability Due Diligence Directive) and their resilience to significant sustainability-related risks on a qualitative and, if applicable, quantitative basis.

Given the forward-looking nature of climate risk and nature-related risk, and the relative nascency of this area, metrics often need to be estimated. The General Disclosure Requirements make it clear that reasonable use of estimates in this context is "an essential part of preparing sustainability-related metrics and does not undermine the usefulness of information", even where there is a high degree of estimation. Entities will be expected to identify which metrics have a high level of measurement uncertainty and provide detail on the sources and nature of estimates.

The general disclosure requirements must be disclosed at the same time as financial statements as part of an entity's general financial reporting.

Climate-related disclosure requirements

Draft IFRS S2 Climate-related Disclosures (the Climate Disclosure Requirements) sets out the specific disclosure requirements for climate-related issues.  It follows the 4 pillars of the TCFD framework, requiring entities to disclose:

  • Governance: the governance processes, controls and procedures used to monitor and manage climate-related risk and opportunities;
  • Strategy: which climate-related risks/opportunities could enhance strategy, what management information is provided on them, current and anticipated effects on the business model, those risks/opportunities that could be reasonably expected to affect cash flows, access to finance and cost of capital in the short/medium/long-term and resilience of strategy to climate risk
  • Risk management: how climate-related risks and opportunities are identified, assessed and mitigated; and
  • Metrics and targets: Metrics and targets used to monitor performance.

This will include requirements for entities to disclose their transition plans, Scope 1, Scope 2 and upstream and downstream Scope 3 emissions, internal carbon prices, use of carbon offsets and what percentage of executive management remuneration is linked to climate targets.

Next steps

The consultation on today's draft proposals concludes on 29 July 2022. Subject to feedback, the requirements are expected to be finalised by the end of the year.  The ISSB will also consult later this year on what its priorities should be for the remaining sustainability-related topics beyond climate. 

The ISSB will pick up the mantle of improving the international applicability of the SASB Standards.  It aims to propose changes to the Standards beyond climate as soon as possible.  More detail on the specific timetable for the transitioned SASB workstreams is expected later this year.

Initial proposals for an IFRS Sustainability Disclosure Taxonomy are also expected shortly.  The taxonomy would allow structured electronic tagging of organisations' sustainability disclosures.


Author: Kelly Sporn

1 Double materiality is a debated concept and the term is not used consistently across all jurisdictions.  For an overview of the "weak" and "strong" conceptions, see Täger M (2021) "'Double materiality': what is it and why does it matter?".

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