On 31st March 2022, the newly established International Sustainability Standards Board (ISSB) published two draft IFRS sustainability Disclosure Standard (ISDS) for public consultation. Previously, companies and stakeholders have struggled with the myriad of sustainability standards, frameworks, and metrics. International investors with global investment portfolios are increasingly calling for high quality, transparent, reliable, and comparable reporting by companies on climate and other environmental, social and governance (ESG) matters.
At the UN Climate Change Conference (COP26) in November 2021, the International Financial Reporting Standards Foundation (IFRS Foundation) Trustees announced the creation of the International Sustainability Standards Board (ISSB). The ISSB’s remit is to issue standards that deliver a comprehensive global baseline of high-quality sustainability disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.
The IFRS Foundation also created the Technical Readiness Working Group (TRWG), which comprises Climate Disclosure Standards Board (CDSB), (International Accounting Standards Board (IASB), the Task Force on Climate-Related Financial Disclosures (TCFD), the Value Reporting Foundation (VRF) 1, and the World Economic Forum (WEF) – also known as the ‘Group of five’.
Coinciding with the announcement about the formation of the ISSB at COP26, two prototypes 2 and a summary document developed by TRWG were published, which build up the foundation for the two draft Standards.
Importantly, the ISSB planned to release the 2 EDs for public consultation in the second half of 2022. The issuance of the two Exposure Drafts in March 2022 advances the overall timeline, which implies that the establishment of global sustainability reporting guidelines may be accelerated.
Exhibit 1 The timeline of ISSB development
The architect of the ISSB sustainability standards comprise of presentation standards, thematic standards as well as industry-specific standards. Each of these standards will be set out using the four pillars used in the recommendations by the Task Force for Climate-related Financial Disclosures (TCFD): Governance, Strategy, Risk Management, and Metrics and Targets. The two exposure drafts have been published are:
Exhibit 2 The architect of the IFRS Sustainability Disclosure Standards (ISDS)
Standards focused on matters critical to the way an entity operates.
In the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information Exposure Draft (IFRS S1 ED), it points out that:
In the IFRS S2 Climate-related Disclosures Exposure Draft (IFRS S2 ED), it points out that:
The ISSB standards are expected to be the global baseline for sustainability reporting. Depending on local jurisdictions, there could be additional requirements built on this baseline. These could potentially be very significant for companies; hence it is important for them to engage with the ISSB as they look for comments on the proposed standards. At the same time, they will need to evaluate the impact of these standards on their corporate reporting.
The EDs will be open for comment for 120 days until 29th July 2022. There is likely to be significant interest in the ISSB’s exposure drafts. In addition to responding via comment letters submitted to the ISSB, an alternative method to respond through an electronic survey would also be available. When issued, the ISSB’s standards will make a significant step in responding to investors' needs for sustainability information for them to assess enterprise value and make investment decisions.
Establish the Sustainability-related Governance Structure
Develop a holistic sustainability strategy and mid-to long -term action plan
Formulate the Climate risk management framework
Climate-related disclosure
[1] The Value Reporting Foundation (VRF) is comprised by the SASB Standards and Integrated Reporting (IIRC) in 2020.
[2] One is the General Requirements for Disclosure of Sustainability-related Financial Information Prototype, and the other is Climate-related Disclosures Prototype
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