The International Sustainability Standards Board (ISSB) is inviting feedback for two proposed standards as it launches a 120-day consultation into how best companies can disclose on sustainability and climate change credentials.
As announced at COP26, the IFRS was tasked with creating the ISSB Sustainability Disclosure Standards with “urgent need” for this “repeatedly highlighted”, today’s report stated.
The two sets of standards have been designed to complement each other with the first, the general sustainability-related disclosure requirements, outlining big picture sustainability disclosures and the second, climate-related disclosure requirements, focuses on climate.
When the ISSB issues the final requirements on these, they will form a comprehensive global baseline of sustainability disclosures designed to meet the information needs of investors in assessing enterprise value, a statement said.
In the exposure draft titled IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, the IFRS said the general requirements for disclosure of sustainability-related financial information is to ensure companies are outlining their significant sustainability related risks and opportunities so that those that analyse financial reports can assess “enterprise value”, the report said.
The four core components that need to be disclosed on in line with the current proposals for the Sustainability Disclosure Standards are:
(a) governance—the governance processes, controls and procedures the entity uses to monitor and manage sustainability-related risks and opportunities;
(b) strategy—the approach for addressing sustainability-related risks and opportunities that could affect the entity’s business model and strategy over the short, medium and long term;
(c) risk management—the processes the entity used to identify, assess and manage sustainability-related risks;
(d) metrics and targets—information used to assess, manage and monitor the entity’s performance in relation to sustainabilityrelated risks and opportunities over time.
Meanwhile, the Climate-related Disclosure Standards, which are built upon recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), will aim to create “more consistent, complete, comparable and verifiable information, including consistent metrics and standardised qualitative disclosures”, which will help assess how climate-related matters and the associated risks and opportunities affect companies’ financial performance, cash flows over the medium and long term and the entire strategy and business model.
The current proposals, as outlined in the IFRS S2 Climate-related Disclosures exposure draft would require an entity to provide information that enables users of general purpose financial reporting to understand:
- governance—the governance processes, controls and procedures an entity uses to monitor and manage climate-related risks and opportunities;
- strategy—the climate-related risks and opportunities that could enhance, threaten or change an entity’s business model and strategy over the short, medium and long term, including: • whether and how information about climate-related risks and opportunities inform management’s strategy and decision-making;
- the current and the anticipated effects of climate-related risks and opportunities on its business model;
- the effects of climate-related risks and opportunities that could reasonably be expected to affect the entity’s business model, strategy and cash flows, its access to finance and its cost of capital, over the short, medium or long term;
- the resilience of its strategy (including its business model) to climate-related risks;
- risk management—how climate-related risks and opportunities are identified, assessed, managed and mitigated by an entity;
- metrics and targets—the metrics and targets used to manage and monitor an entity’s performance in relation to climate-related risks and opportunities, including:
- performance and outcome measures that support the qualitative disclosures across governance, risk management and strategy disclosure requirements;
- targets that an entity uses to measure its performance goals related to significant climate-related risks and opportunities.
Emmanuel Faber, chair of the ISSB, commented: “Rarely do governments, policymakers and the private sector align behind a common cause. However, all agree on the importance of high quality, globally comparable sustainability information for the capital markets. These proposals define what information to disclose, and where and how to disclose it. Now is the time to get involved and comment on the proposals.”
The ISSB is seeking feedback on the proposals over a 120-day consultation period closing on 29 July 2022. It will review feedback on the proposals in the second half of 2022 and aims to issue the new standards by the end of the year, subject to the feedback.
The statement also said initial proposals for an IFRS Sustainability Disclosure Taxonomy, enabling structured electronic tagging of a company’s sustainability disclosures, will be published shortly.