ISSB sets out draft sustainability standards, 6-point plan

The first two draft sustainability disclosure standards from the recently formed International Sustainability Standards Board (ISSB) were set out for consultation Thursday.

The ISSB also set out a six-point plan for how it will build on the Sustainability Accounting Standards Board (SASB) standards and embed SASB's industry-based standards development approach into its own.

The two draft standards, [Draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and [Draft] IFRS S2 Climate-related Disclosures, build upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements derived from SASB standards, the ISSB said.

Emmanuel Faber, ISSB chair, said that governments, policymakers, and the private sector rarely "align behind a common cause". He added: "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."

Mary Schapiro, head of the TCFD Secretariat, said: "By building on the TCFD's framework, the ISSB's climate proposals will create further consistency, comparability, and reliability across climate disclosure so investors can make more informed financial decisions."

Comments on the drafts — made online or emailed to commentletters@ifrs.org — are due 29 July 2022.

General reporting requirements

The exposure draft for general reporting requirements:

• Would require an entity to disclose material information about all the significant sustainability-related risks and opportunities to which it is exposed;

• Includes proposed requirements and guidance to support the disclosure of material information about significant sustainability-related risks and opportunities not specifically addressed by an IFRS sustainability disclosure standard;

• Would require an entity to explain the connections between different pieces of information, including between various sustainability-related risks and opportunities and information in the entity's financial statements;

• Would require disclosure of sustainability-related financial information as part of, ie, at the same time as, the entity's general-purpose financial reporting.

Climate disclosures

The proposed climate-related disclosure standard would require an entity to provide information that enables financial reporting users to understand:

Governance. This would include the governance processes, controls, and procedures an entity uses to monitor and manage climate-related risks and opportunities.

Strategy. This would include 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 informs management's strategy and decision-making;
• The current and 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; and
• The resilience of its strategy (including its business model) with respect to climate-related risks.

Risk management. This would include how climate-related risks and opportunities are identified, assessed, managed, and mitigated by an entity.

Metrics and targets. This would include 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; and

• Targets that an entity uses to measure its performance goals related to significant climate-related risks and opportunities.

Building on SASB standards

In its plan also published Thursday, the ISSB identified ways it will build on the SASB standards and embed SASB's industry-based standards development approach into its own standards development process.

The ISSB will:

• Take an industry-based approach to standards development.

• Include SASB standards in the two published exposure drafts.

• Commit to improving international applicability of SASB standards.

• Use SASB standards as the starting point for the ISSB's industry-based requirements.

• Transition the SASB's ongoing projects to the ISSB and continue them.

• Encourage preparers and investors to continue to use the SASB standards in this transition phase.

— To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.