ISSB vote confirms required use of climate-related scenario analysis

The International Sustainability Standards Board (ISSB) voted Tuesday to confirm that companies are required to use climate-related scenario analysis to report on climate resilience and to identify climate-related risks and opportunities to support their disclosures.

The ISSB also agreed to provide application support to preparers, including making use of materials developed by the Task Force on Climate-Related Financial Disclosures (TCFD), on how to undertake scenario analysis, according to an IFRS news release.

The application support from the ISSB will refer to TCFD guidance that sets out types of scenario analyses, including quantitative, partially quantitative, and qualitative, the news release said. "The ISSB agreed that it would build on the TCFD guidance, specifying that scenario analysis must be applied but setting out the required approach that is scalable to an entity's circumstances," the release said.

At a minimum, the ISSB said, an entity would need to undertake the qualitative form of scenario analysis as a basis for its resilience analysis.

The ISSB will provide guidance on which climate scenarios an entity should use, depending on their circumstances, including industry and country exposure, to provide relevant information to investors. This guidance will specify where the inclusion of a scenario aligned with the Paris climate agreement may be relevant.

To assist preparers, the ISSB will also acknowledge in its guidance that "off-the-shelf scenarios" such as those of the Network for Greening the Financial System (NGFS) may be useful resources for companies, the news release said.

The support will be developed in the final IFRS Sustainability Disclosure Standard S2, Climate-Related Disclosures, including through guidance issued with the standard.

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