Blogs

This deck: “ESG Standards and Rule- Making: What You Need To Know” provides an instructive overview of the development, current status, core principles, aims, and planned progression of the ISSB’s proposed general sustainability and climate-specific disclosure standards, which the Society commented on here. The deck accompanies a webinar presented by Society member Neil Stewart, who serves as the Director of Corporate Outreach for the IFRS Foundation, to the ESG Pro Group on November 17.

Neil also provided us with these and other critical takeaways from ISSB discussions to date in response to the consultations on the draft standards:

• The ISSB will use the same definition of “material” as used in IFRS Accounting Standards (consistent with financial materiality), i.e., “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”
• When material, companies will be required to disclose Scope 1, 2, and 3 emissions, subject to the ISSB’s development of relief provisions and collaboration with securities regulators on safe harbour provisions for Scope 3 requirements specifically in response to liability and other concerns. (Note that materiality applies to all disclosure requirements throughout the proposed ISSB standards—a key concept that is often inadvertently misstated or overlooked.)
• Companies will be required to use climate-related scenario analysis (which will be subject to ISSB guidance and scaling based on company capabilities) to report on climate resilience, and to explain whether and how it was used to identify climate-related risks and opportunities.
• Although companies will be required to provide industry-specific climate disclosures, the industry-based disclosure requirements in the appendix to the draft climate standard will be deemed illustrative and voluntary until such time as they are reviewed and refined to ensure cross-jurisdictional relevance, after which time they will become mandatory.
• Although the standards will ultimately require companies’ concurrent reporting of their sustainability-related information and their annual financial statements, based on current implementation challenges, the standards will provide a short period of transition relief allowing companies to report their sustainability-related information with their H1/Q2 financials.

The Society commented on all but one of the above points (i.e., industry standards) in our July 2022 comment letter.