ISSB launches consultation on its first two proposed standards
By Anne Adrain, Head of Sustainability and Reporting
5 April 2022
This article focuses on the ISSB’s consultation on its first two proposed standards.
On 31 March 2022, the International Sustainability Standards Board (ISSB), launched a consultation on its first two proposed standards. One sets out general sustainability-related disclosure requirements and the other specifies climate-related disclosure requirements.
The proposals contained in the exposure drafts build upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements derived from the Sustainability Accounting Standards Board (SASB) Standards. The exposure drafts (EDs) consolidate content from the TCFD, the Climate Disclosure Standards Board (CDSB), the Value Reporting Foundation (VRF), which houses Integrated Reporting and SASB, and the World Economic Forum’s International Business Council’s (IBC) stakeholder capitalism metrics.
The proposals, when finalised, are intended to form a comprehensive global baseline of sustainability disclosures designed to meet the information needs of investors in assessing enterprise value. The ISSB is working closely with other international organisations and jurisdictions to support the inclusion of the global baseline into jurisdictional requirements.
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 received on the EDs.
The proposals have been developed in response to requests from G20 leaders, the International Organization of Securities Commissions (IOSCO) and other stakeholders for enhanced information from companies on sustainability-related risks and opportunities. The proposals set out requirements for the disclosure of material information about a company’s significant sustainability-related risks and opportunities that is necessary for investors to assess a company’s enterprise value.
Later this year, the ISSB will consult on its standard-setting priorities. This consultation will include seeking feedback on the sustainability-related information needs of investors when assessing enterprise value and on further development of industry-based requirements, building on the SASB Standards, which address a broad range of sustainability matters.
The ISSB has also set out its plan for how its work will build on the SASB Standards and industry-based standard-setting processes.
The ISSB will embed the industry-based approach used by the SASB into its standard-setting process. The SASB Standards are the source of the industry-based requirements in the Climate ED. On finalisation, these would become a required component of the ISSB’s Climate Standard.
Summary of the two exposure drafts (EDs)
The General Requirements ED proposes that entities provide material information on all significant sustainability-related risks and opportunities necessary to assess enterprise value. In the absence of specific IFRS Sustainability Disclosure requirements, this ED requires companies to consider SASB Standards to identify sustainability-related risks and opportunities and to develop appropriate disclosures. This enables IFRS Sustainability Disclosure Standards to make use of the range of sustainability-related risks and opportunities covered by the SASB Standards from inception with the status of implementation guidance.
Addressing international applicability of the suite of SASB Standards is a priority for the ISSB and forms part of the ISSB’s initial work plan. In line with this commitment the Climate ED includes proposals which are aimed at improving the international applicability of the SASB’s industry-based climate-related requirements.
SASB’s ongoing work on international applicability (beyond climate) will be transitioned to the ISSB, with the aim of the ISSB producing proposed changes to the SASB Standards as soon as practicable. The ISSB intends to improve the international applicability of the SASB Standards prior to the finalised version of the General Requirements ED coming into effect.
SASB Standards will serve as the starting point for the ISSB’s industry-based requirements.
On consolidation of the VRF:
- the SASB Standards will become materials of the IFRS Foundation with the status of implementation guidance (consistent with the status proposed in the General Requirements ED); and
- the ISSB will assume responsibility for the evolution and enhancement of SASB’s 77 industry-based Standards.
Current ongoing SASB projects are to be transitioned to the ISSB and continued. The SASB is expected to publish proposed changes arising out of several of its ongoing projects prior to the ISSB assuming responsibility for the SASB Standards. These proposed changes, as well as the climate and human capital research projects and other current SASB projects, will be transitioned to the ISSB. The IFRS Foundation intends to progress these projects as currently resourced, while the consultation on the ISSB’s agenda planned for 2022 will inform their detailed delivery plan. The ISSB actively encourages preparers and investors to continue to provide full support for and to use the SASB Standards in this transition phase.
ICAS will be responding to these exposure drafts. Any member with comments on the EDs should send these to James Barbour, Director, Policy Leadership at jbarbour@icas.com.