Sustainability disclosures are reports that companies compile to inform stakeholders of the impact of their Environmental, Social, and Governance (ESG) outputs and the initiatives they intend to undertake concerning these. It’s also a way for companies to show transparency and accountability — factors that are especially important to investors. The call to regulate and standardise sustainability disclosures came as a result of the varying formats, content, and reliability of reports received from different institutions. Hence, the formation of the ISSB.
What is the ISSB?
The ISSB, or the International Sustainability Standards Board, was established by the International Financial Reporting Standards (IFRS) Foundation Trustees, who formally introduced it at COP26 in November 2021. The purpose of the ISSB is to develop and improve ESG disclosure standards for investors and the capital markets.
Since its establishment, the ISSB has proposed two standards. These ISSB standards are the General Requirements Exposure Draft and the Climate-related Disclosures Exposure Draft.
The Exposure Drafts Explained
A consultation was launched regarding the ISSB General Requirements for Disclosure of Sustainability-related Financial Information in March 2022. This proposal is also referred to as the General Requirements Exposure Draft. The draft lays out the overall requirements for an organisation to disclose sustainability-related financial information about the risks and opportunities to which it is exposed.
It also proposes that an organisation gives a full and comprehensive set of sustainability-related disclosures to assess the entity’s enterprise value. This draft is highly commended by UNEP FI, who appreciate the wealth of information a primary user may attain to make investment decisions because of this ISSB standard.
The objective of the Climate-related Disclosures Exposure Draft is for entities to relay information about their exposure to risks and opportunities for climate-related matters. It’s another step in assessing an entity’s enterprise value, especially concerning its future cash flow.
Here are some of the requirements of the Exposure Drafts:
Alignment with the TCFD Recommendations
Recommendations from the Task Force on Climate-Related Disclosures (TCFD) form the basis upon which the Exposure Drafts were created. Sustainability disclosures would need to be based on the four TFCD pillars, namely: strategy, metrics and targets, governance, and risk management. For these standards to apply worldwide, a change had to be made to ensure the global baseline would be interoperable while building on jurisdiction-specific metrics.
Industry-Based Disclosure Requirements
The ISSB has committed to continue the efforts of current reporting facilities for the financial markets’ sustainability disclosures. One such initiative is the development of the Sustainability Accounting Standards Board’s (SASB) industry-based standards. These form the basis for the industry-based requirements in the Climate-related Disclosures Exposure Draft. Once finalised, these will become part of the ISSB’s Climate Standard.
Recent Developments on the ISSB Proposals
The feedback that was received over the consultation period, which ended in July 2022, allowed for a 120-day comment period on the ISSB’s proposed standards. During this comment period, the ISSB took part in over 400 outreach events and engaged with stakeholders on a global scale.
Scalability
Between 20-23 September, the ISSB convened to discuss the feedback received from this comment period and the proposed plan for rethinking these drafts and how to amend them. The amendments would introduce ways to allow organisations with differing preparedness and capabilities to implement these proposals.
These scalability challenges were met with mechanisms such as the allowance of alternative disclosures, additional guidance on current protocols and frameworks, as well as differentiating between ‘basic’ and ‘advanced’ disclosure requirements.
IASB and ISSB’s Integrated Reporting Framework
As part of the commitment to the ISSB becoming the international standard-setter for market sustainability disclosures, the ISSB and IASB, or the International Accounting Standards Board, assumed responsibility for continuing to develop the Integrated Reporting Framework.
Through this framework, the quality of information disclosed will improve, the approach to corporate reporting will be more streamlined and cohesive, and the focus of integrated thinking and decision-making will centre on creating value.
Laying the Foundation for a Comprehensive Global Baseline
In May 2022, the ISSB laid out the procedure for completing a comprehensive global baseline of sustainability disclosures. The objective of the global baseline is to minimise the fragmentation of sustainability disclosure requirements. It will also reduce the cost to data preparers and enhance the usability of the data. The intrinsic elements of the baseline require the setting of necessary institutional and technical standards.
The ISSB hopes to have this step completed by the end of 2022. While this may be the intent, Vice-Chair of the ISSB, Sue Lloyd, has assured us that quality will take precedence over speed: “We can only succeed if the solutions we come up with are acceptable to them [stakeholders and jurisdictions]. We are building a global baseline so it is worth spending the time to make sure we get it right.”
Get ready for ISSB Standards with Convene ESG
With the rollout of ISSB standards not too far in the future, you don’t want to be left at the back of the pack due to a lack of preparation. Convene ESG offers an end-to-end process, helping you develop, maintain, and review your organisation’s ESG initiatives and sustainability reporting.
Learn more about how Convene ESG can equip you for the onset of ISSB reporting standards.
