ISSB provides updates on proposed sustainability and climate disclosure standards

November 9, 2022

The International Sustainability Standards Board (the “ISSB”) published on October 21 an update, as well as two additional updates on November 1 and November 3 (collectively, the “Updates”), on its initial proposed climate and sustainability related disclosure standards – the Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (the “Sustainability Standards”) and Exposure Draft IFRS S2 Climate-related Disclosures (the “Climate Standards”). These updates were released based on feedback received during a 120 day consultation period.

Both the Sustainability Standards and the Climate Standards (together, the “ISSB Standards”) aim to capture information regarding an entity’s governance, strategy, risk management, and metrics and targets as they relate to specific sustainability and climate matters.

Once finalized, the ISSB Standards are designed and anticipated to serve as a comprehensive global baseline for sustainability and climate-related disclosures and to set out requirements for the disclosure of material information about a company’s related risks and opportunities. Our previous post including detailed information and insights on the ISSB Standards is available here.

Key Decisions

The ISSB communicated these key decisions in the Updates:

Updating Definitions of Materiality

The ISSB confirmed that its requirements will focus on meeting the information needs of investors.
The ISSB decided to modify language that was not clearly understood, including by removing the term ‘enterprise value’ from the objective and the assessment of materiality and removing the term ‘significant’ to describe which sustainability risks and opportunities to disclose. The ISSB will refine its articulation of these concepts.
The ISSB confirmed it will use the same definition of ‘material’ as is used in IFRS Accounting Standards. The ISSB will consider further guidance on how to determine what is material information.
In a podcast episode summarizing the International Accounting Standard Board’s (IASB) key decisions taken during the meeting on October 21, the ISSB Chair and Vice-Chair shed light on the rationale to remove the definition of ‘enterprise value’ from the ISSB Standards, citing confusion and conflict with other jurisdictional definitions.

Greenhouse Gas Emissions and Scenario Analysis

For Scopes 1 and 2 greenhouse gas (“GHG”) emissions, the ISSB agreed to the following disclosure policies:

For an entity to disclose its absolute gross GHG emissions generated during the reporting period;
For an entity to disclose the approach used to include its Scope 1 and 2 GHG emissions; and
the reason(s) for the entity’s choice of approach and how that relates to the disclosure objective.

For Scope 3 GHG emissions, the ISSB agreed to:

proceed with its proposal to require entities to disclose Scope 3 GHG emissions, subject to certain means of relief; and
confirm that Scope 3 GHG emissions disclosures would include information about which of the 15 categories of Scope 3 GHG emissions in the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard are included within Scope 3 GHG emissions.

As data availability and quality were common challenges raised in feedback on disclosure of Scope 3 GHG emissions, the ISSB is considering implementing potential means of relief to address these concerns. Potential forms of relief to be considered include:

a later effective date for Scope 3 GHG emissions disclosure;
collaborating with securities regulators to provide “safe harbor” provisions;
preparing implementation guidance for disclosure about Scope 3 GHG emissions;
introducing data quality tiers that assess an entity’s underlying data;
providing guidance on when the ‘scope’ of Scope 3 GHG emissions must be reassessed; and
providing guidance for scenarios where reporting cycles for entities in the value chain do not align with each other and/or with that of the reporting entity.

On November 1, the ISSB confirmed that entities are required to use climate-related scenario analysis to report on climate resilience and to identify climate-related risks and opportunities to support their disclosure.

The ISSB agreed to provide application support to entities including making use of materials developed by the Task Force on Climate-Related Financial Disclosure (“TCFD”) to provide guidance within the Climate Standards on how to undertake scenario analysis, for example:

The ISSB will refer to TCFD guidance that sets out types of scenario analysis, including quantitative, partially quantitative, and qualitative.

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.

At a minimum, 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 Paris-aligned scenario may be relevant.

The ISSB will also acknowledge in its guidance that 'off-the-shelf scenarios', such as those of the Network for Greening the Financial System, may be useful resources for companies.

Interoperability and TCFD Architecture

In the Updates, the ISSB also focused on clarifying key aspects related to interoperability with other jurisdictions and sustainability standards and confirmed the use of the TCFD architecture as the basis of the ISSB Standards.

On November 3, the ISSB published a third update on enhancement of interoperability of the ISSB Standards with other international and jurisdictional sustainability-related standards including a requirement that when meeting the ISSB Standards, entities must consider Sustainability Accounting Standards Board standards both when identifying what sustainability matters to report on and in developing appropriate disclosures.

Timing

The ISSB intends to complete its revisions to the ISSB Standards by the end of 2022, with a target to publish the final iteration as early as possible in 2023.

Update on Canada’s Climate-Related Disclosure Regime

In its comments during the ISSB’s consultation process, the Canadian Securities Administrators (the “CSA”) expressed its commitment to less stringent requirements, referencing the high burdens faced by smaller issuers in meeting the standards proposed by the ISSB and the lack of maturity and consensus surrounding the assumptions, methodologies, and timeframes for assessing climate resilience. The CSA further suggested that the proposed ISSB requirements on disclosure of Scope 3 GHG emissions be on a voluntary basis and introduced through a phased approach.^[1]

In a recent press release, the CSA announced it is currently assessing the impacts of international developments on its own proposed climate-related disclosure rule, acknowledging the “substantive differences” between proposed National Instrument 51-107 - Disclosure of Climate Related Matters (“NI 51-107”), which was published in October 2021, and the TCFD-based proposal published by the US Securities and Exchange Commission in the spring of 2022, in addition to the ISSB Standards. Consequently, it now appears unlikely that NI 51-107 will be finalized before the end of 2022.