Risk & Economy » Climate change » ISSB publishes proposals for first set of global sustainability disclosures

The International Sustainability Standards Board (ISSB) has published its first set of global guidelines on corporate sustainability disclosures in an “important step” towards connecting sustainability and financial reporting, says Larry Bradley, global head of audit at KPMG.

“The creation of globally consistent and transparent sustainability reporting standards will help strengthen the capital markets by helping investors and business leaders make more informed decisions and refresh their focus on building the long-term value of their business.”

The Board, which was formed at COP26 to develop a comprehensive global baseline of sustainability disclosures for capital markets, proposed two standards which are open for public consultation until July 29 ahead of the formal publication later this year.

“These proposals mark a major milestone on the journey towards a set of high quality, widely-applied global sustainability reporting standards,” says Dr Nigel Sleigh-Johnson, director of audit and corporate reporting at the Institute of Chartered Accountants for England and Wales (ICAEW).

The first standard in the proposal sets out general sustainability-related disclosure requirements.

The second focuses on climate-related disclosure requirements covering Scope 1-3 meaning companies will be required to report on direct carbon dioxide (CO2) emissions, indirect emissions from the energy it has bought and all other indirect emissions it is associated with.

“These proposals define what information to disclose, and where and how to disclose it. Now is the time to get involved and comment on the proposals,” said Emmanuel Faber, chair of the ISSB, in a statement.

“Rarely do governments, policymakers and the private sector align behind a common cause. However, all agree on the importance of high-quality, globally comparable sustainability information for the capital markets.”

The exposure drafts are built on the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements from the Sustainability Accounting Standards Board’s (SASB) Standards.

“By building on the TCFD’s framework, the ISSB’s climate proposals will create further consistency, comparability and reliability across climate disclosure so investors can make more informed financial decisions,” said Mary Schapiro, head of the TCFD Secretariat, in a statement.

The UK will become the first G20 nation to mandate TCFD-aligned reporting requirements for its largest businesses come April 6, 2022.

What does this mean for companies?

While the ISSB is not an organisation that can mandate standards, companies should still be prepared for local regulators to pick the standards up and potentially build on them, says Leo van der Tas, assurance partner at EY.

The proposed standards will put pressure on companies to have a robust process in place to gather data, ensure strong internal controls and make the data ready to get assurance from external auditors, he says.

In the meantime, companies should look at the proposals to strengthen their own internal reporting as they might not have enough time to prepare their processes and internal controls if it is taken up by regulators and governments at a local level, says Tas.

For multinational companies, it’s important to pay close attention to what the local requirements are in each jurisdiction it operates in alongside that of its parent company, he adds.

Do they go far enough?

Since the ISSB’s announcement, the proposals have been compared to the EU’s Corporate Sustainability Reporting Directive (CSRD) which comes into force in January 2023.

As part of the CSDR requirements, companies are expected to report on “double materiality” – the impact of a company on the environment, as well as the impact of climate change on a company – going beyond the current proposals outlined by the ISSB.

The CSDR requires information to be assured by an auditor and places a heavy pressure on the finance function, says Tas. “The finance function has much more experience with setting up the right processes, gathering the right data, setting up the internal controls around it [to] make it auditable.

“For the finance function, a lot is going to change. The (CSDR) disclosures go quite far, so gathering the data on this is going to be a challenge for many companies.”

The Securities and Exchange Commission (SEC), on Monday, proposed rules that would require public companies to disclose a range of climate-related risks including Scope 1-3 emissions that are expected to be finalised later this year.

“If you think about it, most of the proposals in the ISSB standards and in the proposed EU standards, as well as the SEC proposals are not that far off,” says Tas.

However, it doesn’t look like the EU and SEC will immediately follow the ISSB’s global baseline for standards, he adds.