International Sustainability Standards Board Begins Public Consultation on Draft Proposed Standards on General Sustainability-Related Financial and Climate-Related Disclosures
In a previous blog post, we noted that the International Sustainability Standards Board (ISSB) will shortly publish its proposed general sustainability-related and climate disclosure requirements.
On 31 March 2022, the ISSB published highly anticipated drafts of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (General Requirements Exposure Draft) and IFRS S2 Climate-related Disclosures (Climate Exposure Draft) for public consultation and comments. Each of the Exposure Drafts are accompanied by a ‘Basis for Conclusions’ and ‘Illustrative Guidance’ document. A high-level summary of the proposed requirements is available here.
The proposed ISSB standards are based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and industry-specific requirements based on the Sustainability Accounting Standards Board (SASB) standards. A comparison between the Climate Exposure Draft and the TCFD requirements has been produced by the International Financial Reporting Standards (IFRS) Foundation. The main differences are additional, more granular information reporting required by the draft standards.
One difference of note, called out in the IFRS Foundation’s comparison, is the slightly different approach to transition plans in the Climate Exposure Draft (at paragraph 13.b). Transition plans are referenced as part of an entity’s strategy, and are therefore “subject to strategy disclosure requirements, with explicit requirements around disclosure of emission reduction targets and the use of carbon offsets”. In this respect, the draft ISSB standards resemble the U.S. Securities Exchange Commission’s proposed disclosure rules (see our Legal Update ‘SEC Proposes Climate Change Disclosure Rules Applicable to Public Companies’).
The proposed ISSB standards, once finalised, are intended to serve as global baseline standards for comprehensive sustainability and climate-related disclosures. Consequently, we anticipate a high degree of public and private sector interest and participation in the consultation. The deadline for responses to the ISSB is 29 July 2022. The received responses will inform the ISSB’s further deliberations on the draft standards in the second half of 2022.
The ISSB’s proposed standards have been welcomed by the international community. The International Organization of Securities Commissions (IOSCO) issued a statement on 31 March 2022 to confirm that it will begin an in-depth review of the draft standards with a view to “informing its potential endorsement of the final standards”. IOSCO encouraged all stakeholders to engage constructively with the ISSB during the consultation. Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group also issued a statement on 31 March 2022 to welcome the publication of the ISSB’s proposed standards. The Securities and Futures Commission and Hong Kong Exchanges and Clearing Limited further intend to engage with the financial and accounting industries and other key stakeholders to discuss and obtain feedback on the application of the ISSB’s proposed standards in Hong Kong.
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