New proposals for climate-related disclosure standards by ISSB – This is what you need to know
International investors increasingly demand information on environmental, social and governmental (ESG) matters. Transparency around sustainability and climate-related affairs gains relevance today more than ever. According to the IFRS (International Financial Reporting Standards) Foundation, the current regulations do not ensure that climate-relevant information is disclosed to a reasonable extent, but still encourages an inconsistent and selective application of voluntary standards.
In November 2021 at COP26 in Glasgow, the formation of the International Sustainability Standards Board (ISSB) was announced. The ISSB is an independent private-sector body that operates under the oversight of the IFRS Foundation. Its aim is to develop a globally applicable and comprehensive set of sustainability disclosure standards that works for major economies as well as for emerging markets.
Therefore, the ISSB has proposed two new standards, in order to create further consistency, comparability and reliability across climate disclosure. The standards require companies to reveal relevant information about its significant sustainability-related risks and opportunities, necessary for investors to assess a company’s enterprise value. The G7 welcomes the establishment of the International Sustainability Standards Board and calls on all relevant stakeholders to participate in the ongoing consultation on the proposed standards. In order to create a practical, flexible and proportionate disclosure baseline, that is ultimately suitable for small- and medium-size enterprises, the G7 invites other reporting initiatives to cooperate in the process of elaborating the baseline.
Two ISSB proposals for sustainable-related disclosure
Based on the work of existing investor-focused reporting initiatives – including the Climate Disclosure Standards Board, the Task Force on Climate Related Financial Disclosures (TCFD) and the World Economic Forum´s Stakeholder Capitalism Metrics – the ISSB is working towards the incorporation of the global baseline into legal requirements, with the aim to become the global standards-setter for sustainability disclosure for the financial markets.
Both of the new standards are mainly built upon the recommendations of TCFD. While one of the proposals sets out general sustainability-related disclosure requirements, the other specifies on climate-related disclosure. Learn more about the climate-related disclosure requirements in the following.
What is the goal of the ISSB Climate-related Disclosure Standards?
The objective of „IFRS S2 Climate-related Disclosures“ is to require a company to disclose information about its exposure to significant climate-related risks and opportunities. This enables investors to access relevant information in order to make climate-compatible and sustainable financial decisions. The goal is to assess the effects of significant climate-related risks and opportunities and to understand how a company’s use of resources and activities support managing its risks as well as to evaluate the options to adapt planning, business model and operations to significant climate-related risks and opportunities. Companies are required to disclose information along the dimensions Governance, Strategy, Risk Management and Metrics & Targets. Find more detailed information on the disclosure regulations along those dimensions in the following section.
- Governance body (e.g. board, committee, etc.) with oversight of climate-related risks and opportunities
- Skills and strategies that ensure that climate-related risks and opportunities are being tackled
- Information on the extent to which climate-related opportunities and risks are being considered in the company’s decisions on major transactions and risk management policies
- Effects of climate-related risks on business model, strategy and cash flows
- Climate resilience and flexibility (in terms of transitioning) of strategy and business model
3. RISK MANAGEMENT
- Identification and assessment of climate-related risks and opportunities (Data sources and covered scopes of operations)
- Prioritization of climate-related risks relative to other types of risks within the company
- Processes in comparison to prior reporting periods
4. METRICS & TARGETS
- Information relevant to the cross-industry metric categories, in order to create transparency around the assessment strategy of its performance
- Progress towards the targets it has set (e.g. mitigation or adaptation to climate-related risks or maximizing climate-related opportunities)
How do companies prepare for the ISSB requirements?
Since enterprises will be required to disclose climate-related information along these four dimensions, they will face the challenge to collect climate-relevant data and analyze their climate performance. How do companies prepare for that?
Today, many companies are already using data-driven software tools, which helps them to analyze their climate performance holistically. The Climate Performance Assessment offers a fast and structured data analysis aligned with internationally recognized standards. It enables companies to holistically analyze their climate performance along the four dimensions Governance, Strategy, Metrics & Targets and Transparency. The Climate Performance Assessment is fit to meet the ISSB’s climate-related disclosure requirements as it covers the key disclosure information.
You want to know more? Download our new Whitepaper to find more details on the upcoming ISSB standards and how to prepare for them here.