ISSB exposure draft of climate-related disclosures

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31 Mar 2022

The Chair and Vice-Chair of the International Sustainability Standards Board (ISSB) have published the exposure draft 'Climate-related Disclosures' that builds on the TRWG prototype of the same name. The resulting standard would be the first thematic standard of the ISSB. Comments on the proposal are requested by 29 July 2022.

 

Background

In November 2021, the IFRS Foundation announced the creation of its new International Sustainability Standards Board (ISSB) tasked with developing a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.

In order to facilitate a running start of the ISSB, a Technical Readiness Working Group (TRWG) had been created in March 2021. Concomitantly with the announcement of the formation of the ISSB, the TRWG published a Climate-related disclosures prototype.

In an additional meeting in March 2022, the Due Process Oversight Committee (DPOC) confirmed that it does not object to the ISSB Chair and Vice-Chair publishing the exposure draft Climate-Related Disclosures that builds on the TRWG prototype before the ISSB is quorate.

The proposed standard on climate related disclosures published today is accompanied by an exposure draft of a standard covering general requirements for sustainability-related disclosures.

 

Key proposals

The main proposals in ED/2022/S2 Climate-related Disclosures generally reflect the proposals in the prototype and are structured around the four TCFD pillars of governance, strategy, risk management, and metrics and targets. Some changes were made to improve specificity and clarity with some added disclosure requirements. One noticeable change regards the internationalisation of metrics that referred to specific jurisdictions. The proposals cover the following aspects of climate-related disclosures:

  • Objective: The proposed objective of the standard is to require an entity to disclose information about its exposure to climate-related risks and opportunities that would enable users of an entity’s general purpose financial reporting to assess the effects of significant climate-related risks and opportunities on the entity’s enterprise value, to understand how the entity’s use of resources support the entity’s response to significant climate-related risks and opportunities, and to evaluate the entity’s ability to adapt to significant climate-related risks and opportunities.
  • Scope: The standard would apply to climate-related risks that the entity is exposed to, including physical risks and transitional risks, and to climate-related opportunities available to the entity.
  • Governance: Under the proposed standard, an entity would disclose information that enables users of general purpose financial reporting to understand the governance processes, controls and procedures used to monitor and manage climate-related risks and opportunities. This would include information about the governance body or bodies with oversight of climate-related risks and opportunities, and a description of management’s role regarding climate-related risks and opportunities.
  • Strategy: An entity would disclose information that enables users of general purpose financial reporting to understand the strategy for addressing climate-related risks and opportunities. This would include information about:
    • the significant climate-related risks and opportunities that it reasonably expects could affect its business model, strategy and cash flows, its access to finance and its cost of capital,
    • the effects of them on its business model, value chain, strategy and decision-making, financial position, financial performance and cash flows, and
    • the climate resilience of its strategy to significant physical risks and significant transition risks.
  • Risk management: An entity would disclose information that enables users of general purpose financial reporting to understand how climate-related risks are identified, assessed, and managed. This would include information about:
    • the process, or processes, used to identify climate-related risks and opportunities, and climate-related risks for risk management purposes,
    • the process, or processes, used to identify, assess and prioritise climate-related opportunities;
    • the process, or processes, it uses to monitor and manage the climate-related risks, and 
    • the extent to which and how the climate-related risk identification, assessment and management process, or processes, are integrated into the entity’s overall risk management process and the entity’s overall management process.
  • Metrics and targets: An entity would disclose information that enables users of general purpose financial reporting to understand the entity’s performance in measuring, monitoring and managing climate-related risks and opportunities. This would include information about cross-industry metric categories, industry-based metrics other metrics used by the board or management to measure progress towards its targets, and targets set by the entity to mitigate or adapt to climate-related risks or maximise climate-related opportunities so that users of general purpose financial reporting can understand how the entity assesses its performance and its progress towards the targets it has set.

The deadline for submitting comments on these proposals is 29 July 2022.

The ISSB has also developed a survey to support stakeholders in responding to the proposals in the exposure draft as an alternative or in addition to a comment letter.

 

Transition and effective date

The standard would be applied prospectively. Comparative information would not be required to be disclosed in the first period in which an entity applies the proposed standard.

The Board intends to decide on the effective date after exposure. Earlier application would be permitted.

 

Additional information

The following additional information is available on the IFRS Foundation website and on IAS Plus:

The press release also notes that the ISSB's proposals will be presented in two live webinars on 28 April at 9am and 5pm BST.

In addition to publishing its first two exposure draft, the ISSB has also published a statement on its plans for building upon the SASB standards and for embedding SASB’s industry-based standards development approach into the ISSB’s standards development process. The statement discusses the industry-based approach to standards development, the inclusion of SASB standards in the exposure drafts published today, the commitment to improving the international applicability of SASB standards, the starting point for ISSB industry-based requirements, and current SASB projects. The statement also notes that the ISSB actively encourages preparers and investors to continue to provide full support for and to use the SASB Standards in this transition phase. Please click to access the full statement on the IFRS Foundation website.

In a statement on the IOSCO website, the Monitoring Board of the IFRS Foundation welcomes the publication of the two exposure drafts and notes that the Monitoring Board remains focused on supporting the development of a comprehensive global baseline of sustainability disclosure standards that can used across jurisdictions in accordance with their own legal framework, while making sure the actions of both IFRS Foundation standard-setting boards are coordinated, aligned and in the public interest.

 

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