ISSB releases draft sustainability and climate disclosures

Author – Jessica Di Bartolomeo

The International Sustainability Standards Board (ISSB) released its sustainability-related and climate-related disclosure drafts on March 31, 2022, four months after the International Financial Reporting Standard (IFRS) announced its creation in November of last year.

The ISSB intends to create a ‘global baseline’ of standards that can be easily integrated into legislated requirements, such as those by Canadian Securities Administrators in Canada and the Securities and Exchange Commission in the United States (both have in fact referenced the work by the ISSB in their recently proposed climate disclosure regulations).

The draft builds off the prototype disclosures developed by the ISSB’s Technical Readiness Working Group in November. The sustainability-related disclosures establish general requirements for reporting sustainability information that is material to financial accounts, while the climate-related disclosures are more specific to risks and opportunities from climate change and specify the cross-industry and industry-specific metrics to report, such as greenhouse gas emissions.

The public consultations on the draft requirements will be held until July 29, 2022 through comment letters or survey response. The ISSB aims to release the final standards by the end of this year.

For many listed businesses, this is a new area of reporting with far-reaching implications for data gathering, calculation, audit and reporting. Ecometrica has been working in regulated markets helping public businesses comply with climate reporting regulations for over 10 years and can help you prepare for the forward-looking requirements of sustainability and climate risk disclosures.

General requirements

The draft standards are based on the recommendations by the Task Force on Climate-related Financial Disclosures (TCFD) for assessing climate-related risks and opportunities, while expanding on the guidance with more specific information and disclosures. 

Given the investor focus of the standards, the ISSB requires that material information be included in a disclosure, in other words, information that impacts financial statements if omitted. 

The requirements replicate the structure of the Sustainability Accounting Standards Board (SASB) by creating a set of standards per sector (Consumer goods, Food & beverages, and infrastructure, for instance) with designated codes to label each disclosure item. They also explicitly refer the reader to SASB and other recent industry-specific standards for sustainability-related risks and opportunities that are not currently directly covered by the ISSB standards, such as water and biodiversity topics. The SASB standards will be consolidated into the ISSB as of June 2022.

As with SASB, the ISSB will coordinate with the Global Reporting Initiative (GRI) multi-stakeholder standards, a collaboration the organizations announced in March to ensure the disclosures are aligned where possible to reduce reporting efforts.

The disclosures are to follow the same time period as financial reporting according to the IFRS and be required every 12 months. These sustainability and climate disclosures will need to cross-reference their related financial statements and explain the connections between them.

Sustainability-related disclosures

The draft sustainability disclosures refer to general financial reporting that examines company value and its sustainability-related risks. Within the four themes of Governance, Strategy, Risk management, and Metrics and targets, the ISSB add disclosures, for example, on:

• The appropriate skills and competencies possessed by the board on climate and sustainability related issues (Governance)
• Expected changes in financial position and performance (Strategy)
• The input parameters used for determining risks (Risk management)
• Comparison of emission reduction targets to the latest international agreement of the United Nations Framework Convention on Climate Change i.e., currently the Paris Agreement (Metrics and targets) 

The reporting entity will need to outline the relationship between the themes and provide comparative information from previous reporting years, starting the second reported year.

Climate-related disclosures

The climate-related requirements specify the cross-industry metrics to report including Greenhouse Gas emissions–scope 1, scope 2 and both upstream and downstream scope 3 emissions– and the value at risk from transition and physical risks, for example. In contrast to TCFD guidance, the ISSB requires that companies separate their GHG disclosures for (1) consolidated accounting groups, and (2) associates, joint ventures, etc. The ISSB drafts reference the GHG Protocol’s methodology to account for emissions.

The climate disclosures also require a company to perform a resilience assessment with scenario analysis unless the entity explains why it is unable to do so, in which case they must complete an alternative evaluation of resilience.

The climate-related requirements include 68 appendices with climate-related industry-specific disclosures, which are largely the same as in the SASB standards. These describe each sector according to the Sustainable Industry Classification system, the relevant disclosure topics, the metrics identified (with related labels), and technical protocols to follow. Changes from the SASB standards include new topics for the financial sector categories.

To avoid duplication between the sustainability and climate disclosures, companies are asked to provide a combined disclosure when relevant.

How Ecometrica can support

Ecometrica specializes in sustainability metrics and have been providing expert climate change and sustainability software for over a decade to help our clients obtain financial-grade sustainability accounts. 

The Ecometrica Platform’s combination of sustainability and mapping capabilities as well as expert support can help you meet ISSB requirements. Our sustainability software can help report your material sustainability metrics and all scope 1, 2 and 3 emissions in line with best practices set out in the GHG Protocol. Our TCFD solutions identify the physical climate risks of your global assets, based solely on their location, for resilience scenario analyses to support your climate risk decision making and provide the confidence you need to report your performance and risks.