Board listening to asset owner feedback on draft sustainability disclosure standards.
Despite receiving over 1,400 pieces of feedback on its two exposure drafts, the International Sustainability Standards Board (ISSB) is still on track to deliver its final disclosure standards in Q1 2023. Katie Schmitz Eulitt, ISSB’s Investor Relationships Director and APAC Senior Market Co-leader, said publication would follow the current feedback review.
Speaking at ESG Risk and Investment Asia 2022, Schmitz Eulitt said the ISSB is “aim[ing] to complete discussion and related deliberations on the thousands of feedback letters or comment letters that we’ve received by the end of 2022”.
The ISSB will look to issue final standards “as soon as possible thereafter”, with a target of Q1 2023 confirmed by Schmitz Eulitt. “We are focusing on properly considering all the feedback while recognising the importance of timeliness, so that’s something that we’re trying to balance here,” she said.
When finalised, the standards will be handed over to the International Organization of Securities Commissions’ (IOSCO) – which represents most of the world’s securities and futures markets regulators – for approval. If satisfied, IOSCO will then issue recommendations to members on adopting the ISSB’s new standards. The regulators will then look to change existing rules to incorporate the new standards.
Listening to concerns
The ISSB published two exposure drafts for sustainability disclosure standards in March, calling its climate disclosure standard a “response to calls” from financial reporting users for “more consistent, complete, comparable and verifiable information, including consistent metrics and standardised qualitative disclosures, to help them assess climate-related matters and the associated risks and opportunities”.
The body also released general sustainability reporting requirements which look to establish a global baseline for corporate sustainability reporting across jurisdictions. The consultation period for both drafts closed in August.
Schmitz Eulitt acknowledged that asset owners has raised concerns over certain elements of the draft standards. “We’re hearing concerns about proportionality, questions about enterprise value, timing and data challenges. We’ve heard concerns about timing and publishing financial statements at the same time as sustainability disclosure. We’re taking those into consideration as we deliberate comments on the exposure drafts,” she said.
“On proportionality, there are questions about the application by smaller companies and companies in emerging markets. We’re actively seeking feedback on that particular topic,” Schmitz Eulitt continued, suggesting also that further guidance may be needed “to understand what sustainability related matters are important to inform enterprise value”.
Focus on investors
Schmitz Eulitt said there was a “significant demand” for high quality information on sustainability, with investors and other providers of capital wanting a global standard that meets their information needs across markets.
She said the ISSB’s sustainability disclosure standards would “focus on investor needs” but will also be “compatible with jurisdictional requirements to meet broader stakeholder information needs”.
The IFRS Foundation formally created the ISSB at COP26 in November 2021, incorporating the work and standards of a number of existing standards setters, including the Sustainability Accounting Standards Board (SASB). The IFRS’s financial reporting standards are currently mandated in more than 140 jurisdictions, as well as being allowed in numerous others.
The ISSB’s climate standard builds on the existing and widely adopted Task Force on Climate-related Financial Disclosure (TCFD) framework, whereas the general sustainability standard sets requirements for disclosures on other broader sustainability-related matters. The standard will require companies to disclose how they are both directly and indirectly responding to risks and opportunities, how their subsequent strategy will be resourced, and what consequent changes they expect to financial position and performance over time.
IOSCO Chair Ashley Alder has previously said that the ISSB’s proposed standards will “provide more insight into environmental and other sustainability impacts as and when these become more financially material.”
Compatibility and interconnectedness
Despite the standards consolidation represented by the ISSB, there have been continued investor concerns over a potential lack of consistency in sustainability reporting. The ISSB is looking to address this by working with the Global Reporting Initiative (GRI), which designs sustainability reporting standards for multiple stakeholders, to coordinate and collaborate work programmes and standard setting activities.
The collaboration between the ISSB and GRI “reflects the importance of ensuring compatibility and interconnectedness of investor-focused baseline sustainability information that meets the needs of capital markets with information intended to serve the needs of broad a broader range of stakeholders”, according to Schmitz Eulitt.
Schmitz Eulitt said the ISSB will also consult on its future agenda, including how the body should prioritise setting standards for sustainability risks and opportunities and deliver a plan for putting SASB standards projects that IFRS has inherited through due process.
The ISSB will also continue to develop its capacity building strategy to support and include stakeholders in emerging and developing economies, as well as small and medium enterprises. The body has monthly online board meetings, which investors are able to participate in, as well as publishing work papers in advance and summaries of all meetings.