In March 2022, the International Sustainability Standards Board (ISSB) published two exposure drafts setting out proposed International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards.

The IFRS, which sets global accounting standards, established the ISSB in light of increasing calls for transparent, reliable and comparable reporting by companies on ESG matters. The proposed standards are intended to provide the first global baseline for sustainability reporting and aim to increase the consistency of reporting on ESG-related matters internationally. The exposure drafts are open for consultation until 29 July 2022.

At present, a myriad of international and national, voluntary and mandatory, standards exist, with varying levels of application and enforcement creating a globally fragmented view of ESG-reporting. This creates a challenge for corporates in terms of their reporting and which standards they can and should choose to adopt in addition to mandatory requirements. It also creates a challenge for investors and other capital market participants in terms of ensuring that they obtain relevant information about corporates in order to discharge the increasing number of ESG-related obligations being imposed on asset-owners. The proposed ISSB standards mark an important step in reaching a unified approach to ESG-reporting.

In the UK, the ISSB exposure drafts are of particular interest given that they are likely to be a key component of new Sustainability Disclosure Requirements (SDRs).

International Sustainability Standards Board global standards


The two ISSB exposure drafts of IFRS Sustainability Disclosure Standards are intended to form a comprehensive global baseline of sustainability disclosures designed to meet the information needs of investors.

The draft standards published so far are:

  • IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information: which would require companies to disclosure information that enables investors to assess the effect of significant sustainability-related risks and opportunities.
  • IFRS S2 Climate-related Disclosures: which sets out reporting standards in relation to the identification, measurement and disclosure of a company's significant climate-related risks and opportunities and incorporates the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations as well as metrics tailored to industry classifications derived from the industry-based SASB Standards.

The proposed standards, would together require companies to report on all relevant sustainability topics and not just on climate-related risks and opportunities. Notably, reporting will be as part of a company's financial statements and released at the same time – highlighting the equal importance the ISSB has placed on sustainability reporting alongside financial reporting.

A snapshot summarising the draft standards has also been published and can be accessed here.

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information

The General Requirements Exposure Draft sets out the core content for sustainability-related financial disclosures. The overarching requirement would be for entities to disclose material information about their significant sustainability-related risks and opportunities. It is proposed that material in this context is determined by reference to the sustainability-related financial information necessary for investors to assess the enterprise value of the entity.

The sustainability-related financial information disclosed would be centred on a company's consideration of its governance, strategy and risk management and the metrics and targets it uses to measure, monitor and manage significant sustainability-related risks and opportunities. This framework is consistent with the framework of the TCFD recommendations.

In addition, the Exposure Draft proposes a number of other contents requirements including that companies should present fairly a complete set of sustainability-related financial disclosures, disclosure of the sustainability related risks and opportunities across the company's value chain and how sustainability-related financial information is related to the information in the financial statements. A number of general features are also proposed which are adapted from existing IFRS Accounting Standards (including IAS 1 Presentation of Financial Statements).

IFRS S2 Climate-related Disclosures

The Climate Exposure Draft proposes requiring a company to disclose information that would enable an investor to assess the effect of climate-related risks and opportunities on its enterprise value. It uses the same approach as the General Requirements Exposure Draft, proposing that a disclose information on the consideration of the governance, strategy and risk management of its business, and the metrics and targets it uses to measure, monitor and manage its significant climate-related risks and opportunities. It also includes a requirement for companies to disclose information about climate-related physical and transition risks and opportunities.

The requirements are consistent with the TCFD's four recommendations and 11 recommended disclosures though there are a few instances where the Climate Exposure Draft would require more granular information to be provided or differs in substance from the guidance published by the TCFD. The ISSB has published a comparison document highlighting these changes which is available here.

Next steps

The consultation on both sets of proposed standards is open until 29 July 2022, with the ISSB planning to issue new standards by the end of the year. Competent authorities in jurisdictions will choose which companies are required to comply with the new standards. In the UK this is likely to be initially those companies subject to the SDRs when they are introduced. In a similar fashion to the disclosure obligations introduced in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations, we would expect to see premium listed companies and large asset owners subject to the new regime first.

Although mandatory reporting in line with the ISSB standards may be some time away, the ever increasing voice of investors and other stakeholders may mean that we see some companies choosing to adopt the new standards voluntarily from inception. This would mean seeing reporting as soon as 2023.

Impact in the UK: interaction with the Greening Finance: A Roadmap to Sustainable Investing

In July 2021, the Chancellor of the Exchequer announced plans to introduce additional disclosure requirements for companies in the form of new SDRs. The proposed SDRs will require companies to report on their sustainability risks, opportunities and impacts as part of a wider UK ESG-centric disclosure system. See our blog post following the Chancellor's announcement here.

Following this, in October 2021, the UK government published a paper titled "Greening Finance: A Roadmap to Sustainable Investing" (the Roadmap) which outlined that the new reporting requirements for companies will mandate disclosure in relation to sustainability risks, opportunities and impacts building upon the existing mandatory TCFD reporting requirements in the UK. The new SDR disclosure obligations are envisioned, subject to consultation, to comprise reporting under proposed international standards being developed by the ISSB. The SDRs will integrate these global standards and adopt the four pillars of the TCFD recommendations.

The Financial Conduct Authority (FCA) has been given responsibility to develop and implement the SDRs. In DP21/4, the FCA outlined that they will where possible base the SDRs on existing international sustainability and classification initiatives for consistency.

The FCA is expected to publish its proposals on the SDRs by mid-2022.

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