Manifest Climate Unpacks the ISSB’s Draft Sustainability and Climate Disclosure Standards
Manifest Climate, a leading climate technology solutions provider, explains how the draft ISSB standards have the potential to become the baseline for corporate reporting around the world.
A global standard for sustainability- and climate-related disclosure requirements could soon be on the horizon through the International Sustainability Standards Board (ISSB). With this, companies may be wondering what it means for businesses and how the draft standards compare to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
In this blog, Manifest Climate explores the objectives of the ISSB’s draft standards, as well as how they align with and go beyond the recommendations of the TCFD.
ISSB’s draft standards are released
On March 31, the ISSB released a first draft of its general sustainability-related and climate-related disclosure requirements, which have the potential to become the template for corporate sustainability reporting around the world.
The draft standards are inspired by the recommendations of the TCFD. They also incorporate elements from other voluntary sustainability reporting frameworks, like the Sustainability Accounting Standards Board (SASB).
Providing investors with much-needed information
The objective of the ISSB’s draft climate-related disclosure requirements is to provide investors with the information they need to judge how climate-related risks and opportunities could impact a company’s enterprise value.
The ISSB’s draft standards would require companies to disclose sustainability- and climate-related risks and opportunities across their value chains. It’s simply not enough for companies to only report the risks and opportunities that are present within their own operations. They also must describe how climate-related risks and opportunities could affect their inbound and outbound logistics, infrastructure, procurement, and more.
The draft standards recognize that investors want to know a company’s capacity to withstand climate-related risks. That’s why they include disclosure requirements on a company’s assessment of its own strategy’s climate resilience.
Beyond the TCFD
While the ISSB’s draft standards are similar to the recommendations of the TCFD, they also go beyond them. In a statement, TCFD Secretariat Head Mary Schapiro noted the draft ISSB standards were built on the TCFD framework. “The ISSB’s climate proposals will create further consistency, comparability, and reliability across climate disclosure so investors can make more informed financial decisions,” Schapiro said.
The ISSB standards are grouped into the same four pillars as the TCFD: governance, strategy, risk management, and metrics and targets. They also go beyond these pillars, asking reporting companies to explain the connections between their different sustainability-related risks and opportunities. In addition, the draft standards ask businesses to describe the relationships between sustainability-related financial information and the disclosures made in their financial statements.
Importantly, the draft standards say companies must disclose their sustainability-related information as part of their “general purpose financial reporting.” The standards require companies to ensure that their material sustainability-related risk assessments are made “in the context of the information necessary for users of general purpose financial reporting to assess enterprise value.”
Before the standards can be implemented worldwide, they need to go through a couple of stages. First, public feedback on the draft standards needs to be reviewed. The consultation period for this review ends July 29, 2022.
After this step, the ISSB will write up the final standards, which it intends to publish by the end of 2022. These completed standards would be promoted for adoption by jurisdictional authorities. Countries may then choose whether they want to implement them or not.