ISSB Provides Updates On Proposed Sustainability And Climate Disclosure Standards – Securities

The International Sustainability Standards Board (the
“ISSB“) published on
October 21 an update, as well as two additional updates on November 1 and November 3 (collectively, the
“Updates“), on its initial proposed
climate and sustainability related disclosure standards – the
Exposure Draft IFRS S1 General Requirements for Disclosure of
Sustainability-related Financial Information (the
“Sustainability Standards“) and
Exposure Draft IFRS S2 Climate-related Disclosures (the
“Climate Standards“). These updates were
released based on feedback received during a 120 day consultation
period.

Both the Sustainability Standards and the Climate Standards
(together, the “ISSB Standards“) aim to
capture information regarding an entity’s governance, strategy,
risk management, and metrics and targets as they relate to specific
sustainability and climate matters.

Once finalized, the ISSB Standards are designed and anticipated
to serve as a comprehensive global baseline for sustainability and
climate-related disclosures and to set out requirements for the
disclosure of material information about a company’s related
risks and opportunities. Our previous post including detailed
information and insights on the ISSB Standards is available here.

Key Decisions

The ISSB communicated these key decisions in the Updates:

Updating Definitions of Materiality

• The ISSB confirmed that its requirements will focus on meeting
  the information needs of investors.




• The ISSB decided to modify language that was not clearly
  understood, including by removing the term ‘enterprise
  value’ from the objective and the assessment of materiality and
  removing the term ‘significant’ to describe which
  sustainability risks and opportunities to disclose. The ISSB will
  refine its articulation of these concepts.




• The ISSB confirmed it will use the same definition of
  ‘material’ as is used in IFRS Accounting Standards. The
  ISSB will consider further guidance on how to determine what is
  material information.




• In a podcast episode summarizing the International
  Accounting Standard Board’s (IASB) key decisions taken during
  the meeting on October 21, the ISSB Chair and Vice-Chair shed light
  on the rationale to remove the definition of ‘enterprise
  value’ from the ISSB Standards, citing confusion and conflict
  with other jurisdictional definitions.

Greenhouse Gas Emissions and Scenario Analysis

For Scopes 1 and 2 greenhouse gas
(“GHG“) emissions, the ISSB agreed to
the following disclosure policies:

• For an entity to disclose its absolute gross GHG emissions
  generated during the reporting period;




• For an entity to disclose the approach used to include its
  Scope 1 and 2 GHG emissions; and




• the reason(s) for the entity’s choice of approach and how
  that relates to the disclosure objective.

For Scope 3 GHG emissions, the ISSB agreed to:

• proceed with its proposal to require entities to disclose Scope
  3 GHG emissions, subject to certain means of relief; and




• confirm that Scope 3 GHG emissions disclosures would include
  information about which of the 15 categories of Scope 3 GHG
  emissions in the GHG Protocol Corporate Value Chain (Scope
  3) Accounting and Reporting Standard are included within
  Scope 3 GHG emissions.

As data availability and quality were common challenges raised
in feedback on disclosure of Scope 3 GHG emissions, the ISSB is
considering implementing potential means of relief to address these
concerns. Potential forms of relief to be considered include:

• a later effective date for Scope 3 GHG emissions
  disclosure;




• collaborating with securities regulators to provide “safe
  harbor” provisions;




• preparing implementation guidance for disclosure about Scope 3
  GHG emissions;




• introducing data quality tiers that assess an entity’s
  underlying data;




• providing guidance on when the ‘scope’ of Scope 3 GHG
  emissions must be reassessed; and




• providing guidance for scenarios where reporting cycles for
  entities in the value chain do not align with each other and/or
  with that of the reporting entity.

On November 1, the ISSB confirmed that entities
are required to use climate-related scenario analysis to report on
climate resilience and to identify climate-related risks and
opportunities to support their disclosure.

The ISSB agreed to provide application support to entities
including making use of materials developed by the Task Force on
Climate-Related Financial Disclosure (“TCFD“) to provide
guidance within the Climate Standards on how to undertake scenario
analysis, for example:

• The ISSB will refer to TCFD guidance that sets out types of
  scenario analysis, including quantitative, partially quantitative,
  and qualitative.

• The ISSB agreed that it would build on the TCFD guidance,
  specifying that scenario analysis must be applied but setting out
  the required approach that is scalable to an entity’s
  circumstances.

• At a minimum, an entity would need to undertake the qualitative
  form of scenario analysis as a basis for its resilience
  analysis.

• The ISSB will provide guidance on which climate scenarios an
  entity should use, depending on their circumstances, including
  industry and country exposure, to provide relevant information to
  investors. This guidance will specify where the inclusion of a
  Paris-aligned scenario may be relevant.

• The ISSB will also acknowledge in its guidance that
  ‘off-the-shelf scenarios’, such as those of the Network for
  Greening the Financial System, may be useful resources for
  companies.

Interoperability and TCFD Architecture

In the Updates, the ISSB also focused on clarifying key aspects
related to interoperability with other jurisdictions and
sustainability standards and confirmed the use of the TCFD
architecture as the basis of the ISSB Standards.

On November 3, the ISSB published a third update
on enhancement of interoperability of the ISSB Standards with other
international and jurisdictional sustainability-related standards
including a requirement that when meeting the ISSB Standards,
entities must consider Sustainability Accounting Standards Board
standards both when identifying what sustainability matters to
report on and in developing appropriate disclosures.

Timing

The ISSB intends to complete its revisions to the ISSB Standards
by the end of 2022, with a target to publish the final iteration as
early as possible in 2023.

Update on Canada’s Climate-Related Disclosure Regime

In its comments during the ISSB’s consultation process, the
Canadian Securities Administrators (the
“CSA“) expressed its commitment to less
stringent requirements, referencing the high burdens faced by
smaller issuers in meeting the standards proposed by the ISSB and
the lack of maturity and consensus surrounding the assumptions,
methodologies, and timeframes for assessing climate resilience. The
CSA further suggested that the proposed ISSB requirements on
disclosure of Scope 3 GHG emissions be on a voluntary basis and
introduced through a phased approach.^[1]

In a recent press release, the CSA announced it is
currently assessing the impacts of international developments on
its own proposed climate-related disclosure rule, acknowledging the
“substantive differences” between proposed National
Instrument 51-107 – Disclosure of Climate Related Matters
(“NI 51-107“), which was published in
October 2021, and the TCFD-based proposal published by the US
Securities and Exchange Commission in the spring of 2022, in
addition to the ISSB Standards. Consequently, it now appears
unlikely that NI 51-107 will be finalized before the end of
2022.

Footnote

1
https://www.ifrs.org/content/dam/ifrs/project/general-sustainability-related-disclosures/exposure-draft-comment-letters/c/canadian-securities-administrators-82b568f9-d8e6-4e09-97da-312293acbd6c/leissb-csacomments20220725vf.pdf

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