ISSB confirms requirement to use climate-related scenario analysis

The International Sustainability Standards Board (ISSB) unanimously confirmed that companies will be required to use climate-related scenario analysis to inform resilience analysis. 

At the supplementary board meeting held on 1 November 2022, the ISSB voted to confirm that companies are required to use climate-related scenario analysis to report on climate resilience and to identify climate-related risks and opportunities to support their disclosures. 

The ISSB also agreed to provide application support to preparers including making use of materials developed by the Task Force on Climate-Related Financial Disclosures (TCFD) to provide guidance to preparers on how to undertake scenario analysis. This decision responds to questions from stakeholders about what is meant by the term 'climate-related scenario analysis'.

Application support

• 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.
• To assist preparers the ISSB will also acknowledge in its guidance within the Standard that 'off-the-shelf scenarios' such as those of the Network for Greening the Financial System (NGFS) may be useful resources for companies.

The above will be developed in the final IFRS Sustainability Disclosure Standard S2—Climate-related Disclosures including through guidance issued with the Standard. This decision builds on other decisions the ISSB made related to climate-related disclosure at its October meeting.

A further supplementary board meeting will be held on 3 November at which the board will discuss the proposals in S1 General Requirements for Sustainability-related Disclosures about relevant materials to be considered in developing sustainability-related financial disclosures in the absence of a specifically applicable IFRS Sustainability Disclosure Standard.