ISSB Update October 2022

Research and standard-setting

General Sustainability-related Disclosures (Agenda Paper 3); Climate-related Disclosures (Agenda Paper 4); and Industry-based Materials (Agenda Paper 6)

The ISSB met on 18–21 October 2022 to discuss:

• its plan to redeliberate Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (draft S1) (Agenda Paper 3A);
• the objective of draft S1 and some of its proposed requirements and defined terms (Agenda Paper 3B);
• key matters in draft S1 and Exposure Draft IFRS S2 Climate-related Disclosures (draft S2) that are important to achieving greater interoperability between the ISSB’s proposed global baseline and jurisdiction-specific requirements (Agenda Paper 3C and 4D);
• proposals in draft S2 that would require an entity to disclose its Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions (Agenda Papers 4A–4C); and
• recommendations and a draft plan to integrate industry-based materials into its work plan (Agenda Paper 6).

Update to the plan for redeliberations (Agenda Paper 3A)

The ISSB tentatively decided to add one further topic to its plan for redeliberations; the additional topic relates to the proposal in draft S1 to require an entity to disclose comparative information that reflects the entity’s updated estimates.

All 12 ISSB members agreed with this decision.

Fundamental concepts (Agenda Paper 3B)

The ISSB redeliberated the objective of draft S1, and some of its proposed requirements and defined terms. The ISSB tentatively agreed that:

1. the purpose of draft S1 is to require entities to meet the information needs of the primary users of general purpose financial reporting;
2. ‘material’ in draft S1 shares the same definition as that used in IFRS Accounting Standards; and
3. the definitions of ‘value chain’ and ‘reporting entity’ as proposed in draft S1 should remain unchanged.

The ISSB also tentatively decided:

1. to amend draft S1 by removing the definition of ‘enterprise value’ and the words ‘to assess enterprise value’ from the objective and description of materiality, while planning to continue to redeliberate the meaning of ‘enterprise value’ at a future meeting (in particular, how the term could be more clearly articulated and how it is related to material sustainability-related financial information); and
2. to remove the word ‘significant’ from the proposed requirements to describe which sustainability risks and opportunities an entity would be required to disclose, while continuing to redeliberate the application of materiality and the process used by preparers to identify an entity’s sustainability-related risks and opportunities in order to provide useful information to primary users.

All 12 ISSB members agreed with these decisions.

Interoperability—Key matters (Agenda Paper 3C and 4D)

The ISSB discussed key matters in draft S1 and draft S2 that are important to achieving greater interoperability between the ISSB’s proposed global baseline and jurisdiction-specific requirements.

The ISSB tentatively confirmed:

1. the use of the four pillars, described by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, to structure the core content of the disclosure requirements proposed in draft S1 and draft S2—that is, information will be required on governance; strategy; risk management; and metrics and targets; and
2. the meaning of the global baseline—in particular, that the proposed disclosures that IFRS Sustainability Disclosure Standards would require an entity to make are designed to meet the information needs of investors, creditors and other lenders; that the information to be provided in such disclosures is subject to an assessment of materiality; and that the information can be presented with information disclosed to meet other requirements, such as specific jurisdictional regulatory requirements, but cannot be obscured by that additional information.

All 12 ISSB members agreed with these decisions.

In relation to the proposed requirements in draft S1, the ISSB also tentatively decided:

1. to confirm that the purpose of the proposed disclosure requirements would be to meet the information needs of the primary users of general purpose financial reporting (see Agenda Paper 3B);
2. to remove the definition of ‘enterprise value’ that was included in draft S1, and to remove the words ‘to assess enterprise value’ from the draft S1 objective and description of materiality (see Agenda Paper 3B);
3. to confirm that, consistent with draft S1 and draft S2, short-, medium- and long-term time horizons are not defined; and
4. to confirm the definition of ‘value chain’ that was proposed in draft S1 (see Agenda Paper 3B).

All 12 ISSB members agreed with these decisions.

In relation to the proposed requirements in draft S2 about current effects, the ISSB also tentatively decided to confirm:

1. that paragraph 14 of draft S2 would require an entity to disclose information about the effects of climate-related risks and opportunities on its financial position, financial performance and cash flows for the reporting period (ie the current effects);
2. that separate disclosures are not required for physical risks, transition risks and climate-related opportunities, except as set out in paragraph 21(b)–(d) of draft S2; and
3. the requirement for separate disclosures about assets subject to physical risks, transition risks and climate-related opportunities, in the form of metrics as specified in paragraph 21(b)–(d) of draft S2.

In relation to other proposed requirements in draft S2, the ISSB also made tentative decisions about greenhouse gas emissions, climate resilience and emissions targets.

In relation to greenhouse gas emissions, the ISSB tentatively decided:

1. to confirm the use of the Greenhouse Gas Protocol Corporate Standard (GHG Protocol Standard) to measure GHG emissions, subject to proposed reliefs (see Agenda Paper 4C);
2. to confirm the requirement to disclose Scope 3 emissions, subject to proposed reliefs to address practical challenges (see Agenda Paper 4B); and
3. to confirm the granularity (number of categories) of Scope 3 GHG emissions—in particular, to confirm that an entity must consider the 15 categories from the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (see Agenda Paper 4B).

In relation to climate resilience, the ISSB tentatively decided:

1. to confirm paragraph 15(a) of draft S2, requiring an entity to disclose the results of its analysis of climate resilience and the particular information set out in that paragraph;
2. to confirm paragraph 15(b) of draft S2, requiring an entity to describe how its climate resilience analysis has been conducted;
3. to confirm paragraph 15(b)(i)(4) of draft S2, requiring an entity to disclose whether it has used, among its scenarios, a scenario aligned with the latest international agreement on climate change, thus also confirming: that the language on the latest international agreement on climate change (ie the Paris Agreement) is not ‘hard coded’ into the requirements; and that entities are not required to use a specific scenario related to the latest international agreement on climate change or a 1.5C° scenario; and
4. to require an entity to disclose how it uses climate-related scenario analysis to inform its identification of climate-related risks and opportunities.

In relation to emissions targets, the ISSB tentatively decided:

1. to confirm the proposed requirement to disclose the intended use of carbon credits but to clarify that an entity’s net emissions target(s) and intended use of carbon credits should be disclosed separately from the entity’s gross emission reduction target(s);
2. to use the term ‘carbon credit’ in draft S2 in the context of offsetting emissions in the transition plan;
3. to clarify the different types of targets—in particular, that, under the proposed requirements, a climate-related target is set by an entity to address aspects of its climate-related risks and opportunities (paragraph 13(a) of draft S2) and the role of emissions targets in transitioning to a low-carbon economy (paragraph 13(b) of draft S2); and
4. to clarify that an entity would be required to disclose any emissions targets it has set (both net emission targets and gross emissions reduction targets) and those it is required to meet by local legislation.

All 12 ISSB members agreed with all these decisions.

Scope 1 and Scope 2 greenhouse gas emissions (Agenda Paper 4A)

The ISSB discussed the proposals for an entity to disclose its Scope 1 and Scope 2 GHG emissions.

The ISSB tentatively decided to proceed with the proposed requirement for an entity to disclose:

1. its absolute gross GHG emissions generated during the reporting period, expressed as metric tonnes of CO₂ equivalent, for its Scope 1 and Scope 2 GHG emissions;
2. the approach it used to include its Scope 1 and Scope 2 GHG emissions for the unconsolidated investees (ie associates, joint ventures, unconsolidated subsidiaries or affiliates not included in paragraph 21(a)(iii)(1) of draft S2); and
3. the reason, or reasons, for the entity’s choice of approach required by paragraph 21(a)(iv) of draft S2, and how that relates to the disclosure objective in paragraph 19 of draft S2.

Furthermore, the ISSB tentatively decided to proceed with, but clarify, the proposed requirements for an entity to disclose its Scope 1 and Scope 2 GHG emissions disaggregated separately for:

1. the consolidated accounting group (ie the entity’s parent and its subsidiaries); and
2. the unconsolidated investees.

All 11 ISSB members present agreed with these decisions. One member was absent.

Scope 3 greenhouse gas emissions (Agenda Paper 4B)

The ISSB discussed the proposals for an entity to disclose its Scope 3 GHG emissions.

The ISSB tentatively decided:

1. to proceed with its proposal to require an entity to disclose its Scope 3 GHG emissions, subject to relief that would address the data availability and data quality challenges raised by respondents in the consultation; and
2. to confirm that such a disclosure would include information about which of the 15 Scope 3 GHG emissions categories described in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard are included within the entity’s measure of Scope 3 emissions.

All 12 ISSB members agreed with these decisions.

The ISSB also discussed how to address concerns raised by respondents about the data availability and data quality challenges associated with the disclosure of Scope 3 GHG emissions. In particular, the ISSB considered:

1. introducing a later effective date for disclosures about Scope 3 GHG emissions—addressing transitional challenges associated with data availability;
2. collaborating with security regulators to provide safe harbour provisions—addressing transitional data availability challenges;
3. supporting preparers in the application of the proposed requirement by developing implementation guidance for disclosures about Scope 3 GHG emissions—addressing persistent data quality challenges;
4. amending the proposed requirement to introduce data quality tiers—addressing data availability and data quality challenges to differentiate between the levels of quality present in an entity’s underlying data;
5. assisting preparers in the application of the proposed requirement by specifying when the ‘scope’ of the Scope 3 GHG emissions disclosures must be reassessed; and
6. assisting preparers in the application of the proposed requirement by specifying what a preparer can do when reporting cycles for entities in the value chain do not align with each other and/or with that of the preparer.

Greenhouse gas emissions measurement methods (Agenda Paper 4C)

The ISSB discussed its proposals to require an entity to measure and disclose its Scope 1, Scope 2 and Scope 3 GHG emissions in accordance with the GHG Protocol Corporate Standard.

The ISSB tentatively decided to proceed with the proposed requirement. However, it also tentatively decided to amend its proposal in order to address comments raised in the consultation period. These amendments also apply to the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. (In this Update, the two measurement methods will collectively be referenced as the GHG Protocol Standards.)

Specifically, the ISSB tentatively decided:

1. to amend its proposals so that an entity would be required to apply the GHG Protocol Standards subject to relief in specific circumstances; and
2. to specify that an entity is required to apply the version of the GHG Protocol Standards in force on the date that draft S2 was exposed for comment (31 March 2022). For the GHG Protocol Corporate Standard this is, therefore, the 2004 version, and for the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard this is the 2011 version.

All 12 ISSB members agreed with these decisions.

Industry-based Materials (Agenda Paper 6)

The ISSB discussed decisions it will make regarding industry-based materials, including:

1. the role of the SASB Standards in draft S1;
2. the industry-based requirements in Appendix B to draft S2; and
3. the international applicability of the SASB Standards (beyond those relating to climate).

In relation to the industry-based requirements set out in Appendix B to draft S2, the ISSB tentatively agreed to:

1. maintain the requirement that entities provide industry-specific disclosures; and
2. classify the content in Appendix B as illustrative examples, while stating its intention to make Appendix B mandatory in the future, subject to further consultation.

All 12 ISSB members agreed with this decision.

Next step

At future meetings, the ISSB will continue:

1. to discuss the feedback on draft S1 and draft S2;
2. to redeliberate the project proposals;
3. to redeliberate the proposed disclosures on fundamental concepts related to draft S1; and
4. to redeliberate the proposed disclosure on GHG emissions related to draft S2.

Strategy and governance

Consultation on Agenda Priorities (Agenda Paper 2)

The ISSB met on 18 October 2022 to discuss updates to the planned approach to preparing a request for information on its agenda priorities. The request for information will inform the development of the ISSB’s two-year work plan.

The ISSB tentatively decided that the request for information should:

1. outline work to build on the foundation that will have been established by IFRS S1 and IFRS S2, once finalised (foundational work), and only request stakeholder feedback on proposals for new research and standard-setting projects; and
2. be published in the first half of 2023 to allow the ISSB to decide first on important areas of Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and Exposure Draft IFRS S2 Climate-related Disclosures (draft S2) and associated activities of the ISSB that will affect the initial work plan.

The ISSB also tentatively decided that its foundational work will consist of the activities outlined in paragraph 12(a)–(d) of Agenda Paper 2, which include:

1. enhancing the international applicability of the SASB Standards and continuing legacy SASB Standards projects;
2. developing materials to support capacity building and articulate core concepts, as well as advancing the IFRS Sustainability Disclosure Taxonomy for digital reporting;
3. coordinating with the IASB and other sustainability-reporting standard-setting bodies to support connectivity and interoperability; and
4. continuing research and outreach to identify targeted enhancements of draft S2, once finalised.

All 12 ISSB members agreed with all these decisions except for the decision about foundational work set out in paragraph (d) above. Eleven of 12 ISSB members agreed with that decision.

Next step

The ISSB will review further research and consider additional feedback from stakeholders before deciding which new research and standard-setting projects to include in the request for information.