ISSB Update December 2022

Research and standard-setting

General Sustainability-related Disclosures (Agenda Paper 3)

The ISSB met on 13 December 2022 to redeliberate some of the proposals in its Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (draft S1).

The ISSB tentatively decided to clarify the objective of draft S1 by describing:

1. how the value that an entity creates, preserves or erodes for itself and for its investors and creditors is inextricably linked to the value the entity creates for other stakeholders, society and the natural environment; 
2. how an entity uses its resources and relationships in creating value for itself and for its investors and creditors; 
3. how an entity’s reliance on its resources and relationships and the entity’s negative or positive effects on its resources and relationships can give rise to sustainability-related risks and opportunities for the entity; and 
4. how sustainability-related risks and opportunities can affect an entity’s performance, prospects, business model, strategy, and the value the entity creates for itself and for its investors and creditors over the short, medium and long term. 

All 14 ISSB members agreed with these decisions.

The ISSB also tentatively decided to expand and clarify aspects of the draft S1 Illustrative Guidance:

1. to clarify the distinction and connection between:
   1. identifying sustainability-related risks and opportunities; and 
   2. identifying material information about those risks and opportunities.
2. to provide additional guidance to help an entity identify the sustainability-related risks and opportunities about which it is required to provide information. Such guidance might include:
   1. a general description of sustainability-related risks and opportunities;
   2. a description of factors the entity could consider in identifying sustainability-related risks and opportunities; and
   3. a description of the process the entity might follow in identifying sustainability-related risks and opportunities. 
3. to provide additional guidance to help an entity identify material information in the context of sustainability-related financial disclosures. Such guidance might discuss:
   1. primary users of an entity’s sustainability-related financial disclosures and the decisions they make; 
   2. how to make materiality judgements that take into account an entity’s specific circumstances; and
   3. how to make materiality judgements in conditions of uncertainty.
4. to illustrate how an entity with a complex business model, such as one that spans multiple industries, might approach identifying sustainability-related risks and opportunities and identifying material information about those risks and opportunities using the SASB Standards.

The additional illustrative guidance described in (a)–(c) would draw on available market resources, including IFRS Practice Statement 2 Making Materiality Judgements, and the International Accounting Standards Board’s Exposure Draft Management Commentary. 

All 14 ISSB members agreed with these decisions.

Next step

The ISSB will continue to redeliberate the proposed disclosures on other topics related to draft S1 at a future meeting.

Climate-related Disclosures (Agenda Paper 4)

The ISSB met on 14–15 December 2022 to redeliberate proposals in its Exposure Draft IFRS S2 Climate-related Disclosures (draft S2) relating to:

• requirements for an entity to disclose its greenhouse gas (GHG) emissions (Agenda Papers 4A and 4B);
• industry-based materials in Appendix B (Agenda Paper 4C); and
• requirements for an entity to disclose its financed and facilitated emissions (Agenda Paper 4D).

Greenhouse gas emissions (Agenda Paper 4A)

The ISSB tentatively decided:

1. to remove the proposed requirement in paragraph 21(a)(ii) of draft S2 for an entity to disclose its GHG emissions intensity. Nine of 14 ISSB members agreed with this decision.
2. to confirm that draft S2 include no explicit requirement for an entity to disaggregate its disclosure of GHG emissions by constituent gases. Twelve of 14 ISSB members agreed with this decision.
3. to introduce a requirement for an entity to use the global warming potential values in the latest assessment by the Intergovernmental Panel on Climate Change, based on a 100-year time horizon. All 14 ISSB members agreed with this decision.
   
4. to introduce a requirement for an entity to disclose information that would enable users of general purpose financial reporting to understand how and why the entity has used specific inputs, assumptions and estimation techniques to measure its GHG emissions. As part of this requirement, an entity would disclose information about changes in the estimation techniques it uses and changes in significant assumptions it makes during the reporting period. All 14 ISSB members agreed with this decision.
5. to amend the requirement in paragraph 21(a)(i)(2) of draft S2 so that in disclosing its Scope 2 GHG emissions, an entity would be required to use the location-based method (reflecting the average emissions intensity of its local grid) along with relevant information about contractual instruments related to managing energy it has purchased. Thirteen of 14 ISSB members agreed with this decision.

Scope 3 greenhouse gas emissions (Agenda Paper 4B)

The ISSB tentatively decided:

1. to introduce reliefs for an entity disclosing its Scope 3 GHG emissions, specifically:
   1. a temporary exemption from the requirement for the entity to disclose its Scope 3 GHG emissions for a minimum of one year after the effective date of IFRS S2. Thirteen of 14 ISSB members agreed with this decision.
   2. a relief allowing the entity to measure its Scope 3 GHG emissions using information from entities in its value chain with reporting cycles that are not aligned with the entity’s reporting period, on condition that:
      1. the entity uses the most recent data available without undue cost or effort to estimate and disclose its Scope 3 GHG emissions;
      2. the length of the reporting periods is the same from period to period; and
      3. the entity discloses the effects of significant events and changes in circumstances that occur between the reporting dates of the entities in its value chain and the date of the entity’s general purpose financial reporting.
         All 14 ISSB members agreed with these decisions.
2. to introduce a framework for measuring Scope 3 GHG emissions, as described in paragraphs 48 and 50 in Agenda Paper 4B: Climate-related Disclosures—Scope 3 greenhouse gas emissions from the December 2022 ISSB meeting. All 14 ISSB members agreed with this decision.
3. to introduce requirements, along with the framework for measuring Scope 3 GHG emissions, for an entity to disclose information that would enable users of general purpose financial reporting to understand how the entity measures its Scope 3 GHG emissions. Those requirements would specify that an entity disclose:
   1. to what extent (for example, as a percentage of total Scope 3 GHG emissions) the Scope 3 GHG emissions disclosure is estimated using inputs from specific activities in the entity’s value chain (‘primary data’). All 14 ISSB members agreed with this decision.
   2. to what extent (for example, as a percentage of total Scope 3 GHG emissions) the Scope 3 GHG emissions disclosure is estimated using inputs that are verified. All 14 ISSB members agreed with this decision.
   3. how the entity is managing (how it is ‘thinking about’) its Scope 3 GHG emissions if the entity determines it is impracticable to estimate its Scope 3 GHG emissions. Twelve of 14 ISSB members agreed with this decision.
4. to introduce relief for an entity making disclosures about its value chain, namely:
   1. implementation guidance to help the entity assess which sustainability-related risks and opportunities in its value chain are relevant to users of general purpose financial reporting, using Scope 3 GHG emissions as an example; and
   2. a requirement for the entity to reassess the scope of its sustainability-related risks and opportunities only if a significant event or a significant change of circumstances occurs.
      All 14 ISSB members agreed with these decisions.
5. to confirm that all entities would be required to include information about which of the 15 Scope 3 GHG emissions categories—described in the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard—are included in the entity’s measurement of its Scope 3 emissions, irrespective of whether its measurement was in accordance with the GHG Protocol Corporate Standard. All 14 ISSB members agreed with this decision.

Appendix B (Agenda Paper 4C)

The ISSB tentatively decided:

1. to amend draft S2 so that the industry-based requirements in Appendix B become part of the S2 illustrative guidance;
2. to enhance Appendix B:
   1. by responding to stakeholder feedback on the international applicability of some disclosure topics and metrics;
   2. by resolving inconsistencies between Appendix B and the SASB Standards; and
   3. by resolving inconsistencies between how some of the same or similar metrics are used in different industry-based requirements in Appendix B; and
3. to amend Appendix B to correct errors in its scope introduced by the inclusion or omission of some metrics.

All 14 ISSB members agreed with these decisions.

Financed and facilitated emissions (Agenda Paper 4D)

The ISSB tentatively decided:

1. to confirm the proposed disclosure requirements for financed emissions for three industries—Asset Management & Custody Activities, Commercial Banks and Insurance—and to move these requirements from Appendix B to become part of the draft S2 application guidance. Therefore, an entity would be required to disclose its financed emissions as part of its Scope 3 GHG emissions disclosures. Twelve of 14 ISSB members agreed with this decision.
2. to confirm, for financed emissions disclosures, proposals on:
   1. the use of the term ‘financed emissions’ in the industries listed in (a). Thirteen of the 14 ISSB members agreed with this decision.
   2. the requirement for an entity in the Asset Management & Custody Activities industry to aggregate its disclosures at the level of total assets under management but that that aggregation cannot obscure material information. All 14 ISSB members agreed with this decision.
   3. the requirement for an entity to describe its methodology for calculating its financed emissions in the industries listed in (a). All 14 ISSB members agreed with this decision.
   4. the use of the Global Industry Classification System for the industry-based disclosure of financed emissions. All 14 ISSB members agreed with this decision.
3. to remove the proposed requirement that an entity disclose the GHG emissions intensity of its financed emissions per unit of physical or economic activity. Thirteen of 14 ISSB members agreed with this decision.
4. to remove the proposed requirements for an entity in the Investment Banking & Brokerage industry to disclose its facilitated emissions—that is, these proposed disclosure requirements would be excluded from any part of S2. Twelve of 14 ISSB members agreed with this decision.
5. to confirm and clarify the proposed requirements for an entity in the Commercial Banks industry or Insurance industry to disclose its undrawn loan commitments—that is, an entity would be required to disclose both its financial exposures and its emissions related to undrawn loan commitments. Thirteen of 14 ISSB members agreed with this decision, one member was absent.
6. to confirm and clarify the proposed requirement for an entity in the Commercial Banks industry to provide disclosures on a gross basis—that is, without considering risk mitigation. Thirteen of 14 ISSB members agreed with this decision, one member was absent.
7. to amend Appendix B to remove all references to, and requirements for an entity to disaggregate its disclosures by, ‘carbon-related industries’. Thirteen of 14 ISSB members agreed with this decision, one member was absent.
8. to amend Appendix B to remove the proposed requirement for an entity to include derivatives when calculating its financed emissions. Thirteen of 14 ISSB members agreed with this decision, one member was absent.

Next step

The ISSB will continue to redeliberate the proposals in draft S2 at a future meeting.

Strategy and governance

ISSB Consultation on Agenda Priorities (Agenda Paper 2)

The ISSB met on 14 December 2022 to discuss potential projects to be included in a request for information that will gather stakeholder feedback to inform the ISSB’s two-year work plan.

The ISSB discussed a summary of research activities and discussions with stakeholders that have helped to develop the list of potential projects to be included in the request for information. The ISSB discussed the potential projects and the content and detail to include in the description of each potential project.

The ISSB tentatively decided to seek feedback in the request for information regarding:

1. potential research projects on:
   1. biodiversity, ecosystems and ecosystem services;
   2. human capital, with an initial focus on diversity, equity and inclusion; and
   3. human rights, with an initial focus on labour rights and communities’ rights in the value chain; and
2. a potential joint project with the International Accounting Standards Board (IASB) on connectivity in reporting, building on the IASB’s Management Commentary project and the Integrated Reporting Framework.

Thirteen of 14 ISSB members agreed with these decisions.

Next step

The ISSB will discuss the due process steps it has taken in developing the request for information.