The International Sustainability Standards Board (ISSB) said that companies can begin by reporting exclusively on climate as they get familiar with the disclosure requirements.
- Businesses will be able to use their first year of reporting to get familiar with the ISSB standards by disclosing just on climate.
- The framework is becoming effective in January 2024, so companies will have to start publishing their disclosures in 2025.
- Although it is understandable that the new requirements pose a significant challenge for many organisations, there are concerns that this relief is only delaying meaningful corporate action.
The ISSB is allowing companies to start reporting only on climate in their first year, moving to full sustainability-related risks and opportunities, beyond climate, from the second year. The update refers to the Board’s two standards: S1 (general requirements) and S2 (climate), which will come into force in January 2024 – read more on our explainer. Both standards are still in draft form and will be issued towards the end of the second quarter of 2023.
What does the latest decision mean for companies?
Businesses will be able to use their first year of reporting to get familiar with concepts and requirements within the ISSB standards. For example, companies will be able to benefit from this transition relief, in tandem with the one-year relief from providing Scope 3 greenhouse gas emissions, to understand and map their value chain.
According to the ISSB, this will enable them to prepare for reporting on other sustainability-related risks and opportunities that arise in their value chain. It said that investors have indicated that, while they need consistent, comprehensive sustainability-related information across all risks and opportunities to inform their decision-making, the need for disclosures about climate-related risks and opportunities is the most urgent.
Emmanuel Faber, chair of the ISSB, commented: “This transitional relief ensures companies can phase in their approach, initially focusing on the quality of the climate-related information they provide. That said, companies around the world are not all starting from the same place. We expect many of the companies that already disclose information beyond climate to continue to do so, including the 2,500 plus companies already applying the SASB Standards.”
Which disclosures can they exclude in their first year?
The relief means that companies do not need to provide disclosures about sustainability-related risks and opportunities beyond climate-related information, nor annual sustainability-related disclosures at the same time as the related financial statements. Similarly, they do not need to provide comparative information and disclose Scope 3 greenhouse gas emissions. Finally, they do not need to use the Greenhouse Gas Protocol to measure emissions, if they are currently using a different approach.
The ISSB decided that companies that only report on climate-related risks and opportunities in the first year be provided with additional relief from providing comparative information. This means they need not provide comparative information about their sustainability-related risks and opportunities beyond climate in their second year of reporting.
Companies will still need to apply S1 in the first year they use the ISSB Standards to meet general disclosure requirements where they relate to climate. For example, S1 sets out the approach to materiality and requirements for connectivity of information with that in the financial statements, which are relevant to the disclosure of climate-related information.
Is this delay needed?
‘Big Four’ accountant EY welcomed the news, saying it will “give an entity valuable time to prepare” their reporting beyond climate. It is important to note that, however, the ISSB standards should not be catching anyone by surprise.
The framework is becoming effective in January 2024, so companies will have to start publishing their disclosures in 2025. Although the ISSB was launched at COP26, there has been a debate about sustainability disclosures for a much longer time.
Indeed, many companies in the EU are already preparing to report against the Corporate Sustainability Reporting Directive (CSRD), with the first disclosures expected in 2025 – which is the same timeframe as the ISSB. The CSRD will start with companies already subject to the 2014 Non-Financial Reporting Directive.
Moreover, the Taskforce on Nature-related Financial Disclosures (TNFD) is expected to make its final recommendations in September 2023, as it prepares its framework for the management and disclosure of nature-related risks. Although it will be voluntary, it shows that some businesses are already looking at their dependency on nature and how to best address its effects.
With a range of deadlines coming up in 2030 – the UN Sustainable Development Goals, the Global Biodiversity Framework’s 30×30 goal and the need to cut greenhouse gas emissions in line with a net zero by 2050 scenario, among others – time is running out. While it is understandable that sustainability disclosures pose a significant challenge for many businesses, we need to bear in mind that we must act with the utmost urgency if we want to ensure a sustainable future for society.