IFRS® Foundation

ISSB’s proposed
IFRS® Sustainability
Disclosure Standards
Emerging Economies Group Meeting
EEG Agenda Paper 1
May 2022

The views expressed in this presentation are those of the presenter, not necessarily those of the IFRS Foundation, International Accounting Standards Board or the International Sustainability Standards Board.
Copyright © 2022 IFRS Foundation. All rights reserved.
Topics Agenda ref 1

Background

Integration and compatibility

Exposure Draft 1 – General Requirements

Exposure Draft 2 – Climate

How to get involved

Next steps

2
COP26 / ISSB announcement Agenda ref 1

1. Establish International Sustainability Standards Board (ISSB)

2. Consolidate Climate Disclosure Standards Board and Value Reporting Foundation (IIRC and SASB)

3. Publish general disclosure and climate prototypes as a precursor to ISSB proposals (exposure drafts)

3
Building blocks approach Agenda ref 1

Sustainability reporting (broader multi-stakeholder focus) Jurisdictional initiatives

Reporting on all sustainability matters that reflect significant positive and/or GRI
or negative impacts on people, the environment and the economy

Sustainability-related financial disclosures (investor focus) ISSB

Reporting on those sustainability-related matters that may reasonably
create or erode enterprise value over the short, medium and long term

IASB (140+
Financial reporting (investor focus) countries)
Reflected in monetary amounts in the
financial statements Other GAAP
(eg FASB) Integrated Reporting

4
Seeking compatibility between IFRS Sustainability
Disclosure Standards and GRI Standards Agenda ref 1

Announcement of
First step Future work plan
intent to collaborate

IFRS Foundation and ISSB and GRI join Align, where possible,
GRI announced each other’s terminology,
Memorandum of consultative bodies standards structure
Understanding on 24 related to and metrics, helping
March 2022 sustainability to reduce the
reporting activities reporting burden for
companies

5
Significant progress since COP26 Agenda ref 1

COP26 announcement Developments since COP26 Current focus

• Appointments
• Leadership appointments
• Recruiting remaining ISSB members
• Emmanuel Faber (Chair)
• Multi-location model
• Sue Lloyd (Vice-Chair)
1. Establish ISSB • Finalise arrangements with Montreal,
• Janine Guillot (Special Advisor)
establish interim office
• Multi-location model
• Finalise arrangements for Asia-Oceania
• MoU with Frankfurt, interim office in presence
place
• Appoint advisory groups
• CDSB consolidation completed (Jan
2. Consolidate or align with 2022) • Preparing for VRF consolidation (June
other initiatives • GRI cooperation agreement (MoU) to 2022)
ensure compatibility between standards

3. Publication of • Published proposals for inaugural IFRS

• Outreach and consultation
prototypes Sustainability Disclosure Standards

6
Two proposed IFRS Sustainability Disclosure
Standards Agenda ref 1

General Requirements Climate

Exposure Draft Exposure Draft

7
Integration and compatibility
Achieving compatibility between IFRS Standards Agenda ref 1

International Accounting IFRS Financial

Standards Board Accounting statements
(IASB) * Standards
Investors
and other capital
International IFRS market participants
Sustainability Sustainability Sustainability
Standards Board Disclosure disclosures
(ISSB) * Standards

• Integrated Reporting Council to advise IASB and ISSB on connectivity via

fundamental concepts / guiding principles of integrated reporting

• IFRS Sustainability Disclosure Standards compatible with IFRS Accounting

Standards or other GAAP to meet investor needs

9
Driving integration in reporting Agenda ref 1

• Emphasises consistency and connections between financial statements

General and sustainability-related reporting
Requirements • Proposes that sustainability information be included in general purpose
Exposure Draft financial reporting—ie as part of the same package of reporting targeted
at investors and other providers of financial capital

• The IFRS Foundation encourages adoption of the Integrated Reporting

Framework
Bigger picture • The Integrated Reporting Framework and the IASB’s Management
Commentary provide a basis for connecting the reporting required by the
IASB and ISSB

10
Standards architecture Agenda ref 1

Focus on investor audience and enterprise value

Governance
General Requirements Standard
Strategy

Risk
Management
Thematic / cross-industry Industry-based
requirements requirements
Metrics and
targets

Core elements used across

Common thread – four core elements IFRS Sustainability Disclosure Standards
Taken from TCFD structure

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General Requirements
Exposure Draft
General Requirements Exposure Draft Agenda ref 1

Requires companies to provide material information on all

significant sustainability-related risks and opportunities
necessary to assess enterprise value
• Other IFRS Sustainability Disclosure Standards (eg Climate Standard)
set out specific disclosures
• Points to other standards and frameworks in absence of a specific IFRS
Sustainability Disclosure Standard:
– SASB Standards are priority materials for identifying sustainability-
related risks and opportunities and to develop appropriate
disclosures
– CDSB Framework and Guidance
• Equivalent to IFRS Accounting Standards IAS 1 and IAS 8

13
Structure consistent with TCFD
recommendations Agenda ref 1

Governance Strategy Risk Metrics and

The governance The sustainability- management targets
processes, controls related risks and How sustainability- Information used to
and procedures a opportunities that related risks are manage and monitor
reporting entity uses could enhance the identified, assessed, the entity’s
to monitor entity’s business managed and performance in
sustainability-related model and strategy mitigated. relation to
risks and over the short, sustainability-related
opportunities. medium and long risks and
term. opportunities over
time.

14
Identifying sustainability-related risks and
opportunities and disclosures Agenda ref 1

General Requirements [Standard]

A company would be required to disclose material information about all significant sustainability-related risks and opportunities

Climate [Standard]
A company would apply the relevant IFRS Sustainability Disclosure Standards to identify climate-related risks and opportunities
and disclosures

In lieu of a specific IFRS Sustainability Disclosure Standards, when identifying sustainability-related risks and opportunities and
disclosures consider:
CDSB Framework,
SASB Standards Other standards Other sources
CDSB Framework application guidance

Industry-based disclosure topics ISSB’s non-mandatory guidance, Other standards, provided that Practices of peer companies in the
identified in SASB Standards e.g. CDSB Framework and CDSB they are designed to meet the same industries or geographies
Framework application guidance information needs of investors
for social, water- and biodiversity-
related disclosures

Illustrative Guidance is provided to illustrate how a company can use the SASB Standards and the CDSB
Framework application guidance to identify disclosures about significant sustainability-related risks and opportunities
that are relevant to investor decision making, faithfully represent the company’s risks and opportunities, and are neutral

15
Information for the capital markets Agenda ref 1

• Information provided must ’enable an assessment of the effects of sustainability-related risks

and opportunities on a company's enterprise value' (the market value of its equity and net
debt)

• focus is on significant sustainability-related risks and opportunities

• information required includes the impacts of a company on people, the environment and the
planet if they affect assessments of enterprise value
• requires information that is material for a company, ie that could reasonably be expected to
influence decisions that investors would make (in this case, when assessing enterprise value)

16
Location of information Agenda ref 1

The sustainability-related financial information would be required to be part of

the company’s general purpose financial reporting, but can be provided in
various ways.
• General purpose financial reporting forms the same package of reporting that is targeted at
investors and other providers of financial capital.
– encompasses— but is not restricted to—an entity’s general purpose financial statements and
sustainability-related financial disclosures.
• The proposals do not prescribe a specific location within general purpose financial reporting to
disclose sustainability-related financial information. This facilitates global adoption enabling
compliance with jurisdictional requirements eg location in management commentary or as part
of an integrated report.
• The proposals allow for information required by an IFRS Sustainability Disclosure Standard to
be disclosed with information to meet other requirements. However the IFRS disclosures must
not be obscured by that other information.
• Unnecessary duplication of common items is discouraged
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When should sustainability-related financial
disclosures be published? Agenda ref 1

Sustainability-related financial disclosures would be required to be published at

the same time as the financial statements.

• Sustainability-related financial disclosures are for the same reporting period as the financial
statements
• The proposals do not mandate which entities would be required to disclose interim
sustainability-related financial information. However, jurisdictions may require an entity to
publish interim reports.
– This is consistent with the parameters for interim reporting specified in IAS 34 Interim Financial
Reporting

18
Reporting entity Agenda ref 1

Sustainability-related financial disclosures shall be for the same reporting

entity as the general purpose financial statements.

• Eg if the reporting entity is a group, the consolidated financial statements will be for a parent
and its subsidiaries, enabling investors to assess the enterprise value of the parent and its
subsidiaries.
• The proposals note that enterprise value is however affected by factors such as sustainability-
related risks and opportunities arising from an entity’s value chain and from investments in
other entities that are not part of the consolidated group
• The proposals require the disclosure of the financial statements to which the sustainability-
related financial disclosures relate with the same presentation currency used as the financial
statements.

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Sustainability-related risks and opportunities
across an entity’s value chain Agenda ref 1

• The proposed Standard requires disclosure of material information about sustainability-related

risks and opportunities across a company’s value chain ie ‘the full range of activities, resources
and relationships related to a reporting entity’s business model and the external environment in
which it operates’.
• Information about sustainability-related risks and opportunities across value chain relevant to
the assessment of enterprise value by investors include activities, resources and relationships:
– Within a company’s operations, such as human resources
– Along a company’s supply, marketing and distribution channels, such as materials
and service sourcing & product and service sales and delivery
– The financing, geographical, geopolitical and regulatory environments in which the
company operates
A company would be required to use judgement in identifying material information relating to the
activities, interactions and relationships and the use of resources across its value chain and
determining when it is relevant to assessing enterprise value

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Connected information Agenda ref 1

It is proposed that companies provide information that allows investors to assess the connections
between different sustainability-related risks and opportunities and between sustainability-
related financial information and information in the financial statements
• When financial data and assumptions are used in sustainability-related financial disclosures,
they shall be consistent with the corresponding information provided in the financial statements
Examples:
• A company’s supplier has recently been found to have employment practices that fall well short of international norms.
The company decides to terminate its contract with that supplier. In its disclosures the company states that it is
confident that its new supplier has employment practices that meet the international norms. The decision might also
have consequences for the cost of its supplies, and that would also be disclosed.
• A company has a production facility that generates high levels of greenhouse gas (GHG) emissions. The company
decides to close the facility. In its disclosures the company explains the financial consequences of that decision: a
revised useful economic life of the affected asset and, if relevant, recognition of an impairment expense. The company
also discloses that the decision has consequences for the staff who will lose their jobs and for businesses in the local
community, because the company assesses that this information affects its reputation.

21
Comparative information, sources of estimation
and outcome uncertainty, and errors Agenda ref 1

• Comparative information (adapted from IAS 1)

– Comparative information required for all metrics and for narrative and
descriptive sustainability-related financial disclosures if relevant
– Not required to provide comparative information in the first year of
application (transition relief)

• Sources of estimation and outcome uncertainty, and errors

(adapted from IAS 1 and 8)
– All changes in estimate and corrections of errors to be corrected by
restating any comparative information provided
– Contrasts with changes in estimates in financial statements which are
recognised prospectively

22
Effective date Agenda ref 1

• The proposal does not include a proposed effective date

• The ISSB will determine an effective date in the process of finalising the
two IFRS Sustainability Disclosure Standards based on the comments it
receives on the period of time that entities believe is necessary to apply
the proposals and why
• Proposed that the Standards would be available for immediate voluntary
adoption

23
Qualitative characteristics of useful
sustainability-related financial information Agenda ref 1

The proposals include guidance on the qualitative characteristics of useful sustainability-related

financial information, adapted from the IASB’s Conceptual Framework for Financial Reporting
(Conceptual Framework)

• Fundamental qualitative characteristics

– Relevance
• Materiality: entity-specific aspect of relevance
– Faithful representation
• Enhancing qualitative characteristics
– Comparability
– Verifiability
– Timeliness
– Understandability

24
Illustrative guidance Agenda ref 1

The Exposure Draft includes Illustrative Guidance. This illustrates how assess
materiality and how to identify sustainability-related risks and opportunities and
disclosures in the absence of specific IFRS requirements. This guidance is
illustrative and not mandatory
• Implementing materiality judgments
– Making materiality judgment involves both qualitative and quantitative considerations
(materials are consistent with IFRS Practice Statement 2 Making Materiality Judgments)
• Selecting sustainability-related financial disclosures
– Illustrates how a company can use other sources of information to fulfil the requirements of
the proposed Standards using
• industry-based SASB Standards
• CDSB Framework application guidance for water- and biodiversity-related disclosures

25
Key features Agenda ref 1

Emphasises need for consistency and connections between financial

statements and sustainability reporting by requiring companies to
• explain linkages in information
• use consistent assumptions when relevant

Requires financial statements and sustainability disclosures to be

published at the same time

Facilitates application in different jurisdictions by

• not specifying a particular location for sustainability information
• allowing additional information to be provided

26
 Climate
Exposure Draft
Climate Exposure Draft Agenda ref 1

Requirements for disclosure of material information about

significant climate-related risks and opportunities

• Incorporates TCFD recommendations

• Includes SASB’s climate-related industry-based
requirements
• Requires disclosure of information about;
– physical risks (eg flood risk)
– transition risks (eg regulatory change)
– climate-related opportunities (eg new technology)

28
Requires information that enables investors to… Agenda ref 1

• determine the effects of climate-related risks and opportunities on the

company's enterprise value

• understand the company’s response to and strategy for managing its climate-
related risks and opportunities

• evaluate the ability of the company to adapt its planning, business model and
operations to climate-related risks and opportunities

Consistent with the General Requirements Exposure Draft

• focus is on significant climate-related risks and opportunities
• information provided must be material for assessments of enterprise value

29
Relation to TCFD recommendations and SASB
Standards Agenda ref 1

Consistent with TCFD Builds on SASB Standards

• Governance • Industry-based disclosures in
• Strategy Appendix B derived from SASB
• Risk management Standards
• Proposed changes to:
• Cross-industry metrics and targets
• Internationalise metrics
• Illustrative guidance
• Add financed emissions
disclosures
30
Key features Agenda ref 1

Transition planning
Emissions targets and use of carbon offsets

Climate resilience
Resilience of business strategy in multiple scenarios

Scope 1-3 emissions

Requirement to disclose GHG emissions

31
 Governance Agenda ref 1

Proposed
Climate Disclosure
Requirements

Governance “The objective of climate-related financial disclosures on

governance is to enable users of general purpose
Strategy
financial reporting to understand the governance
Risk processes, controls and procedures used to monitor
Management
and manage climate-related risks and opportunities.”
Metrics and
Targets

32
 Strategy Agenda ref 1

“The objective of climate-related financial disclosures on

Proposed strategy is to enable users of general purpose financial
Climate Disclosure reporting to understand an entity’s strategy for
Requirements addressing significant climate-related risks and
opportunities.”
Governance

Strategy Climate-related risks and opportunities

Risk Business model and value chain

Management
Strategy and decision-making
Metrics and
Targets Financial position, financial performance and cash flows

Climate resilience

33
 Strategy – Strategy and decision-
making Agenda ref 1

The effects of significant climate-related risks and

Proposed opportunities on its strategy and decision-making,
Climate Disclosure including its transition plans
Requirements
How the entity plans to achieve any climate-related targets
Governance • Current and anticipated changes to the entity’s business model
• How these plans will be resourced
Strategy

Risk Information regarding climate-related targets for these plans

Management • The processes in place for review of the targets
• The amount of the entity’s emission target to be achieved through
Metrics and emission reductions within the entity’s value chain
Targets • The intended use of carbon offsets in achieving emissions targets

Quantitative and qualitative information about the progress of plans

34
 Strategy – Climate resilience Agenda ref 1

The proposals seek to enable users to understand the resilience of the

entity’s strategy to climate-related changes, developments or
Proposed uncertainties—taking into consideration an entity’s identified significant
Climate Disclosure climate-related risks and opportunities and related uncertainties.
Requirements
The entity shall use climate-related scenario analysis to assess its
climate resilience unless it is unable to do so. If unable to do so, an entity
Governance
shall explain why and use an alternative method or technique to assess its
Strategy climate resilience.

Risk An entity’s analysis of climate resilience must enable users to understand:

Management 1. The implications (if any) for its strategy
2. The significant areas of uncertainty covered in the analysis
Metrics and 3. The entity’s capacity to adjust or adapt its strategy and business model
Targets
over the short, medium and long term to climate developments

35
 Strategy – Climate resilience Agenda ref 1

Climate-related scenario analysis Alternative method or technique

Proposed Which scenarios were used and their
sources
Explanation of the methods or techniques
used (e.g., sensitivity analysis)
Climate Disclosure
Whether the analysis compared a diverse Climate-related assumptions used including
Requirements range of climate-related scenarios whether those include a range of
hypothetical outcomes
Governance Whether the scenarios are associated with
transition risks or increased physical risks
Strategy Whether the entity has used a scenario
aligned with latest international agreement
Risk on climate change
Management
Why the chosen scenarios are relevant to Why the chosen climate-related
the assessment assumptions are relevant to assessing
Metrics and climate resilience
Targets Time horizons used in the analysis
Inputs used in the analysis (e.g., scope of operations covered)
Assumptions about the way the transition to a lower-carbon economy will affect the entity

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 Risk management Agenda ref 1

Proposed
Climate Disclosure
Requirements

Governance “The objective of climate-related financial disclosures on

risk management is to enable users of general purpose
Strategy
financial reporting to understand the process, or
Risk processes, by which climate-related risks and
Management
opportunities are identified, assessed and managed.”
Metrics and
Targets

37
 Metrics and targets Agenda ref 1

“The objective of climate-related financial disclosures on metrics and

targets is to enable users of general purpose financial reporting to
Proposed understand how an entity measures, monitors and manages its
Climate Disclosure significant climate-related risks and opportunities. These disclosures
Requirements shall enable users to understand how the entity assesses its
performance, including progress towards the targets it has set”

Governance
Cross-industry metric categories Industry-based requirements
Strategy
Greenhouse gas emissions
Risk Transition risks
Management
In preparing these disclosures, an
Physical risks
entity shall consider whether
Metrics and Climate-related opportunities industry-based metrics
Targets associated with disclosure topics
Capital deployment could be used in whole or part to
meet the requirements
Internal carbon prices

Remuneration
38
 Metrics and targets – GHG
Emissions Agenda ref 1

Greenhouse gas emissions

Absolute gross Scope 1-3 emissions* and emission intensity for each scope
Proposed
Climate Disclosure For Scope 1-2 emissions disclosed For Scope 3 emissions disclosed
Requirements • Disclose emissions separately for: • Includes upstream and downstream
– the consolidated accounting group (the emissions
parent and its subsidiaries);
Governance • The categories included to enable users
– associates, joint ventures, unconsolidated to understand which Scope 3 emissions
subsidiaries or affiliates not included in are included, or excluded
Strategy the consolidated accounting group
• When the entity’s measure of Scope 3
• The approach used to include emissions for the emissions includes information provided
Risk
entities includes as associates, joint ventures, by entities in its value chain, it shall
Management
unconsolidated subsidiaries or affiliates (for explain the basis for that measurement
example, the equity share or operational control
method in the Greenhouse Gas Protocol • If the entity excludes those GHG
Metrics and emissions, it shall state the reason for
Corporate Standard)
Targets omitting them
• The reason for the choice of approach and how
that relates to the disclosure objective for metrics
and targets

* measured in accordance with the Greenhouse Gas Protocol Corporate Standard

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 Metrics and targets – International
Applicability Agenda ref 1

Context
• The TRWG climate prototype, issued in November 2021, included 341
Proposed industry-based disclosure topics and associated performance
Climate Disclosure metrics sourced from SASB Standards.
Requirements • 11% of the metrics exhibited a regional bias that may inhibit application
across jurisdictions. This regional bias was found in the underlying
technical protocol; not in the core concepts.
Governance
Proposal
Strategy
• Designed and executed 12 workstreams (technical research and targeted
consultation)
Risk
Management
• Proposed enhancements to 36 metrics, e.g.:
Former Proposal
Metrics and Electric Utilities industry: US Energy IEA
Targets “smart grid technology” Independence Act
Across nine industries: US Renewable Fuel Generic definition
“renewable fuel” Standard
Across three industries: EnergyStar (US EPA) Refers to jurisdictional
energy efficiency of products standards

40
 Metrics and targets – Financed
Emissions Agenda ref 1

Context
• No explicit GHG emissions disclosure topic and metric(s) exist in the
Proposed SASB's financials sector industries, despite the need for industry-based
Climate Disclosure disclosure
Requirements • Differing, evolving methodologies remain at play
• Small piece of a larger puzzle e.g., portfolio alignment and target setting
Proposal
Governance
• New disclosure topic titled "Transition Risk Exposure" in 4 out of 7
Strategy industries in the financials sector.
• A description of the methodology used to calculate financed and facilitated
Risk emissions (all 4 industries)
Management Industry Metric
Commercial Banking • Exposure to carbon related industries
Metrics and • Financed emissions (Scope 1, 2 & 3) at industry and asset
Insurance
Targets class level
Investment Banking and • Facilitated emissions (Scope 1, 2 & 3) by business line and
Brokerage industry
• Revenue generated by business line and industry
Asset Management and Custody • Financed emissions at AUM level
Activities

41
 Call to action
and next steps
Consultation package & communication materials Agenda ref 1

General Requirements Climate

Other materials
Exposure Draft Exposure Draft

• Draft Standard
• Draft Standard - including Appendix B industry- • Press release
based disclosure requirements

• Basis for Conclusions • Basis for Conclusions • Snapshot (high-level summary)

• Illustrative Guidance • Illustrative Guidance • Video

• Comparison of Climate ED
& TCFD
• Comparison of TRWG
prototypes and Exposure Drafts

43
How to comment on the proposals? Agenda ref 1

Survey

Visit:
or ifrs.org/projects/open-
for-comment/

Comment letter

Comments are published on ifrs.org 44

Next steps for the Exposure Drafts Agenda ref 1

31 Mar Apr-Jul 29 Jul Aug˗Dec End 2022

Proposals Consultation Consultation Consultation Issue

published and outreach closes feedback Standards *
analysis

ISSB
deliberations

Refine and
finalise
Standards
* Dependent on feedback from the consultation
45
Other technical priorities Agenda ref 1

Taxonomy SASB Standards Work plan

Publish Taxonomy Improve international Public consultation on

proposals to facilitate applicability of the SASB future agenda, including
electronic tagging and Standards • Sustainability-related
presentation of risks and opportunities
disclosures Assume responsibility for the ISSB should
SASB standards on prioritise
consolidation of VRF • Delivery plan for
current SASB
Standards projects

46
How ISSB will build on SASB Standards Agenda ref 1

Industry-based
ISSB will embed SASB’s industry-based approach into its standard-setting process
approach

Inclusion in exposure SASB Standards play a key role in the General Requirements and Climate Exposure
drafts Drafts

Internationalisation Addressing the international applicability of SASB Standards is a priority for the ISSB

SASB Standards will serve as the starting point for the ISSB’s industry-based
Starting point requirements and the ISSB will assume responsibility for the evolution and enhancement
of SASB’s 77 industry-based Standards

Project continuity Ongoing projects by the SASB will be transitioned to the ISSB

The ISSB encourages companies and investors to support and use SASB Standards in
Encourage use
this transition phase

47
Next steps – institutional Agenda ref 1

Appointments Remaining ISSB members

Advisory groups Formalise groups and appoint members

Consolidation CDSB completed (Jan 2022); VRF by end of June 2022

Locations Implement multi-location approach for global footprint

48
Adoption ecosystem Agenda ref 1

ISSB IOSCO IAASB Jurisdictions Voluntary

Comprehensive Assess with a Enhance & Require by

global baseline view to develop adopting the Market
of standards & recommend assurance standards & demand-driven
digital taxonomy adoption standards taxonomy

49
Call to action Agenda ref 1

Continue applying existing standards and frameworks

Respond to the ISSB’s consultation and build capacity to engage in the

ISSB’s development of standards on an ongoing basis

Engage with relevant jurisdictions' consultations

Sign up for alerts – ifrs.org/dashboard

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