The two new bodies are envisioned to support harmonise expectations in unique jurisdictions to satisfy investor demand for similar ESG information.
On 27 April 2022, the Intercontinental Sustainability Expectations Board (ISSB) announced the development of two bodies that it hopes will aid in supplying enhanced compatibility involving the ISSB’s corporate sustainability reporting criteria (ISSB Criteria) and ongoing jurisdictional initiatives to create ESG disclosure expectations.
These two bodies, a Sustainability Specifications Advisory Forum (SSAF) to be formed later in the year and a doing work group of jurisdictional reps to be shaped promptly, will seek to aid dialogue with regulators throughout the world to support the ISSB guarantee that it can achieve its target of producing a commonly recognized world wide baseline of ESG disclosure requirements, with an initial emphasis on climate demands.
The ISSB was set up by the Worldwide Economical Reporting Benchmarks (IFRS) Basis (dependable for issuing globally recognised accounting specifications) at COP26 in November 2021. The ISSB announced publicity drafts of its initial two specifications in March 2022, which have been:
- IFRS S1 on Standard Needs for Disclosure of Sustainability-linked Financial Details (Normal Prerequisites Conventional) and
- IFRS S2 on Local weather-relevant Disclosures (Climate Normal).
For extra facts on the Basic Necessities Typical and the Weather Standard, be sure to read Latham’s prior weblog write-up.
The ISSB intends to create a selection of added requirements, dependent on more ESG-linked subject areas (e.g., diversity, fairness, and inclusion, and environmental impacts), and has beforehand declared that it will be consulting on its long term requirements environment priorities later in 2022.
A critical obstacle for the ISSB in guaranteeing that the ISSB Benchmarks receive intercontinental recognition and adoption, is the ongoing progress and proliferation of jurisdiction-unique ESG reporting specifications. As regulators and legislators in many of the foremost world wide economies are continuing to recognise the growing investor demand from customers for high-high-quality, similar ESG information and facts about companies, a selection of legal, regulatory, and other proposals have been tabled to impose ESG reporting demands at the nationwide (or in the situation of the EU, supranational) degree. Numerous of these proposals, like the ISSB Benchmarks, are however in development stage (e.g., the Securities and Exchange Commission’s (SEC’s) proposed local climate rule in the US and the EU’s Company Sustainability Reporting Directive (CSRD)), and consequently the precise condition of these types of prerequisites is in numerous circumstances nevertheless to be decided.
While these jurisdiction-certain reporting criteria could help to harmonise ESG reporting in just countrywide (or continental) economies, the hazard is that – supplied the worldwide mother nature of the worldwide economic system – investors will nevertheless be confronted with ESG reporting that is inconsistent and not easily equivalent due to the fact companies in distinct nations around the world will be reporting to unique benchmarks. This is in particular legitimate offered the major differences involving the proposed reporting regimes in spots these kinds of as the definition of materiality, and no matter if disclosure procedures will emphasis on local climate problems by itself or a broader array of ESG subject areas.
Function of the Working Group and SSAF
The ISSB recognises that as a quantity of the jurisdiction-distinct reporting specifications are still in advancement, this offers an prospect for the ISSB and national regulators to ensure alignment in between their respective standards (to the extent doable). These kinds of a resolution would be effective not just to the ISSB but also to nationwide regulators, who probable respect international comparability of ESG disclosures as an difficulty that will be important to investors in their jurisdictions.
Particular jurisdictions have previously publicly indicated their assist for or acknowledgement of the ISSB Requirements. The Uk introduced in October 2021 that the ISSB will participate in a key part in underpinning its proposed ESG disclosure routine, and the SEC specifically named the ISSB as the example organisation when inquiring stakeholders about prospective bases for alternate reporting frameworks as aspect of its session on the proposed local climate rule.
As section of this dialogue, the ISSB will produce the SSAF through the following quarter to aid regular dialogue with, and significant-degree information from, a broad set of jurisdictions. In the shorter expression, the doing the job team will discuss compatibility of the producing jurisdiction-precise ESG disclosure initiatives to establish how the ISSB Criteria, absolutely responding to the wants of world-wide market members, can contribute to optimising reporting effectiveness for companies in individuals jurisdictions, and how people jurisdictions can construct on the ISSB Expectations according to their demands.
Customers of the operating team are the Chinese Ministry of Finance, the European Fee, the European Money Reporting Advisory Team, the Japanese Economic Solutions Company, the Sustainability Specifications Board of Japan Planning Committee, the British isles Money Perform Authority, and the SEC.
The ISSB indicated that working team meetings will take location later in in May well and July 2022, and meeting summaries will be posted on the IFRS Basis internet site.
Latham & Watkins will continue on to keep track of developments in this location.