ISSB Sustainability Disclosure Proposals – Securities

In view of the upcoming July 29 deadline to the International
Sustainability Standards Board’s (ISSB) consultation period for
its proposed sustainability disclosure standards, Akin Gump would
like to remind readers of the background and content of the ISSB
and the disclosure regime it aims to put in place.

Readers are reminded, too, that the ISSB proposals should be
seen in the context of a wider, transnational push to establish a
set of global sustainability standards. Together with
recently-developed frameworks such as the Task Force on
Climate-Related Financial Disclosures (TCFD) recommendations, the
ISSB proposals are to form the structure within which
jurisdiction-specific disclosure regimes are elaborated (see our
previous client alerts on the incorporation of TCFD recommendations
for listed company requirements and Companies Act 2006 and Limited Liabilities
Partnerships Act 2000 requirements). Both the European Securities and Markets Authority and
Securities and Exchange Commission have
committed to ensuring harmony with the ISSB’s final-form
proposals, and U.K. authorities (discussed below) have also agreed
to incorporate the new standards into their regimes.

General

On March 31, The ISSB launched a consultation on the exposure
drafts of its first two proposed standards for creating a
“comprehensive global baseline of sustainability
disclosures”. Developed in the wake of the COP26 conference in
October 2021, and in response to requests from G20 leaders and the
International Organization of Securities Commissions (IOSCO) (among
others), these proposals mark the first major steps from the ISSB
in creating alignment between differing sustainability disclosure
regimes and helping meet investor information needs on
sustainability-related risks and opportunities.

In particular, the proposals are designed to meet the
information needs of investors in assessing enterprise value and
build upon the recommendations of the TCFD and the Sustainability
Accounting Standards Board (SASB) Standards to do so. One proposal
sets out general sustainability-related disclosure
requirements (the “General Disclosure Requirements”)
and the other specifies climate-related disclosure requirements (the
“Climate Disclosure Requirements”) (together, the
“Proposed Requirements”).

The General Disclosure Requirements cover the broad range of an
entity’s environmental concerns and activities. The Climate
Disclosure Requirements target the physical risks associated with
climate change and the transition to a lower-carbon economy, and
the opportunities that the physical and transition risks might make
available.

The Proposed Requirements

As part of an entity’s general purpose financial reporting,
the Proposed Requirements instruct relevant entities to provide
sustainability- and climate-related disclosures on:

Governance—the governance processes,
controls and procedures the entity uses to monitor and manage
sustainability- and climate-related risks and opportunities.

Strategy—the approach for addressing
sustainability- and climate-related risks and opportunities that
could affect the entity’s business model and strategy over the
short, medium and long term.

Risk Management—the processes the entity
used to identify, assess and manage sustainability- and
climate-related risks.

Metrics and Targets—information used to
assess, manage and monitor the entity’s performance in relation
to sustainability- and climate-related risks and opportunities over
time.

The exposure drafts for the Proposed Requirements specify the
precise contents to be disclosed for each theme (Appendices 1 and 2).

In addition to the discrete disclosures above, the General
Disclosure Requirements intend that entities provide further
analysis on ‘connected information’ and ‘comparative
information’ to enable prospective investors to contextualize
the sustainability disclosures. Under the former, an entity will be
required to describe the relationships between the discrete
disclosures through narrative accounts, thereby giving a holistic
overview of how such disclosures tie into the entity’s current
performance, future prospects and adopted strategy.¹
Under the latter, an entity will be required to present metric
information and narrative accounts from the previous reporting
period alongside its present disclosures to aid investor
understanding.

For both of the Proposed Requirements, it is intended that the
information be disclosed at the same time and in accordance with
the reporting period and consolidated/unconsolidated format of the
entity’s existing financial statements.

Consultation Feedback

The ISSB is seeking feedback on the proposals over a 120-day
consultation period closing on July 29. It will review feedback on
the proposals in the second half of 2022 and aims to issue the
Proposed Requirements by the end of the year.

The issuance of the Proposed Requirements will have immediate
effect. As confirmed by the Business, Energy & Industrial Strategy (BEIS)
Guidelines (see our previous client alert), the BEIS is working on
measures which will allow the government to adopt these
international standards for use in the U.K. and to require certain
companies to report against them. Similarly, the Financial Conduct
Authority (FCA) also indicated that it expects its climate
disclosure rules for listed companies² (see our previous client alert) and broader proposals
for sustainable disclosure requirements (see our previous client alert) to be updated to
reference the ISSB’s reporting standards.³

Comments on the Proposed Requirements can be submitted by
comment letter to commentletters@ifrs.org or online at the
respective General Disclosure Requirements and Climate Disclosure Requirements pages.

Looking Ahead

Further to the consultation launch, the ISSB announced (May 18) that it remains on-course
for establishing the core elements of its ‘global baseline’
by the end of 2022. The announcement follows the ISSB’s
progress in developing the institutional arrangements needed to
complement the anticipated adoption of the Proposed Requirements by
the year end.

In particular, ISSB confirmed that its board is expected to be
operational by Q2 2022, with the full board expected to be in place
during Q3 2022. Agreements to establish locations in Frankfurt and Montreal have also been made, whilst steps
have been taken to ensure institutional alignment between the ISSB
and related bodies. The consolidation of the Value Reporting
Foundation (home of SASB Standards and Integrated Reporting
Framework) into the ISSB is expected to be completed by the end of
June 2022, and a co-operation agreement has been entered into
with the Global Reporting Initiative (GRI) to reduce the reporting
burden for jurisdictions and companies when combining the
ISSB’s global baseline and the GRI’s multistakeholder
sustainability reporting requirements.

Regarding implementation, the ISSB has established a dedicated working group of jurisdictional
representatives to further ensure compatibility between the
Proposed Requirements and the pre-existing sustainability
disclosures of each jurisdiction. More advisory and consultative
bodies for collaboration with other international organisations,
jurisdictional authorities and other stakeholder representatives
are set to be formed.

Please view Akin Gump’s Appendices to this post, titled
“
Contents for General Disclosure Requirements” and “
Contents for Climate Disclosure Requirements.”

Footnotes

1 For instance, explaining the effect or likely effect of
its strategy on its financial statements or financial plans; how,
say, its use of natural resources and changes within its supply
chain could amplify, change or reduce its significant
sustainability-related risks and opportunities; and what the
potential or actual effects are on its production costs as well as
its strategic response to mitigate such risks and its related
investment in new assets.

2 Clause 2.11 PS21/24.

3 Clause 1.5 DP 21/4.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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