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Sustainability reporting – A path forward

Financial Reporting Brief January 2022

COP26 – the most recent meeting of the United Nations Climate Change Conference of the Parties in Glasgow a few weeks ago had as its key objective to accelerate action towards the UN Framework Convention on Climate Change and the goals of the Paris Agreement 2015. It commanded much media attention and was the most significant gathering of the leaders of approximately 200 countries since the meeting in Paris in 2015. While the Convention was greatly encouraged by the positive re-engagement of the USA and a number of other developments, the delayed commitment past 2050 of such countries as China and India to the responses being sought to curtail the worst impacts of climate change was amongst the matters that left the Convention’s ultimate conclusions somewhat less than wished for.

Storm Barra in December ravaged Ireland and was the latest ‘close-to-home’ momentous reminder of the enormous consequences of climate change, with the currents in and over the Atlantic clashing with tumultuous impact on our island. Unfortunately, we are all aware that it will only get worse and therefore we must all grasp any possibilities and opportunities for control and remedial action that may be available. The core objective is to keep a global temperature rise this century well below 2°c above pre-industrial revolution levels and to pursue crucial areas for action to limit it even further to 1.5°c.

Net-zero fifty, an initiative taken by the European Climate Action Group, following commitments made under the Paris Agreement to making significant changes and long-term strategic planning shows that many of the decisions and actions needed to get us on track must be taken imminently. New pledges to reach net-zero by 2050 were made at COP26 which should lead to a more rapid and clear path to decarbonization, with many industries being placed under additional pressure to make changes. Countries are being asked to come forward with ambitious 2030 emissions reductions targets that align with reaching net zero by the middle of the century. An essential initiative that has received much attention is the need to accelerate the phase-out of coal as a source of creating energy.

Legislation passed during the year sets Ireland on the path to net-zero emissions no later than 2050, and to a 51% reduction in emissions by the end of this decade. It provides the framework for Ireland to meet its international and EU climate commitments and the government has made clear its intention for Ireland to become a leader on climate change initiatives.

Investors and other stakeholders have increased the volume of their calls for greatly improved reporting on sustainability and climate change, and integration with financial reporting to ultimately provide a comprehensive corporate reporting framework – a globally consistent, comparable and stable platform.

In response, at the COP26 Conference, the IFRS Foundation launched the International Sustainability Standards Board (ISSB).


ISSB – The Path Forward

The ISSB has been created by the IFRS Foundation and will sit beside the International Accounting Standards Board (IASB). It will be overseen by the Foundation Trustees, and will follow their long-established due processes for governance.

The ISSB mission is to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet the information needs of investors and other stakeholders on climate and other economic, social and governance (ESG) risks and demands – Sustainability Disclosure Standards.

The creation of the ISSB has been strongly supported by leading investor-focussed sustainability disclosure organisations, with commitment to consolidate into the ISSB. The Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) are expected to be consolidated into the ISSB by June 2022. Others are considering similar action.

The IFRS Foundation plan is that in 2022 it will carry out thorough consultation and stakeholder engagement processes, both in relation to the first proposed standards and on which items should be on the ISSB’s initial work plan. The ISSB standards will be developed in a manner that will enable them to be combined with jurisdiction-specific requirements. It will be a matter for jurisdictional authorities to decide whether to mandate use of the ISSB’s standards.

To support the work of the IASB Foundation in creating the ISSB, the Trustees formed a Technical Readiness Working Group (TRWG) in March 2021.


Technical Readiness Working Group

The function of the TRWG is to integrate and build on the relevant initiatives of the various global sustainability-focused organisations and to provide recommendations for consideration by the ISSB. Within this mission is its response to the call by the International Organisation of Securities Commissions (IOSCO) to co-ordinate the drive for global consistency of companies’ sustainability-related disclosures to inform investors’ assessment of enterprise value and investment decision-making.

The launching of the ISSB was accompanied by the TRWG publishing two documents:

The ISSB also published an overview of the work programme of the TRWG explaining their technical preparatory work to present a set of recommendations which will enable the ISSB to get off to a ‘running start’.


Climate-related Disclosures

The climate-related disclosure prototype is structured around the four pillars of the Framework of the Task-force for Climate-related Financial Disclosures (TCFD) – governance, strategy, risk management, metrics and targets.

An entity would disclose information to enable users of general-purpose financial reporting to understand:

  • how climate-related risks are identified, assessed, managed and mitigated;
  • the governance processes, controls and procedures used to monitor and manage climate-related risks and opportunities;
  • the strategy for addressing risks and opportunities and their overall impact on company strategy and business model; and
  • the performance metrics in managing the risks and opportunities.

Appendices to the prototype include the defined terms, industry-based disclosure requirements and supplementary protocols for climate-related metrics.


General Sustainability-related Disclosures

The prototype is inspiredby IAS 1 ‘Presentation of Financial Statements’, and in the appendices sets out a general-purpose financial report that includes both sustainability-related financial information and financial statement information, demonstrating a consistent approach to both.

Some of the features include:

  • Disclosure of information that focuses on matters critical to the way an entity operates, focusing on the four pillars of the TCFD Framework, setting out objectives for each and disclosure requirements to achieve those objectives;
  • Information is material and should be disclosed if omitting or obscuring that information could reasonably be expected to influence decisions that primary users make;
  • The use of reasonable estimates is frequently an essential part of presenting sustainability-related financial disclosures and does not undermine the usefulness of the information if the estimates are clearly described and explained; and
  • An entity whose sustainability-related financial disclosures comply with all the relevant requirements of ISSB would include in its report an explicit and unqualified statement of compliance.


European Initiatives

Our FRB article in August 2021 ‘Sustainability Reporting Framework – Europe Makes Progress’ gave a brief summary of developments at European level with the EU Commission’s Corporate Sustainability Reporting Directive (CSRD) and the programme of proposed work to be carried out by the European Financial Reporting Advisory Group, and its European Lab, in developing European sustainability reporting standards over the next couple of years. It is expected that the drafts of the first batch of standards, including climate change, will be available by June 2022.

The European Commission is entirely supportive of the initiatives being taken by the ISSB. It is of the view that ‘global standards should be a common floor, not a ceiling that limits those that want to go further and faster’. It encourages ‘building on what exists, and seeking as much alignment as possible, while also meeting Europe’s ambitious goals’. Progress continues in Europe, including proposals for EU-wide requirements on limited assurance on sustainability reporting.

Global sustainability-reporting development organisations have jointly written to the European Commission, the European Parliament and the European Council calling on them to align the upcoming standards with globally consistent and comparable performance metrics and disclosures based on the ISSB standards.


Current Position

Our ‘Purpose-driven Business Reporting in Focus’ (PBRF) series, published on our global information service, has published ‘IFRS Foundation creates new board to set global sustainability standards’. It provides comment and insight into this major landmark development and sets out next steps including consideration of the implications for companies, both in the current reporting environment and going forward.

With regard to the current position, our PBRF comments that efforts put into reporting on sustainability matters now are expected to help companies implement the ISSB’s standards in the future. Companies could use, for example, the SASB Industry Standards, the CDSB Framework, the TCFD’s latest guidance on metrics, targets and transition planning, and the International Integrated Reporting Framework. In common with IFRS, the absence of a Standard that specifically applies to a transaction, other event or condition, may require management to use its judgement in developing and applying policies that result in information that is relevant and reliable.

In previous FRBs, reference has been made to the Institutional Investors Group on Climate Change (IIGCC) publication: ‘Investor Expectations for Paris-aligned accounts’ with reference to the UN Paris Agreement in 2015.

It puts forward five clear steps companies could take in preparing ‘Paris – aligned’ financial statements, as follows:

  • Affirmation that climate change risks are incorporated in the financial statements;
  • Adjustments to critical assumptions and estimates;
  • Sensitivity analyses and their results linked to variations in judgements or estimates;
  • Implications for dividend paying capacity and resilience; and
  • Confirmation of consistency between narrative reporting on climate risks and the accounting assumptions incorporated in the financial statements.

The five clear steps provide a framework that entities may find helpful when dealing with climate change in their annual report. Our publication ‘A Closer Look — Investor demand for corporate reporting in line with the Paris Agreement on climate change’ provides more insight into the various potential matters that may be involved.



The ISSB is a major and very welcome development in moving forward towards a comprehensive corporate reporting framework to include both sustainability reporting and financial reporting.

Investors and other stakeholders welcome these initiatives and look forward to consistent, high quality information being available to support their decision-making and related processes.

It will take some time for developments to yield the desired result of consistent and comparable standards. In the meanwhile, companies must avail of the resources currently available in including relevant and transparent information on climate change and other ESG matters when preparing their annual reports.

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