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Companies Can Focus Solely on Climate-Related Disclosures at First Adoption Next Year, ESG Rulemaker Says

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

The International Sustainability Standards Board (ISSB) voted on April 4, 2023, to grant companies the option to only report on climate-related risks next year when two new sustainability disclosure standards take effect.

The board said investors view climate-related risks as the most urgent among other sustainability matters and have pressed for consistent, comprehensive information around those risks and opportunities.

The reporting option will give companies the opportunity to establish systems and processes in place starting with climate related reporting where best practices already exist, according to the discussions.

Companies that elect to take the relief would adopt S2, Climate-related Disclosures, on the Jan. 1, 2024, effective date, but the climate-related rules in S1, General Requirements for Disclosure of Sustainability-related Financial Information, would also apply.

In the second year, companies would then begin to report on other sustainability-related risks and opportunities under S1, and the effective date of that standard would not change, the board agreed.

“We’d be saying you’re using the relief because you’re not going to commit to applying S1 for all of your sustainability related risks and opportunities in the full way that S1 requires,” Vice Chair Sue Lloyd said during the meeting. “You’re going to focus in and apply S2, using S1 to the extent that’s relevant to applying S2,” she explained. “But there are some extra stuff that you want to provide information on perhaps because you were reporting on it in the past, you could do that but you’d need to say ‘I have used the relief’ so that investors are on notice this isn’t the full spectrum of S1.”

S1 and S2 are the first two environmental, social and governance (ESG) related disclosure standards to be developed by the ISSB – done in under a year with extensive input and outreach. The standards will be issued by the end of this year’s second quarter.

“This transitional relief ensures companies can phase in their approach, initially focusing on the quality of the climate-related information they provide,” ISSB Chair Emmanuel Faber said in a statement. “That said, companies around the world are not all starting from the same place,” he said. “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.”

The new relief option will piggyback on prior ones already granted, the discussions indicated. Specifically, for the first year they use the ISSB’s standards, companies would not need to:

  • provide disclosures about sustainability-related risks and opportunities beyond climate-related information;
  • provide annual sustainability-related disclosures at the same time as the related financial statements;
  • provide comparative information;
  • disclose Scope 3 greenhouse gas emissions; and
  • use the Green House Gas Protocol to measure emissions, if they are currently using a different approach.

ISSB members said the options will go a long way in helping to gain jurisdictional support.

“I think this relief is really critical,” ISSB Vice Chair Jingdong Hua said during discussions. “It may seem like a step back, but it is a step back to prepare companies well so that they can run farther, run faster,” he said.

This article originally appeared in the April 10, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.

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