The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide. These standards from the International Sustainability Standards Board (ISSB) are being thought of as a global baseline for sustainability reporting, which can then be further developed by local jurisdictions. The IFRS S1 and S2 standards will be effective for annual reporting periods beginning on or after January 01, 2024. In late July 2023, the ISSB also proposed an associated digital taxonomy to aid in the consistent global implementation of these standards, with the final digital taxonomy expected in early 2024. More recently, on September 14, 2023, ISSB announced members of its Transition Implementation Group (TIG) to support implementation of these IFRS standards globally.
The TIG comprises 17 members, including those from the Big 4 consulting firms, with membership reflecting strong global participation and representation from the following jurisdictions: Australia, Belgium, Brazil, Canada, China, Finland, Germany, Hong Kong SAR, Japan, Malaysia, Nigeria, South Africa, South Korea, the United Kingdom and the United States. The mandatory implementation of these standards across the globe hinges on their endorsement by each respective jurisdiction. Several jurisdictions across the globe have already made announcements to incorporate these standards in their own sustainability disclosure requirements.
In Europe, the European Commission (EC), which is far ahead in the implementation curve for environmental, social, and governance (ESG) requirements, recently adopted the first set of European Sustainability Reporting Standards (ESRS). This European regulator has confirmed high degree of climate disclosure alignment between ESRS and the ISSB standards. The ESRS standards are expected to come in effect from January 01, 2024. More recently, in the United Kingdom, HM Treasury and the Financial Conduct Authority (FCA) have signaled support for ISSB standards, with the HM Treasury confirming plans to establish the Sustainability Disclosure Standards (SDS) framework to adopt and endorse these standards for the UK. The UK government aims to make endorsement decisions on the first set of standards by July 2024.
In Americas, the Canadian banking regulator OSFI has committed to incorporating these newly finalized standards into its Guideline B-15 on climate risk management, which it issued in March 2023. Additionally, the Chilean banking regulator CMF expects to start work, this year, on addressing sustainability disclosures under the ISSB standards while Brazil has already established the Brazilian Committee for Sustainability Pronouncements or CBPS. In contrast, the implementation of such disclosures in the United States is uncertain. The U.S. Securities and Exchange Commission (SEC) proposed climate-risk-related disclosures last year, with the expectation to finalize the rules by October 2023. The SEC consultation had received a large number of responses, though the rules are yet to be finalized. In end-July 2023, Republicans on the House Financial Services Committee in the U.S. Congress introduced a series of bills, which included the Guiding Uniform and Responsible Disclosure Requirements and Information Limits (GUARDRAIL) Act that targets the upcoming climate-related disclosure rules from SEC. The proposal in the Bill would only allow the SEC to require disclosure that the issuer has determined as material to a voting or investment decision.
In Asia Pacific, regulatory entities in several jurisdictions, such as Australia, China, Hong Kong, Japan, Singapore, and Taiwan, have welcomed these standards. However, the stages and timelines of the planned implementation in Asian countries vary. The Australian government is planning to implement mandatory climate disclosures for companies and financial institutions and these could apply from 2024 for large businesses, with smaller entities phased in over the following three years. The Australian Accounting Standards Board (AASB) is expected to consult on the standards in the second half of 2023. The Sustainability Standards Board of Japan (SSBJ) is preparing a local version of the ISSB standards, the draft for which will be released by March 31, 2024 and the final standards by March 31, 2025. Additionally, the Sustainability Reporting Advisory Committee (SRAC) in Singapore has called for listed companies to follow the new rules starting from the financial year (FY) 2025 while the banking regulator FSC in Taiwan plans on phased implementation beginning in FY 2026.
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Keywords: International, Banking, ESG, Sustainable Finance, Reporting, Disclosures, Climate Change Risk, IFRS, ISSB
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
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