The International Sustainability Standards Board this year plans to complete two rule proposals that would cover companies’ disclosures of climate-related risks to their business and broaden the sustainability standard-setter organization’s focus to include corporate reporting on biodiversity and other topics.
Launched in 2021, the standard-setter in recent months has received thousands of comments from finance chiefs, academics, audit firms, and investors following the proposals that were introduced in March, Chair Emmanuel Faber said. The ISSB intends to move fast to finish the two standards, with the effective date yet to be decided, he said.
“Climate is going to be finalized in the next few months. And then quite naturally, we’re now looking at what’s next,” Mr. Faber said.
The International Financial Reporting Standards Foundation, an accounting standards body based in London, launched the ISSB to develop sustainability reporting standards. Jurisdictions of individual nations can choose to adopt the ISSB’s standards, which would make them binding for companies in those areas. Companies can also voluntarily adopt the standards.
The two rules currently under discussion aim to set a baseline for disclosures as companies around the world grapple with varying frameworks, standards and regulatory disclosure requirements. One of the rule proposals would see companies disclose significant climate-related risks, such as floods and other extreme weather events. The other would require them to share information on how they manage, measure and monitor certain sustainability risks.
The proposals drew more than 1,300 comments, including from chief financial officers at companies such as heavy machinery maker Caterpillar Inc., chip manufacturer Intel Corp., clothing company Levi Strauss & Co. and telecommunications provider Verizon Communications Inc.
Finance chiefs said they wonder how the ISSB’s rules would interact with a proposal from the U.S. Securities and Exchange Commission, which would impose mandatory disclosure requirements on greenhouse-gas emissions and climate risks, and expressed concerns that companies would have to disclose confidential information. Levi’s, Verizon and Intel didn’t immediately respond to requests for comment. Caterpillar declined to comment. The SEC didn’t immediately respond to a request for comment.
The ISSB is monitoring the actions of the SEC as well as that of others, Mr. Faber said, pointing to a working group with authorities from the U.S., China, Japan, the European Union and the U.K., which is meeting regularly. “We are not standard-setting in a vacuum,” he said.
The ISSB in October voted to require companies to disclose Scope 3 emissions, which includes those from suppliers, in addition to their own emissions. Companies in response to the rule proposals have said they are concerned about the methodologies used to calculate Scope 3 emissions as well as the lack of data.
“We’ve dealt with the feedback,” Mr. Faber said, adding that companies won’t have to disclose these emissions under the ISSB proposal for at least a year. They will also be able to include information that isn’t aligned with their reporting period if their suppliers have a different reporting cycle, which was another concern raised by companies.
Accounting professors said companies and investors will benefit from a baseline standard on sustainability-related disclosures. Companies increasingly are using multiple reporting frameworks, with 80% of them doing so in 2020 compared with 68% in 2019, according to research firm Audit Analytics. The number of global companies reporting under four different frameworks rose to 255 in 2020 from eight in 2019, the data shows. Data for 2021 isn’t available yet, Audit Analytics said.
Still, even with the standards from the ISSB, it is likely that companies will continue to make use of any wiggle room that’s available to them, said Carol Adams, an accounting professor at Durham University Business School. “The amount of judgment involved means there won’t be a level playing field,” she said, adding that companies have considerable discretion when determining what constitutes relevant information.
In 2023, the ISSB will also look into potential new disclosures around the impact of businesses on biodiversity, human capital and reporting on human rights within companies. The ISSB in December announced proposed rules aimed at considering the connection between climate and nature, including one with the goal of cutting companies’ negative effects on biodiversity by up to half by 2030. The proposals came as government officials and nonprofits convened in Montreal for the United Nations COP15 biodiversity conference.
These “adjacent topics” are top of mind for investors, according to Mr. Faber. Extensions to the two existing proposals, on subjects, such as water and deforestation, may be finalized in 2024, he said, while additional standards likely won’t take effect before 2026.