[Commentary] Update on the implementation of the ISSB Sustainability Disclosure Standards in various countries.

Sep 4,2024

0. Introduction.

There is a growing trend worldwide to adopt the International Sustainability Disclosure Standards released by the International Sustainability Standards Board (ISSB) in June 2023 and to introduce them into their own national sustainability disclosure standards. For more information on ISSB, see previous commentaries.

[Commentary] ISSB - Global Baseline for Sustainability Disclosure.
https://aiesg.co.jp/report/2301130_issb/

At the IOSCO Annual General Meeting on 28 May 2024, the IFRS Foundation launched a jurisdictional guide to help jurisdictions design and plan for the adoption of ISSB standards and other adoption initiatives [1]. The Guide requires jurisdictions that (i) account for 551 TP3T of global GDP, (ii) account for more than 401 TP3T of global market capitalisation, and (iii) are responsible for more than half of global greenhouse gas emissions, to either use the ISSB Standards or fully align their sustainability disclosure standards with the ISSB Standards. The aim is to.

The introduction of ISSB standards is progressing in Europe and other developed countries, but efforts are also underway in emerging countries at the national level and at the regional level involving many countries.

This paper describes the status of ISSB implementation in developed countries such as the EU, the USA and Japan, as well as in Asian countries such as China and Singapore, and emerging countries such as Nigeria and Brazil.

1. trends in developed countries

◆EU

The EU is considered to be the most advanced region in terms of sustainability initiatives, with a wide range of legislation and regulations in place.

In the EU, the Corporate Sustainability Reporting Directive (CSRD) was passed in January 2023 and disclosure according to the European Sustainability Reporting Standard (ESRS), a mandatory standard, has begun [2][3].

[Commentary] CSRD: The European Union's Corporate Sustainability Reporting Directive Latest news.
https://aiesg.co.jp/report/2407019_csrd2/

The CSRD predecessor, the NFRD, has already started to apply to companies subject to the NFRD in the financial year 2024, and will apply to all large EU companies (including subsidiaries of foreign companies) in 2025, and to listed SMEs in 2026. 2028 for foreign companies with branches or subsidiaries in the EU. The entire group of foreign companies with branches or subsidiaries in the EU is expected to be covered.

In addition, the International Organisation of Securities Supervisors (IOSCO) issued a statement in support of the ISSB standards in July 2023 [4]. This is expected to lead to the introduction of the ISSB standards in IOSCO member states.

◆America

In the US, the SEC's (US Securities and Exchange Commission) Climate Disclosure Rules are the main standard; although the ISSB standard has not been introduced, the SEC's Climate Disclosure Rules have similarities with the ISSB standard in that they are consistent with the TCFD.

On 6 March 2024, the Securities and Exchange Commission (SEC) published its final rules requiring climate-related disclosures [5][6]. A number of points were amended from the original proposal, including the exclusion of Scope 3 emissions reporting requirements and the requirement to report Scope 1 and 2 emissions only for companies that are deemed to be material, but the SEC indicated that it may raise the content of the rules if it determines that sufficient information is not available to properly assess climate change risks. The possibility was indicated that the content of the rules could be raised if it was determined that insufficient information was available to properly assess climate change risks. In addition, the SEC has issued an order allowing for an 'alternative system' of compliance with the rules it has decided on. At present, the ISSB standards are not permitted to be used as an alternative, but the SEC indicated the possibility of developing new rules regarding the application of other international standards, including the ISSB. The rules will be phased in from the financial year commencing 2025, depending on the size of the entity. However, due to a number of lawsuits challenging the rules, it has been announced that the implementation of the rules will be suspended until the conclusion of judicial hearings.

There has also been a lot of discussion on sustainability-related disclosure in different states, and in California, a climate-related disclosure bill for companies was passed on 7 October 2023[7][8][9]. The bill goes one step further than the SEC's climate disclosure rules, as it requires companies subject to the bill to disclose Scope 3 emissions as early as financial year 2027, and applies to both listed and unlisted companies, provided they meet the requirements.

◆Australia

On 23 October 2023, the Australian Accounting Standards Board (AASB) issued a new exposure draft on climate-related financial disclosure standards [10]. Among the exposure drafts, ASRS 1 'General Requirements for Climate-related Financial Disclosures' and ASRS 2 'Climate-related Financial Disclosures' were developed based on IFRS S1 and S2 respectively.

On 27 March 2024, a financial bill on climate-related financial disclosure was introduced in Parliament, and on 3 May the Senate Economic and Legislative Committee released its report on the bill, supporting its passage. Meanwhile, Coalition Senators have expressed concern and taken an opposition stance on several provisions of Schedule 4 [11].

If the bill passes, the disclosure requirements for companies will be phased in, with Group 1 companies that meet requirements such as 500 or more employees and turnover of at least USD 500 million (USD 73.3 billion) expected to start reporting from the financial year beginning 1 January 2025.

◆Japan

On 29 March 2024, the Sustainability Standards Board (SSBJ) published an exposure draft of the SSBJ Standards developed on the basis of the ISSB Standards, with a finalised standard expected to be published in March 2025 [12].

[Commentary] Deliberations of the SSBJ (Sustainability Standards Board) - Scope 3 disclosure standards in Japan.
https://aiesg.co.jp/report/240520_ssbj/

For TSE prime listed companies, there is a proposal to apply the SSBJ proposal in stages from companies with large market capitalisation, with a certain voluntary application period.

The application of the SSBJ standards in annual securities reports will first apply to companies with a market capitalisation of at least 3 trillion yen, and a proposal has been floated to apply the standards from the year ending 31 March 2027 at the earliest, although discussions are continuing to determine the timing of the application.

Figure 1: Timeline of national sustainability disclosure standards(in...)FSA public documents(Prepared by the author based on)

2. trends in Asian countries

In the Asia-Pacific region, the adoption of the ISSB standards and efforts to introduce them have been active, with the International Federation of Accountants organising a Sustainability Summit in September 2023[13].

◆ASEAN

The ACMF (ASEAN Capital Markets) has published a roadmap for the formation of sustainable capital markets [14] in 2020. It is also working to raise awareness of the ISSB standards, including holding a joint meeting with the ISSB on 27 June 2023 to mark the publication of the ISSB standards [15], suggesting the possibility of applying the ISSB standards on the basis of laws and regulations within ASEAN jurisdictions, It can be said that they are in the process of exploring the possibility of future adoption.

In addition, the FSA publication [16] shows that while the percentage of ASEAN countries implementing sustainability reporting is high, only a few countries have adopted mandatory climate change-related information disclosure in line with TCFD recommendations and the ISSB standards on climate change into their national frameworks.

Table 1: Status of climate change disclosure in ASEAN(in...)FSA public documents(Adapted from.)

◆Singapore

On 28 February 2024, the Accounting and Corporate Regulatory Authority of Singapore (ACRA) and the Singapore Stock Exchange (SGX) announced that from FY2025, all listed companies in Singapore will be required to report and submit their annual CRD in accordance with the requirements of the ISSB standards [17].

From 2027, large NLC companies with annual revenues of at least USD 1 billion and total assets of at least USD 500 million will be subject to similar obligations.

With regard to the disclosure of greenhouse gas emissions by listed issuers, Scope 1 and 2 will have to be reported in the CRD from FY2025 and Scope 3 from FY2026. Major NLC companies are expected to start requiring it from 2027 and 2029 onwards, respectively.

◆Malaysia

The Advisory Committee on Sustainability Disclosure (ACSR) was established in Malaysia on 24 May 2023 and discussions are underway to develop a Malaysian version of the ISSB standard.

On 15 February 2024, the ACSR published a consultation paper on the draft Malaysian version of the standard, seeking feedback on key issues such as the timing and scope of IFRS S1 and S2 implementation [18].

In order to understand the needs and challenges of the market, the participation of listed and large unlisted companies as well as SMEs is encouraged.

◆China

On 27 May 2024, the Ministry of Finance of the People's Republic of China published an exposure draft and explanatory document of the Basic Sustainability Disclosure Standards for Enterprises [19][20][21].

The draft comprises basic standards, thematic standards and application guidance and has been developed in accordance with the ISSB standards.

The introduction of the standard for companies will be phased in and eventually all companies (listed and unlisted, large and small) will be required to adopt the standard.

Climate-related disclosure standards are expected to be issued by 2027, and sustainability disclosure standards (CSDS) for Chinese companies by 2030.

3. other emerging economies

◆Nigeria

On 3 February 2024, the Financial Reporting Council of Nigeria (FRC) published a roadmap report (DRAFT) for the implementation of ISSB standards in Nigeria [22].

According to the report, the application of the IFRS Sustainability Disclosure Standard will be phased. After early application in Phase 1 (-31 December 2023) and voluntary application in Phase 2 (1 January 2024 - 31 December 2027), the standard will apply to all PIEs (socially sensitive entities) from 1 January 2028 and to SMEs on 1 January 2030.

◆Brazil

On 13 May 2024, the Brazilian Securities Commission (CVM) published two exposure drafts for consultation on the development of a national sustainability disclosure standard in accordance with ISSB standards: general requirements for the disclosure of sustainability-related financial information and climate-related disclosure [23][24][25]. Comments are invited until 11 July of the same year.

If approved, the obligation will become mandatory for listed companies from 1 January 2026, with earlier application possible before then.

◆African Development Bank

On 28 May 2024, IFRS announced a partnership with the African Development Bank (AfDB) to promote sustainability-related financial disclosures in Africa [26].

Both organisations work with African financial institutions and other institutions and regulators to provide capacity building and technical assistance to support investors' decision-making. A number of countries, including Nigeria and Kenya, have now indicated that they have since adopted and used the ISSB standards.

4. conclusion.

This report provides an overview of the introduction of ISSB standards in various countries around the world, and while there are differences between countries in deciding whether to use ISSB standards as they are or to apply them to their own standards, it can be seen that there is a growing momentum towards sustainability-related information disclosure in both developed and emerging countries. Active efforts are being made by individual countries, and there is also movement in the direction of the ISSB. On the other hand, in some countries there are multiple standards, and in others the timing for finalising standards and applying them to the market is unclear, so it will take some time before a complete sustainability-related information disclosure system is established.

aiESG provides support on ESG-related standards and frameworks, from basic content to actual disclosure of non-financial information. aiESG is happy to assist companies with ESG compliance.

Enquiry:
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References.
[1]https://www.ifrs.org/content/dam/ifrs/supporting-implementation/adoption-guide/inaugural-jurisdictional-guide.pdf
[2]https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32022L2464
[3]https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32023R2772
[4]https://www.iosco.org/news/pdf/IOSCONEWS703.pdf
[5]https://www.sec.gov/newsroom/press-releases/2024-31
[6]https://www.sec.gov/news/statement/cresnshaw-statement-mandatory-climate-risk-disclosures-030624
[7]https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253&_ga=2.59182637.1024658143.1720416172-1495147621.1714397216
[8]https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB261&_ga=2.59182637.1024658143.1720416172-1495147621.1714397216
[9]https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240AB1305
[10]https://www.aasb.gov.au/admin/file/content105/c9/AASBED_SR1_10-23.pdf
[11]https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd2324a/24bd068
[12]https://www.ssb-j.jp/jp/domestic_standards/exposure_draft.html
[13]https://www.ifac.org/events/ifac-sustainability-summit-asia-pacific
[14]https://www.theacmf.org/images/downloads/pdf/ACMF_Roadmap_high.resolution.pdf
[15]https://www.theacmf.org/media/news-release/asean-securities-regulators-team-up-with-issb-to-mark-global-launch-of-sustainability-disclosure-standards
[16]https://www.fsa.go.jp/common/about/research/20240430-4/report.pdf
[17]https://www.acra.gov.sg/news-events/news-details/id/778
[18]https://www.sc.com.my/resources/media/media-release/acsr-invites-public-feedback-on-proposed-use-of-issb-standards-in-malaysia
[19]https://viewpoint.pwc.com/dt/gx/en/pwc/in_briefs/in_briefs_INT/in_briefs_INT/ministry-of-finance-issued-the-exposure-draft-of-chinese.html#pwc-topic.dita_d6b9c4cd-8b9f-42fc-b0f2-a24a398af194
[20]https://upload.news.esnai.com/2024/0527/1716799372431.pdf
[21]https://upload.news.esnai.com/2024/0527/1716799385429.pdf
[22]https://frcnigeria.gov.ng/wp-content/uploads/2024/04/FINAL-COPY-OF-SUSTAINABILITY-ROADMAP-1.pdf
[23]https://www.ifrs.org/news-and-events/news/2023/10/brazil-adopts-issb-global-baseline/
[24]https://www.gov.br/cvm/pt-br/assuntos/noticias/2024/aberta-consulta-publica-que-torna-obrigatoria-divulgacao-de-informacoes-financeiras-relacionadas-a-sustentabilidade
[25]https://www.gov.br/cvm/pt-br/assuntos/noticias/2024/cvm-abre-consulta-publica-para-pronunciamento-tecnico-referente-a-divulgacoes-climaticas
[26]https://www.ifrs.org/news-and-events/news/2024/05/ifrs-foundation-and-african-development-bank-to-join-forces-to-promote-sustainability-related-financial-disclosures/

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