On 23 April 2024, the International Sustainability Standards Board (ISSB) announced that biodiversity, ecosystems and ecosystem services (BEES) and human capital will be key themes for the next two years. The Board announced that biodiversity, ecosystems and ecosystem services (BEES) and human capital will be the main themes for the next two years. Consideration of human rights has been postponed.
This paper discusses the background to this announcement, the reasons for the selection of the two themes concerned and their future impact on Japan.
1. background to the start of the study
On 4 May 2023, the ISSB published a call for views on its agenda priorities for the next two years.
In the Prioritisation, Scope and Composition of Potential New Research and Standard Setting Projects, one of the three themes addressed in the Agenda Consultation, (i) Biodiversity, Ecosystems and Ecosystem Services (BEES), (ii) Human Capital and (iii) Human Rights, and the 'Integration in Reporting' Projects were presented and comments were invited over a period of approximately four months.
Results,(i) Biodiversity.and(ii) Human capital.The theme was adopted on the basis that there is a growing need in the market for the disclosure of
Disclosure of material information on risks and opportunities in sustainability is already required in IFRS S1, and guidance including the SASB standards should be consulted when making appropriate disclosures other than climate change.
The project has set out to assess and define the limitations of financial disclosures on sustainability and to begin work on setting its own standards in a way that complements existing guidance.
The next section discusses the background to the adoption of biodiversity and human capital.
2 . Background to the adoption of biodiversity and human capital
◆ Biodiversity, ecosystems and ecosystem services
(BEES: Biodiversity, ecosystems and ecosystem services)
IFRS publicly available documentsAccording to the BEES definition, the definition of BEES is as follows.
biodiversity: refers to the displacement between all living organisms and is a fundamental feature of natural systems.
ecosystem: dynamic complexes, such as temperate deciduous forests, tropical rainforests, forest peat, etc., where the plant, animal and microbial communities and the non-living environment surrounding them interact to form a single functional unit.
Ecosystem servicesEcosystems are also known as 'ecosystems': the contribution of ecosystems to the benefits used in economic and other human activities. Examples include climate regulation, raw material and water supplies, pollination and flood prevention.
The document shows that changes in BEES can have a significant impact on corporate risks and opportunities: while BEES underpins all human activity, its effective maintenance, conservation and recovery are compatible relationships that depend on humans.
While enormous economic value is created by nature and the ecosystem services it produces, the majority of ecosystems around the world are in retreat, pointing to the urgency of financial risk.
This was identified as a priority topic due to the significant pace at which relevant research and work is progressing in this context and the growing need for information from investors.
A set of established and internationally recognised disclosure practices, tools and indicators have not yet been developed to understand how BEES affects the financial position, performance and prospects of companies in the short, medium and long term.
Furthermore, topics and subtopics are not defined or categorised, and a lack of consensus towards setting standards is also noted.
It was also noted that the risks and opportunities associated with BEES vary widely across different geographical locations, business models, economic activities, etc., and the challenges faced vary between companies.
Hence, there is a new need for flexible framework settings that do not fit into existing frameworks.
◆Human capital
ISSB public documentsAccording to,human capitalrefers to the people who make up a company's workforce, and the competencies, capabilities and experience of individual workers, as well as their willingness to innovate.
Investors are increasingly demanding disclosure of human capital, as investment in and management of a company's workforce has a direct impact on its ability to deliver value in the long term.
Investors are particularly concerned about diversity, equity and inclusion (DEI), and the Value Reporting Foundation, a division of the IFRS, has emphasised its importance.Homepage.We point out in the following section.
The TCFD and TNFD also laid the groundwork for discussions on the environmental aspects of ESG, which later merged with the TIFD and TSFD to form the TISFD*, which supports disclosure of human capital, human rights and other social aspects. Against the backdrop of this trend, reporting on corporate human capital is also on the rise, as the importance of not only the environment but also the social aspects of companies is increasingly emphasised in ESG.
Figure 1: TISFD inauguration process (prepared by the author).
On the other hand, however, investors have voiced a lack of sufficient useful information for investment decisions, for example, the lack of clarity on the difference between the two topics of human capital and human rights.
Over the next two years, the ISSB project aims to establish clearer criteria for the boundaries and relevance of both topics, as well as conduct research to develop a new human capital framework and improve understanding of relevant information.
Both BEES and human capital have diverse issues and associated subtopics, which have relevance to various standards, including the TNFD, as follows.
Table 1: Standards used/recommended for reference by the ISSB in biodiversity and human capital considerations
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)the Capitals Coalition.Capital approach: organisations promoting the capital approach.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)CDSB Framework: standards for disclosing environmental and climate information to investors in the company's mainstream reports.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)the EU Business and Biodiversity Platform.: Organisation providing a forum for discussing the link between business and biodiversity in the EU.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)the European Commission's Align Project (Aligning accounting approaches for nature).: project to provide companies and financial institutions with principles and criteria for the measurement and assessment of biodiversity
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)EFRAG: organisation that reports to the European Commission on financial and sustainability matters.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)GRI Standards: standards for multi-stakeholder disclosure of information on the organisation's economic, environmental and social impact.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)ILOThe United Nations is the one organisation that: promotes the right to work, encourages decent employment opportunities, enhances social protection and strengthens dialogue on work-related issues.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)Integrated Reporting Framework: organisations aiming to promote integrated corporate reporting.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)PBAF: organisations providing guidance for financial organisations on assessing biodiversity impacts and dependencies.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)SASB Standard: criteria for companies to disclose information on sustainability risks and opportunities to investors.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)the Science Based Targets Network.: An organisation whose goal is to create a global economy in which businesses and governments function in accordance with the greenhouse gas emission reduction targets required by the Paris Agreement.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)TNFD: standards for disclosing nature-related information with financial implications in annual financial reporting.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)the United Nations Declaration on the Rights of Indigenous Peoples: organisations that aim to ensure the survival, dignity and wellbeing of indigenous peoples.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)the US Securities and Exchange Commission.The organisation supports investors in their decision-making through information sharing between companies and investment professionals, while safeguarding fairness in the securities markets and with investors.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)WEF: an organisation that works to improve global conditions through cooperation between the public and private sectors.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)the World Benchmarking Alliance.: organisations aiming to change the way business impact is measured to motivate enterprises
Explanatory reports on some of these criteria are available on this website.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)[Commentary] Current status of the SASB Standards and Japanese companies that have adopted them.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)[Commentary] Alphabet soup - Disorder and convergence of sustainability standards.
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)Commentary] What is the SASB Standard for ESG Information Disclosure? (Part 1) SASB Overview
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)Commentary] What is the SASB Standard for ESG Disclosure? (Part 2) Benefits for companies
middle dot (typographical symbol used between parallel terms, names in katakana, etc.)[Explanation] What is the TNFD? A new bridge between finance and the natural environment
*TISFD explanatory article:[Commentary] TISFD: Task Force on Inequality and Social-related Financial Disclosure.
◆Human rights
As a result of the call for comments, the study on human rights* was not adopted at this time.
However, the launch of the TISFD has also had an impact, with investors increasingly demanding disclosure of human rights-related information, as well as human capital.
ISSB research shows that investors are highly interested in the rights of workers and communities in a company's value chain.
The former includes health and safety, forced labour, etc., while the latter includes indigenous rights and impacts on land and water.
Human rights values vary widely from country to country and region to region, and different business models and sectors in the value chain have different arguments to deploy.
Therefore, a range of research practices, including the development of new human rights-related frameworks, will be needed to better define the boundaries and linkages between human capital and human rights projects, and to mature the understanding of human rights risks and opportunities in the marketplace.
3. impact on our country
The application of the SSBJ standards, which are consistent with the ISSB standards, to annual securities reports will become mandatory for companies with a market capitalisation of at least 3 trillion yen from March 2027 at the earliest.
The SSBJ standards are supposed to be consistent with the ISSB standards, and it is highly likely that the SSBJ will develop new standards in line with the ISSB's agenda consultation, which will be reflected in disclosures in securities reports.
In a report recently published by aiESG*, it is noted that since the introduction of mandatory human capital information disclosure in Japanese securities reports in 2023, there has been an increase in corporate disclosure requirements not only with regard to environmental aspects but also social aspects.
The ISSB's work schedule for the next two years is due to be published in June this year, which could further accelerate the move towards information disclosure in the Japanese domestic market.
*aiESG Report:[Commentary] The importance of social and human capital in financial reports.
4. conclusion.
This paper examines the background and future prospects for the ISSB's consideration of biodiversity and human capital over the next two years.
The ISSB also highlights the relevance of relevant existing frameworks (e.g. SASB Standards, CDSB Guidance, GRI Standards, etc.) and considers their relevance to the TNFD.
The ISSB's new standard-setting through the project will help investors and companies to better understand biodiversity and human capital, and to set clearer targets and disclosure work.
aiESG focuses not only on BEES, but also on human capital and, with a view to the future, on human rights, and the unique tools provided by the company enable higher quality disclosure.
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:
https://aiesg.co.jp/contact/
References.
[1]https://www.ifrs.org/news-and-events/news/2024/04/issb-commence-research-projects-risks-opportunities-nature-human-capital/
[2]https://tnfd.global/tnfd-welcomes-the-issbs-decision-to-commence-work-on-nature-related-issues/
[3]https://www.ifrs.org/content/dam/ifrs/project/issb-consultation-on-agenda-priorities/issb-rfi-2023-1.pdf
[4]https://sasb.ifrs.org/standards/process/projects/human-capital-diversity-equity-inclusion/
[5]https://sasb.ifrs.org/standards/process/projects/human-capital-diversity-equity-inclusion/
*Related page*.
Report list : Regulations/standards
[Commentary] ISSB - Global Baseline for Sustainability Disclosure.
[Commentary] Deliberations of the SSBJ (Sustainability Standards Board) - Scope 3 disclosure standards in Japan.
[Commentary] Non-financial capital: trends in human and natural capital - domestic and international disclosure regulations and guidelines.
Commentary] The importance of social aspects in non-financial information disclosure.