Society responds to ISSB Climate Reporting proposals

The IR Society welcomed the publication of the ISSB Exposure Draft IFRS S2 Climate-related Disclosure, which is based on those developed by the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB), and called for as much harmonisation and convergence with existing and emerging standards and frameworks in reporting as possible. The Society also noted that international collaboration in the development of any global baseline for climate reporting will be essential for the creation of a disclosure system that can be implemented globally with a consistent approach across markets, thereby optimising reporting efficiency for companies falling under multiple reporting regimes. The Society called for flexibility around the location of climate-related financial disclosure, provided the core information is still required to be included within the annual report and accounts, and suggested that any climate-related disclosure requirements should recognise that reporting entities may not to be able to obtain complete and accurate, or even estimated, data from entities in the value chain that are beyond the reporting entity’s control.

The Investor Relations Society

5th Floor, 30 Coleman Street

London, EC2R 5AL

Emmanuel Faber (ISSB Chair) and Sue Lloyd (ISSB Vice-Chair)

International Sustainability Standards Board (ISSB)

Columbus Building

7 Westferry Circus,

Canary Wharf,

London,

E14 4HD

By email: commentletters@ifrs.org

29 July 2022

Dear Chair Faber and Vice-Chair Lloyd,

IFRS S2 – UK Investor Relations Society comment letter

Thank you for giving us the opportunity to comment on the International Sustainability Standards Board’s (ISSB) Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (‘IFRS S1’) and IFRS S2 Climate-related Disclosures (‘IFRS S2’), together, ‘the Standards’. This response represents the views of the UK’s Investor Relations Society (‘the IR Society’) on IFRS S2.

The IR Society represents members working for publicly listed companies and consultancies to assist them in the development of effective two-way communication with the markets and to create a level playing field for all investors. It has over 850 members, drawn mainly from the UK, including the majority of the UK FTSE 100 and many of the FTSE 250 constituents, but also including some from companies listed overseas.

The IR Society’s mission is to promote best practice in investor relations; to support the professional development of its members; to represent their views to regulatory bodies, the investment community and Government; and to act as a forum for issuers and the investment community.

Overall/general comments

We reiterate below some of the overarching comments that we included in our comment letter for IFRS S1 where they are also of relevance in this response.

Support for global baseline

We welcome your initiative to provide an international set of sustainability reporting standards. The IR Society believes that any global baseline for sustainability reporting requirements established by the ISSB should apply as widely as possible and that regulators should seek to create as much harmonisation and convergence with existing and emerging standards and frameworks in reporting as possible. We therefore support the decision of the ISSB to base its draft Standards on those developed by the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB).

International collaboration in the development of that global baseline is essential for the creation of a disclosure system that can be implemented globally with a consistent approach across markets, thereby optimising reporting efficiency for companies falling under multiple reporting regimes. We support the ISSB’s Memorandum of Understanding with the GRI, as it is important that the ISSB undertakes technical work with other standard setters to align definitions and ensure consistency, especially as there are differing views of materiality.

We also note that the Corporate Sustainability Reporting Directive (CSRD) will require UK companies generating Euros 150 million turnover or more in the EU to make equivalent disclosures to those required by the European Sustainability Reporting Standards (ESRSs). EFRAG’s current proposed draft ESRSs are not fully interoperable with the ISSB standards, and we therefore have concerns that this could drive a required separate level of disclosure. It is important to ensure that there is alignment between these various differing reporting regimes to help corporates comply without disproportionate burden or cost.

We are therefore supportive of the working group recently established by the ISSB involving jurisdictions actively engaged in developing sustainability disclosure standards (including the UK and EU) and also support the establishment of relevant advisory and consultative bodies by the ISSB, for example the Sustainability Standards Advisory Forum.

Degree of flexible implementation

We believe the ISSB’s direction of travel is broadly the right one, although we believe there is a need to acknowledge the very significant workload implications for reporting entities in terms of the resources (time, effort, systems and coordination) that will be required across all areas and aspects of the reporting entity’s’ operations, given sustainability-related risks and opportunities extend across businesses. This burden is likely to be especially marked for reporting entities that are at the beginning of their sustainability reporting journey and that may also currently lack the required skills and expertise. This could to some extent be mitigated by:

the requirements being high level/principles-based, with the detail (for example, metrics) being contained in (non-mandatory) supporting guidance (see ‘Balance between principles and prescription’ below); and
more supporting application guidance in certain areas, with the development of best practice being facilitated by establishing a forum to facilitate liaison between preparers and users (see below); and
a phased implementation approach by the ISSB, which could be important in the context of balancing practicalities and resources required against the need for quality, comparable reporting , for example, more challenging aspects such as scenario analysis could be brought in later, and also localised phasing when the standards are adopted at jurisdictional level (perhaps with the largest corporates brought in first to generate best practice as was the case with TCFD reporting in the UK).; and/or
especially where such phasing is impracticable (for example, if climate goals necessitate earlier implementation), there is a need for an appropriately flexible enforcement regime at jurisdictional level that accepts that compliance with these Standards will, be a journey for reporting entities and there may (at least initially) be some divergence of practice between reporting entities as best practice evolves along with the development of better technology, metrics etc.

As mentioned above, there is scope for more detailed non-mandatory application guidance (including practical examples) on some aspects of the proposed Standard (for example in relation to ‘trade-offs’ – see Q2 below), to support consistent application and help corporates deal with the magnitude of the task facing them. We also acknowledge that further work is needed to ensure that the SASB standards are appropriately internationalised, and we note SASB’s ongoing research project to identify the topics and metrics across industry standards that are not currently globally applicable.

The development of application guidance and best practice could be facilitated by establishing a Sustainability Reporting ‘Lab’ - like the UK FRC’s Financial Reporting Lab (https://www.frc.org.uk/financial-reporting-lab) - where corporates and investors can come together in a ‘safe space’ to share ideas and innovate about the best way to meet information needs.

Balance between principles and prescription

We believe there is a balance to be struck between, on the one hand, the need for the disclosure requirements to be high level/principles based and the benefit that many companies might perceive in being offered a clear template to follow. The advantages of the high level/principles-based approach include that it would:

allow continuity of approach among entities that are already identifying and reporting on their sustainability-related risks and opportunities; and
ensure the Standards ‘stand the test of time’, especially in relation to metrics/targets that will constantly evolve.

On the other hand, there is a potential benefit in clear guidance to assist corporates that are beginning their sustainability reporting journey. However, it is also important to remember that, while methodologies and knowledge continue to develop, it could be counter-productive to set granular mandatory disclosure requirements, and it is important not to turn sustainability reporting into a box-ticking, compliance exercise.

In our view, the right balance can be struck with high level, principles-based sustainability-related financial disclosure requirements that are underpinned by more detailed non-mandatory guidance (including practical examples), to help corporates comply without disproportionate burden or cost.

In our view. the ISSB has sought to find a balance within the Exposure Drafts, with the high level disclosure requirements in the Exposure Drafts - including the seven cross-industry metric categories in IFRS S2 that all entities would be required to disclose (which are: greenhouse gas (GHG) emissions on an absolute basis and on an intensity basis; transition risks; physical risks; climate-related opportunities; capital deployment towards climate-related risks and opportunities; internal carbon prices; and the percentage of executive management remuneration that is linked to climate-related considerations) - underpinned by the supporting non-mandatory Illustrative Guidance for the cross-industry metrics. However, in our view, the Standard should make it clearer that the disclosure topics and associated metrics in Appendix B in IFRS S2 are incorporated on a non-mandatory basis, because mandating these disclosure topics and accompanying metrics would be overly prescriptive as companies should determine themselves which topics and metrics are most relevant to their business. Similarly, the Exposure Draft refers to other sources that include “the disclosure topics in the industry-based Sustainability Accounting Standards Board (SASB) Standards, the ISSB’s non-mandatory guidance (such as the CDSB Framework application guidance for water- and biodiversity-related disclosures), the most recent pronouncements of other standard-setting bodies whose requirements are designed to meet the needs of users of general purpose financial reporting, and the sustainability-related risks and opportunities identified by entities that operate in the same industries or geographies)”, which should also be applicable on a non-mandatory basis. (See also Q3b below.)

Materiality

We agree with the ISSB’s definition of materiality in this context, which focuses on sustainability-related financial information affecting enterprise value (the “outside in” approach), rather than requiring double materiality that would include the second “inside out” pillar dealing with an entity’s impacts on economies, society and the environment, as used in the GRI standards. The IR Society believes the global baseline for sustainability reporting requirements established by the ISSB should form the first building block for sustainability reporting, with any additional jurisdictionally-specific and/or wider stakeholder or “impact” reporting built on top of those ISSB requirements under the ‘building blocks’ approach advocated by the ISSB.

In our experience, materiality in the context of sustainability issues is often dynamic, i.e. changes over time, so sustainability risks and opportunities may also change over time and new risks or opportunities can emerge. Therefore, organisations need to keep a ‘watching brief’ over what is a material sustainability risk, and further supporting guidance on this would be useful. This also reinforces the point we make above (see ‘Support for global baseline’) that the ISSB needs be aligned with other standard setters regarding definitions.

Reporting entity/control

We suggest the ISSB’s climate-related financial disclosure requirements should recognise it can be difficult and may not always be possible for reporting entities to control or obtain complete and accurate, or even estimated, data relating to Scope 3 GHG emissions and all climate-related risks and opportunities from entities in the value chain that are beyond the reporting entity’s effective control, either operationally or through equity ownership. Similarly, it can be very difficult to control or obtain this climate-related data from others in the value chain such as suppliers/customers. We therefore suggest permitting such reporting entities to explain why they don’t have effective control and/or why they have been unable to obtain the data where estimates are disclosed. This is particularly likely to be an issue in the shorter term, when the necessary data flows have yet to be embedded in systems or reflected in contracts/commercial relationships. In addition, in our view the definition of ‘value chain’ is not entirely clear and needs clarification. (See also Q4(a) below.)

Answers to specific questions

1. Objective

Paragraph 1 of the Exposure Draft sets out the proposed objective: an entity is required to disclose information about its exposure to climate-related risks and opportunities, enabling users of an entity’s general purpose financial reporting:

• to assess the effects of climate-related risks and opportunities on the entity’s enterprise value;

• to understand how the entity’s use of resources, and corresponding inputs, activities, outputs and outcomes support the entity’s response to and strategy for managing its climate-related risks and opportunities; and

• to evaluate the entity’s ability to adapt its planning, business model and operations to climate-related risks and opportunities.

(a) Do you agree with the objective that has been established for the Exposure Draft? Why or why not?

We agree with the objectives, which appear to be consistent with the TCFD recommendations.

As mentioned in our general comments above, we welcome your initiative to provide an international set of sustainability reporting standards, and we support the decision of the ISSB to base its draft Standards on those developed by the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB).

(b) Does the objective focus on the information that would enable users of general purpose financial reporting to assess the effects of climate-related risks and opportunities on enterprise value?

We agree that the objectives will enable users of an entity’s published financial reporting, most commonly investors but many other interested groups too, to assess the effects of climate-related risks and opportunities on the enterprise value of their current and potential investee companies.

(c) Do the disclosure requirements set out in the Exposure Draft meet the objectives described in paragraph 1? Why or why not? If not, what do you propose instead and why?

Yes, we agree that the proposed disclosure requirements in the Exposure Draft meet the objectives outlined in paragraph 1.

2. Governance

Do you agree with the proposed disclosure requirements for governance processes, controls and procedures used to monitor and manage climate-related risks and opportunities? Why or why not?

We echo the welcome from other respondents for the additional requirements that go beyond the TCFD recommendations in relation to skills and competencies, and information on how climate-related risks and opportunities are reflected in terms of reference and Board mandates.

We also note that other respondents have raised concerns regarding the proposal in paragraph 5(e), under which preparers are expected to explain any assessment of trade-offs that may arise between various sustainability-related risks and opportunities. We encourage the ISSB to consider providing further guidance and clarification on ‘trade-offs’ to avoid divergence of practice.

3. Identifying Climate Risks & Opportunities

a) Are the proposed requirements to identify and to disclose a description of significant climate-related risks and opportunities sufficiently clear? Why or why not?

Please see our comments at Q1(a) in our comment letter for IFRS S1 regarding the definition of significant ‘sustainability-related financial information’ needing to be clearer.

The proposed Standard would require reporting entities to disclose information on climate-related risks and opportunities over the short-, medium- or long-term (without defining these timeframes). We support this approach because in our view it should be for the reporting entity to determine an appropriate timeframe for any near-or medium-term action needed in order to meet their longer-term ambitions, with an explanation of why their chosen timeframe is appropriate. We acknowledge that the interim milestones are probably an equally important and more immediate metric for investors, as well as a signal of corporate intent monitored by wider stakeholders.

(b) Do you agree with the proposed requirement to consider the applicability of disclosure topics (defined in the industry requirements) in the identification and description of climate-related risks and opportunities? Why or why not? Do you believe that this will lead to improved relevance and comparability of disclosures? Why or why not? Are there any additional requirements that may improve the relevance and comparability of such disclosures? If so, what would you suggest and why?

As mentioned in our general comments above and at Q11(j) below, in our view, mandating the industry-based disclosure topics and accompanying metrics in Appendix B in IFRS S2 would be overly prescriptive as companies should determine themselves which topics and metrics are most relevant to their business. The Standard should therefore make it clearer that these disclosure topics and associated metrics are incorporated on a non-mandatory basis.

4. Concentration of Risks & Opportunities in Value Chain

a) Do you agree with the proposed disclosure requirements about the effects of significant climate-related risks and opportunities on an entity’s business model and value chain? Why or why not?

We support the ISSB’s flexibility in approach to including emissions from affiliates and JVs, along with the materiality determination throughout the Exposure Drafts, as this means that GHG emissions by franchisees that are beyond the parent’s control, operationally or through equity ownership, would not need to be reported. However, it would be helpful if the Basis for Conclusions (BFC) material on Climate-related Disclosures (BC114-115) mentioned above was moved to the Exposure Drafts.

It is also important to note that there can be practical issues around control, and therefore it can be very difficult for reporting entities to obtain complete and accurate, or even estimated, climate-related data from other entities in the value chain including associates, joint ventures, unconsolidated subsidiaries or affiliates, and suppliers/customers.

For example, in the case of real estate companies, tenants often have responsibility for the repair and maintenance of leased assets, for example buildings. The landlord/asset owner therefore may have very little control over improving the building’s green credentials and its energy use. It can also be difficult to obtain energy use data from tenants so estimates are necessary.

Therefore, we suggest IFRS S2 should recognise that it can be difficult and may not always be possible for reporting entities to obtain complete and accurate, or even estimated, data on all climate-related risks and opportunities from such affiliates, JVs and franchisees that are beyond the reporting entity’s effective control, either operationally or through equity ownership, and thus permit such reporting entities under these circumstances to explain why they don’t have effective control and/or why they have been unable to obtain the data. This may be more of an issue in the shorter term, when the necessary data flows have yet to be embedded in systems or reflected in contracts/commercial relationships.

In addition, in our view the definition of ‘value chain’ is not entirely clear and needs clarification (see Q5 in our comment letter for IFRS S1).

(b) Do you agree that the disclosure required about an entity’s concentration of climate-related risks and opportunities should be qualitative rather than quantitative? Why or why not? If not, what do you recommend and why?

Given the issues that we outline at Q4(a) above, we agree that the concentration of climate-related risks and opportunities in an entity’s value chain should be disclosed as qualitative information, but this should be on a ‘comply or explain’ basis as we have suggested at Q4(a) above.

5. Transition Plans & Carbon Offsets

(a) Do you agree with the proposed disclosure requirements for transition plans? Why or why not?

We are encouraged that the UK Transition Plan Task Force call for evidence re-states that the ISSB standards will form a core component of the UK's Sustainability Disclosure Requirements (SDR) framework, and the backbone of its corporate reporting framework.

We note that, in the case of companies where a significant proportion of their overall footprint are Scope 3 emissions by customers, the challenges of accurate data gathering and forecasting can be extreme and materially impact their overall transition plan. For example, companies involved in the transport/automotive/logistics sectors, as they are very reliant on the development of alternatives to the internal combustion engine, as well as the extent of charging/refuelling infrastructure and the availability of sustainable power or fuel. Furthermore, for industries such as airlines, where aviation fuel is the biggest driver of emissions reduction, this is a global challenge and with both technology and cost assumptions as well as timeframes measured in decades, forecasting is wholly out of control of the operator. We therefore support the proposed requirement to disclose critical assumptions in relation to legacy assets in para 13(a)(i)(1) and about the way the transition to a lower-carbon economy will affect the entity in para 15(b)(i)(8), because in our view companies should outline the assumptions they are making in preparing their transition plans, for example, to make it clear where their plans are relying on technology that is not yet available or commercial.

We support the proposed requirement to disclose how transition plans are to be resourced in paragraph 13(a)(ii). In our view, the costs associated with the plan should be included, as far as estimable, in order for transition plans to provide investors with the most decision-useful information.

We support the proposed requirement to disclose the processes in place for review of the targets in paragraph 13(b)(i). In our view, these should be reviewed on a regular basis given how quickly advances are being made, and it is very likely that technology will have been developed or improved, meaning initial interim targets could need updating.

We are also aware that international regulatory and/or legal restrictions can also give rise to difficulties. As an illustration, we understand some jurisdictions require prior consent for the release of information about activities within their borders, for example, overseas disclosure of emissions, which may make the provision of full consolidated Group information sometimes difficult.

(b) Are there any additional disclosures related to transition plans that are necessary (or some proposed that are not)? If so, please describe those disclosures and explain why they would (or would not) be necessary.

We do not believe any additional transition plan disclosure requirements are needed. Please also see our comments at Q5a above.

(c) Do you think the proposed carbon offset disclosures will enable users of general purpose financial reporting to understand an entity’s approach to reducing emissions, the role played by carbon offsets and the credibility of those carbon offsets? Why or why not? If not, what do you recommend and why?

Yes, in our view, the proposed carbon offset disclosures are sufficient to enable users of general purpose financial reporting to gain insight into an entity’s approach to reducing emissions, including the role played by carbon offsets and the credibility of those offsets.

In our view, there is a need to seek to achieve an actual reduction and eventual cessation/ elimination of physical emissions, rather than relying on removals/offsets (which should be left for the small percentage of activity where zero emissions are not possible). Therefore, we support the requirement in paragraph 13(b)(iii) for specific information on the intended use of offsets. This will enable users of an entity’s general purpose financial reporting, for example investors, to assess more rigorously the climate impact and remedies of their current and potential investee companies, allowing them to integrate this into their investment decision-making by providing them with key decision data. In turn, they can then hold companies to account for their transition plans.

(d) Do you think the proposed carbon offset requirements appropriately balance costs for preparers with disclosure of information that will enable users of general purpose financial reporting to understand an entity’s approach to reducing emissions, the role played by carbon offsets and the soundness or credibility of those carbon offsets? Why or why not? If not, what do you propose instead and why?

In our view, this information is necessary to enable investors to assess more rigorously the climate impact and remedies on the enterprise value of their current and potential investee companies (see Q5(c) above). We therefore support these proposed disclosure requirements. A flexible and phased introduction of reporting requirements by the ISSB (for example, more challenging aspects such as scenario analysis could be brought in later) and at jurisdictional level (perhaps with the largest corporates brought in first to generate best practice (as was the case with TCFD reporting in the UK). could assist in meeting the need to manage the challenge and associated cost. It would allow companies to build their internal capability in a proportionate fashion.

6. Current & Anticipated Effects

(a) Do you agree with the proposal that entities shall disclose quantitative information on the current and anticipated effects of climate-related risks and opportunities unless they are unable to do so, in which case qualitative information shall be provided (see paragraph 14)? Why or why not?

We note that quantitative information often needs context, especially as this will be a journey for most companies and they may not have all the data, or the accuracy. We therefore agree with this proposal for companies to disclose quantitative information provided it is given sufficient context, with qualitative disclosure as the fallback option where there is insufficient data or certainty. In these circumstances, reporting entities should be required to explain why they are unable to provide the quantitative information and whether they expect to be able to do so over time (and, if so, in what timeframe).

(b) Do you agree with the proposed disclosure requirements for the financial effects of climate-related risks and opportunities on an entity’s financial performance, financial position and cash flows for the reporting period? If not, what would you suggest and why?

We agree with the proposed requirements for entities to disclose information about the effects of climate-related risks and opportunities on financial position, performance and cash flows.

Entities should be encouraged to cross-refer to the financial statements as much as possible to ensure the information disclosed in accordance with paragraph 14 is aligned with information in the financial statements. The Standard should also explicitly acknowledge that climate-related financial disclosures and assumptions on some occasions may not qualify for recognition or require disclosure in the financial statements.

(c) Do you agree with the proposed disclosure requirements for the anticipated effects of climate-related risks and opportunities on an entity’s financial position and financial performance over the short, medium and long term? If not, what would you suggest and why?

We broadly agree with the proposed requirements for entities to disclose information about the effects of climate-related risks and opportunities on financial performance over the short, medium and long term. We recognise this information is potentially market sensitive and subject to significant forecasting error and therefore needs to be considered carefully, and it may be appropriate for these requirements to be moved into the ‘scenario analysis’ section. As mentioned at Q3(a) above, we support this approach of not defining these timeframes because, in our view, it should be for the reporting entity to determine an appropriate timeframe for any near-or medium-term action needed in order to meet their longer-term ambitions, with an explanation of why their chosen timeframe is appropriate.

As other respondents have mentioned, the proposed requirement to disclose planned sources of funding to implement its strategy in paragraph 14(c)(ii) seems to go beyond current expectations for financial reporting, and may not be an appropriate requirement due to the sensitivity of this information.

7. Climate Resilience

(a) Do you agree that the items listed in paragraph 15(a) reflect what users need to understand about the climate resilience of an entity’s strategy? Why or why not? If not, what do you suggest instead and why? [These are: the significant sustainability-related risks and opportunities that it reasonably expects could affect its business model, strategy and cash flows, its access to finance and its cost of capital, over the short, medium or long term.]

Whilst we do not have specific expertise, we tend to agree that this list looks appropriate.

We also support the proposed requirement to disclose critical assumptions made (either when using scenario analysis or alternative methods) about the way the transition to a lower-carbon economy will affect the entity in paragraphs 15(b)(i)(8) and 15(b)(ii)(2). Reporting entities should outline the assumptions they are making when disclosing the implications for the entity’s resilience over the short, medium and long term, for example to make it clear where they are relying on technology that is not yet available or commercial.

(b) The Exposure Draft proposes that if an entity is unable to perform climate-related scenario analysis, that it can use alternative methods or techniques (for example, qualitative analysis, single-point forecasts, sensitivity analysis and stress tests) instead of scenario analysis to assess the climate resilience of its strategy.

(i) Do you agree with this proposal? Why or why not?

Scenario analysis can be challenging, especially for smaller companies, so this alternative option seems appropriate, especially as an interim measure. We note that scenario analysis is required under TCFD reporting, so entities providing TCFD disclosures will need to work towards providing this information over time. However, a phased implementation could help with this. For example, entities could initially disclose against two rather than three scenarios (TCFD best practice is the latter).

See also our comment at Q7(a) above regarding our support for the disclosure of assumptions at paragraph 15(b)(ii)(2).

(ii) Do you agree with the proposal that an entity that is unable to use climate-related scenario analysis to assess the climate resilience of its strategy be required to disclose the reason why? Why or why not?

Yes, this seems like an appropriate approach.

(iii) Alternatively, should all entities be required to undertake climate-related scenario analysis to assess climate resilience? If mandatory application were required, would this affect your response to Question 14(c) and if so, why?

We do not support this alternative requirement. In our view, reporting entities should be given a degree of discretion and therefore we support the proposals at Q7(b)(i) and (ii) above that reporting entities that are unable to perform scenario analysis should be permitted to use an alternative method and explain why.

(c) Do you agree with the proposed disclosures about an entity’s climate-related scenario analysis? Why or why not?

We agree with these proposed disclosures, which will provide transparency for users when reviewing the conclusions made by the reporting entity.

(d) Do you agree with the proposed disclosure about alternative techniques (for example, qualitative analysis, single-point forecasts, sensitivity analysis and stress tests) used for the assessment of the climate resilience of an entity’s strategy? Why or why not?

Yes, these disclosures should help users to understand the basis used for assessing an entity’s climate resilience.

(e) Do the proposed disclosure requirements appropriately balance the costs of applying the requirements with the benefits of information on an entity’s strategic resilience to climate change? Why or why not? If not, what do you recommend and why?

In our view, requiring disclosure of climate-related financial information is necessary to enable investors to assess the climate impact and remedies on the enterprise value of their current and potential investee companies, allowing them to integrate this into their investment decision-making by providing them with key decision data. In turn, they can then hold companies to account. We therefore support these proposed disclosure requirements. However, we acknowledge that this level of disclosure will make considerable demands on reporting entities. A flexible and phased introduction of reporting requirements could assist in meeting the need to manage the challenge and associated cost. It would allow companies to build their internal capability in a proportionate fashion.

8. Risk Management

Do you agree with the proposed disclosure requirements for the risk management processes that an entity uses to identify, assess and manage climate-related risks and opportunities? Why or why not? If not, what changes do you recommend and why?

These proposals seem appropriate, except that we agree with some other respondents who have suggested that entities should not be required to provide information about the processes used to identify, assess and manage climate-related opportunities, so we would recommend that opportunities are removed from the risk management section (opportunities would still feature in the governance, strategy, and metrics and targets sections).

9. Cross-industry Metrics

We note the seven cross-industry metric categories in IFRS S2 that all entities would be required to disclose are: greenhouse gas (GHG) emissions on an absolute basis and on an intensity basis; transition risks; physical risks; climate-related opportunities; capital deployment towards climate-related risks and opportunities; internal carbon prices; and the percentage of executive management remuneration that is linked to climate-related considerations). These are underpinned by the supporting non-mandatory Illustrative Guidance for the cross-industry metrics.

(a) The cross-industry requirements are intended to provide a common set of core, climate-related disclosures applicable across sectors and industries. Do you agree with the seven proposed cross-industry metric categories including their applicability across industries and business models and their usefulness in the assessment of enterprise value? Why or why not? If not, what do you suggest and why?

These proposals appear to be based on the 2021 TCFD Implementation Guidance and therefore seem appropriate.

(b) Are there any additional cross-industry metric categories related to climate-related risks and opportunities that would be useful to facilitate cross-industry comparisons and assessments of enterprise value (or some proposed that are not)? If so, please describe those disclosures and explain why they would or would not be useful to users of general purpose financial reporting.

We agree with some other respondents who have suggested that energy usage should be added as a cross-industry metric, given it is already required to be reported alongside GHG emissions in the UK, and such disclosure could help drive energy efficiency and reduced emissions.

(c) Do you agree that entities should be required to use the GHG Protocol to define and measure Scope 1, Scope 2 and Scope 3 emissions? Why or why not? Should other methodologies be allowed? Why or why not?

Whilst we do not have specific expertise, this proposal that entities should use the GHG Protocol seems appropriate as it is generally accepted and globally recognised, although we agree with some other respondents who have suggested that alternative approaches could be allowed on a ‘comply or explain’ basis. Please also see our response to Q4a above relating to control issues within the value chain.

(d) Do you agree with the proposals that an entity be required to provide an aggregation of all seven greenhouse gases for Scope 1, Scope 2, and Scope 3— expressed in CO2 equivalent; or should the disclosures on Scope 1, Scope 2 and Scope 3 emissions be disaggregated by constituent greenhouse gas (for example, disclosing methane (CH4) separately from nitrous oxide (NO2))?

Whilst we do not have specific expertise, we are aware there is some debate about the effects of different gases and we therefore acknowledge this may be useful information where relevant to a particular entity (and we note a number of companies already make this level of more granular disclosure where their investors are interested in the proportion of different gases). However, we would tend to argue that this level of granularity should be optional, i.e. at the reporting entity’s discretion.

(e) Do you agree that entities should be required to separately disclose Scope 1 and Scope 2 emissions for:

(i) the consolidated entity; and

(ii) for any associates, joint ventures, unconsolidated subsidiaries and affiliates? Why or why not?

As mentioned at Q4a above, we support the ISSB’s flexibility in approach to including emissions from affiliates and JVs, along with the materiality determination throughout the Exposure Drafts, as we believe this means that GHG emissions by franchisees that are beyond the parent’s control, operationally or through equity ownership, would not need to be reported. However, under these circumstances such reporting entities should be required to explain why they don’t have effective control and/or why they have been unable to obtain the data and what the long-term plan is to deal with emissions from those entities.

(f) Do you agree with the proposed inclusion of absolute gross Scope 3 emissions as a cross-industry metric category for disclosure by all entities, subject to materiality? If not, what would you suggest and why?

We have concerns that there may be a risk of double counting and that there is a need for fair allocation in respect of Scope 3 emissions to avoid this i.e. emissions may be double-counted if they are included as scope 3, but they are also disclosed as scope 1 emissions for entities who are the end users, for example, in the case of the extractive industries. This is complicated by the international nature of production/consumption, where the scope 3 emissions may be generated in a different jurisdiction from the original production/extraction.

As mentioned at Q5 above, in the case of companies where a significant proportion of their overall footprint are Scope 3 emissions by customers, the challenges of accurate data gathering can be extreme. Therefore, reporting entities should make disclosure relating to data availability and quality, explaining where and why their data may be incomplete. We acknowledge that there is likely to be variance in calculation methodology given this is an evolving area, and it is therefore important to monitor emerging standards around collating and reporting Scope 3 data.

As mentioned at Q5(a), we are also aware that international regulatory and/or legal restrictions can give rise to difficulties. As an illustration, we understand some jurisdictions require prior consent for the release of information about activities within their borders, for example, overseas disclosure of emissions.

10. Targets

a) Do you agree with the proposed disclosure about climate-related targets? Why or why not?

Whilst we are not experts, the proposed disclosure about climate-related targets seems appropriate. Metrics and targets are likely to evolve and it is important to avoid stifling innovation and evolution in methodology by being overly prescriptive. Companies should have the flexibility to determine their own data points / Key Performance Indicators for how they measure progress, and best practice will evolve within sectors, so disclosures will tend to naturally align.

(b) Do you think the proposed definition of ‘latest international agreement on climate change’ is sufficiently clear? If not, what would you suggest and why?

The proposed definition seems clear, and will allow the Standard to keep pace with any future changes to international agreements on climate change.

11. Industry-based Requirements

(a) Do you agree with the approach taken to revising the SASB Standards to improve the international applicability, including that it will enable entities to apply the requirements regardless of jurisdiction without reducing the clarity of the guidance or substantively altering its meaning? If not, what alternative approach would you suggest and why?

As mentioned in our general comments above, we support the decision of the ISSB to base its draft Standards on internationalised SASB standards, although we acknowledge that further work is needed to ensure that the SASB standards are appropriately internationalised, and we note SASB’s ongoing research project to identify the topics and metrics across industry standards that are not currently globally applicable. We also suggest that these are included on a non-mandatory basis (as mentioned in our general comments above).

(b) Do you agree with the proposed amendments that are intended to improve the international applicability of a subset of industry disclosure requirements? If not, why not?

Please see our comment at Q11(a) above.

(c) Do you agree that the proposed amendments will enable an entity that has used the relevant SASB Standards in prior periods to continue to provide information consistent with the equivalent disclosures in prior periods? If not, why not?

Please see our comment at Q11(a) above.

(d) Do you agree with the proposed industry-based disclosure requirements for financed and facilitated emissions, or would the cross-industry requirement to disclose Scope 3 emissions (which includes Category 15: Investments) facilitate adequate disclosure? Why or why not?