The International Sustainability Standards Board is proposing two rules that would require public companies to disclose climate-related risks, assuming that jurisdictions adopt them.
The proposals, if approved by the board, would mark the first two standards issued by the newly created body, which sets climate-disclosure rules. The IFRS Foundation, a London-based organization that oversees the International Accounting Standards Board, last year launched the ISSB and appointed former Danone SA Chief Executive Emmanuel Faber as its chair.
The ISSB said it is seeking public feedback on the two proposals through July 29 and expects to issue standards by the end of the year. One proposal requires companies to share information that would allow investors to assess how sustainability-related risks such as a cyclone or efforts to use alternative-energy sources affect businesses’ total value. The other establishes disclosure requirements around the metrics and targets companies use to measure, monitor and manage these risks.
The move comes on the heels of the U.S. Securities and Exchange Commission’s proposal last week to require public companies to report information on greenhouse-gas emissions and risks related to climate change.
Both proposals would compel companies to provide information on their greenhouse-gas emissions if they deem them significant to investors. The two bodies crafted their proposals using a framework from the Task Force on Climate-Related Financial Disclosures, an organization established in 2015 by the international Financial Stability Board to promote more informed decisions by companies.
A key difference is that companies under the ISSB plan would have to provide certain specific climate metrics if they are in one of 68 different industries. The SEC’s proposed requirements on climate metrics would apply across industries.
The ISSB, similar to the IASB, sets standards that jurisdictions can choose to adopt, meaning they would be binding for companies in those jurisdictions. Businesses could also voluntarily adopt the standards, potentially in response to investors’ demands.
Jurisdictions have their own legal frameworks for implementing and making use of the rules, and enforcement varies by country. “We really want the requirements that we’re writing to be used around the world so that investors have comparable information,” Sue Lloyd, the ISSB’s vice chair, said.
The IFRS Foundation in February said the ISSB expects to appoint 12 additional board members by the third quarter. The board now comprises Mr. Faber and Ms. Lloyd. The ISSB needs to have at least eight board members to review public feedback on proposals and issue standards.
Earlier this year, a new regulation in Europe took effect that requires public companies with more than 500 employees to disclose what percentage of their operations fall under the European Union’s green taxonomy. The classification system is intended to give more clarity to investors on what types of economic activities could be considered sustainable.