The International Sustainability Standards Board tentatively decided during a 1 November supplementary meeting that companies must disclose climate-related scenario analysis as part of their reporting on climate resilience under International Financial Reporting Standard (IFRS) S2, Climate-related Disclosures.

The board also tentatively confirmed companies must “identify climate-related risks and opportunities to support their disclosures”.

Climate-related scenario analysis can help investors to understand how climate change can affect a company’s performance. It can range from simple narrative descriptions to more complex modelling.

Additionally, the board agreed to build on guidance from the Task Force on Climate-Related Financial Disclosures (TCFD) to “provide guidance to preparers on how to undertake scenario analysis”.

Feedback on the board’s March 2022 consultation on IFRS S2 revealed that while respondents were supportive of the use of climate-related scenario analysis, there were concerns over the challenge of doing so.

In practical terms, the 1 November tentative decision means businesses must make a narrative disclosure as a minimum for complying with IFRS S2.

Meanwhile, during its October meeting round, ISSB members set a target of consulting on the shape of its future work plan during the first half of 2023.

Staff said delaying the consultation from the end of this year as originally planned would “allow the ISSB to first reach decisions on key areas” of its first two draft sustainability standards.

As for the details of the consultation, ISSB members agreed unanimously to adopt a staff approach that would “build on the foundation established by IFRS S1 and IFRS S2, once finalised, and outline this work and its implications for the ISSB’s capacity.”

The board will not, however, seek constituent comments on this work but will instead canvas views on those “new research and standard-setting projects the ISSB could prioritise, which would be incremental to the work undertaken to build on the foundation established by IFRS S1 and IFRS S2.”

The basis for this approach emerged when the board first discussed its agenda priorities at its inaugural July meeting.

During that meeting, staff reminded the board, ISSB members were aware of the need to “quickly build upon the foundation established by IFRS S1 and IFRS S2 by undertaking work to identify, assess and respond to needs for support in the application of both IFRS S1 and IFRS S2.”

The board also tentatively approved staff proposals to work on:

  • improving the international applicability of the legacy Sustainability Accounting Standards Board (SASB) standards and continuing work on inherited SASB projects;
  • supporting the application of the new sustainability literature;
  • co-ordinating the board’s work with other standard-setting organisations such as the International Accounting Standards Board (IASB) and the European Financial Reporting Advisory Group (EFRAG) and ensuring interoperability with that literature; and
  • conducting further research and outreach to identify potential improvements to IFRS S2.

ISSB members were also supportive of staff carrying out further preparatory work on corporate governance issues with a view to deciding later whether to include that as a topic for public consultation.

Finally, in a second supplementary meeting on 3 November devoted to matters linked to IFRS S1, the board:

  • tentatively agreed preparers should consider requirements in the SASB’s standards when applying IFRS S1; and
  • noted that materials produced by the Climate Disclosure Standards Board (CDSB) are a useful reference point when making sustainability disclosures.

The next scheduled meeting of the ISSB will take place between 15 and 16 November in Frankfurt, Germany.

Official summaries of the ISSB’s 1 November and 3 November meetings are available through the IFRS Foundation’s website.

The latest digital edition of IPE’s magazine is now available