ISSB to standardise framework for corporate transition plan disclosures

Such disclosures will be ‘the future of climate reporting’, says ISSB chair Emmanuel Faber, as the global standards body assumes new responsibility to develop guidance on how firms should put out transition plans to meet net-zero targets.

ISSB chair Emmanuel Faber at IFRS Conference 2024
International Sustainability Standards Board (ISSB) chair Emmanuel Faber announced the further harmonisation of sustainability reporting frameworks, including those around corporate transition plans, as the global standards body embarks on its new two-year work plan. Image: IFRS Foundation

A year since launching its inaugural disclosure standards, which has been adopted by over 20 jurisdictions representing more than half of the global economy thus far, the International Sustainability Standards Board (ISSB) has entered a new frontier for sustainability reporting: transition planning disclosures.

At the International Financial Reporting Standards (IFRS) Foundation’s annual conference yesterday, ISSB chair Emmanual Faber said that as it takes over the United Kingdom-led Transition Plan Taskforce (TPT)’s responsibility of developing guidance and resources on preparing climate transition plans for companies across the world, it will seek to reduce fragmentation in information disclosed and consolidate existing standards.

“There are more and more regulators, companies, investors and banks that are either asked or want to develop such plans, and it is very critical that there is one way of doing them and not 20 different ways,” said Faber. 

“We’ve decided to lead here, not to wait. [Transition planning disclosure] is probably not crucial today, but it may become crucial in six months, in 12 months, in five years, and we just want to be ready for that future,” he said.

Developing credible transition plans, which entails laying out clear actions to realise their high-level deccarbonisation targets, is seen as increasingly important. For now, they are mandatory for listed companies in the European Union under the bloc’s corporate sustainability regulation, and will be made mandatory for large businesses in Australia come 2025. In the UK and the United States, proposals to disclose transition plans are currently voluntary for publicly-listed firms to adopt.

Transition plans are crucial for entities aiming to reduce emissions and manage climate risks. Australia’s new climate disclosure regime will include transition plan disclosure requirements starting January 2025. Treasury will publish best practice guidance for these disclosures by the end of 2025.

TPT released its final disclosure framework last October and additional sectoral recommendations in April this year. Its framework, which is meant to be the “gold standard” for private sector transition plans, closely references the guidance put out by the Glasgow Financial Alliance for Net Zero (GFANZ) in 2022. 

Drawing from these two international guidelines, Singapore one of the first countries in Asia to make ISSB-aligned reporting mandatory for listed and large non-listed firms – also published one of the world’s first transition planning guidelines for financial institutions last year.

Despite the flurry of frameworks that have been put forth over the past two years, the quality of most corporate transition plans disclosed last year remains dismal, based on latest analysis by climate disclosure non-profit CDP.

According to its report, while the number of companies disclosing 1.5°C-aligned climate transition plans jumped by 44 per cent since 2022, only 0.6 per cent or 140 firms surveyed have what CDP considers to be a “fully credible” transition plan, that meets 21 key criteria it had listed out. 

Asian jurisdictions like Japan and Korea slightly outperformed the global average, with 1.6 per cent and 1 per cent of organisations respectively disclosing a credible transition plan.

ISSB’s climate-related disclosures, also known as IFRS S2, currently only requires an entity to disclose its plans to transition to a lower-carbon economy, if such information is already available. As part of its two-year work plan to support the implementation of its reporting standards, ISSB plans to “streamline and consolidate frameworks and standards for disclosures about transition plans”, its press release stated.

Rather than “requiring that companies engage in transition planning, per se”, ISSB emphasised that it will stick to providing investors “high-quality, decision-useful information about the plans that companies have” to align with IFRS 2’s focus on climate-related risks that affects an entity’s financial prospects.

But over time, the ISSB will consider integrating the TPT guidance into its standards where relevant, it said.

Amanda Blanc, TPT’s co-chair and chief executive of British multinational insurance firm Aviva Group welcomed ISSB’s plans to use the taskforce’s resources and described it as “an important step towards greater consistency and clarity”. 

“These continued steps to converge standards will help further advance the progress we see on transition plans,” CDP’s chief executive Sherry Madera told Eco-Business in a written statement. “CDP’s partnerships with both the ISSB and the TPT reflect our commitment to efficiency for companies, reducing the reporting burden by ensuring that data disclosed once is consistent and can be used many times.” 

The ISSB also inked fresh agreements with other major standard-setters like the Greenhouse Gas (GHG) Protocol, CDP and the Taskforce for Nature-related Disclosures (TNFD) to further harmonise disclosures across emissions accounting, climate disclosures and nature-related disclosures.

It reiterated its commitment, first announced in May, to deliver “full interoperability” with the Global Reporting Initiative (GRI) standards, which continues to be the most widely-used reporting framework across all regions.

This story was updated after publication to include quotes from CDP’s Sherry Madera.

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