On 26 June 2023, the International Sustainability Standards Board (the “ISSB”) issued its inaugural International Financial Reporting Standards (“IFRS”) Sustainability Disclosure Standards (the “Standards”), heralding progress in the development of a global baseline of sustainability-linked disclosures. The Standards build on the concepts that underpin the IFRS Accounting Standards, which are required in more than 140 jurisdictions, but notably not in the United States for domestic issuers subject to regulation by the Securities and Exchange Commission (“SEC”), which must apply US Generally Accepted Accounting Principles (“US GAAP”).  Despite broad investor appetite for  transparent, uniform and comparable disclosure rules, the scope of required sustainability disclosure and timing for adoption of the SEC’s pending climate disclosure rule remains unresolved.

  1. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (“IFRS S1”) requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. The effect on the entity’s prospects refers to the effect on the entity’s cash flows, its access to finance, or cost of capital over the short, medium or long term.
  2. IFRS S2 Climate-related Disclosures (“IFRS S2”) requires an entity to provide information about its exposure to climate-related risks and opportunities. Information to be disclosed includes both physical risks—such as extreme weather events—as well as transition risks, such as changes in customer behaviour.

Both IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024. Accordingly, where the Standards have been adopted for a 2024 reporting cycle, relevant disclosures will begin to be published in 2025 in an entity’s general purpose financial reports (subject to transitional provisions), alongside an “explicit and unreserved statement of compliance” when disclosing against the Standards. Whilst the launch of the Standards has been a welcome step, seeking to provide greater uniformity in corporate reporting, individual jurisdictions will decide whether entities will be required to comply with the Standards.

What do the standards cover?

Both IFRS S1 and IFRS S2 incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”). Under both Standards, entities will be required to disclose:

  1. governance procedures used to monitor, manage and assess sustainability-related risks and opportunities, including climate-related risks and opportunities;
  2. overall strategy for managing those risks and opportunities;
  3. processes used to identify, prioritise and monitor those risks and opportunities; and
  4. performance relative to those risks and opportunities, including by reference to any targets it has set or is required to meet by law or regulation.

Investors should benefit from these decision-useful Standards when assessing whether to make investment decisions relevant to a particular entity. In particular, adoption of the Standards should produce more consistent, comparable and reliable corporate sustainability disclosures, thereby better informing capital allocation decisions and corporate strategies flowing from the top.

Implications

Although the Standards are likely to be adopted by governments and regulators in many jurisdictions,  mandatory application depends on each jurisdiction’s endorsement. The UK government, for instance, has signalled support for the ISSB and confirmed that it will consult on a framework to adopt and endorse the Standards for the UK.  Once available for use in the UK, the UK Financial Conduct Authority (“FCA”) intends to update its climate-related disclosures for listed companies under the Listing Rules to reference them. It is expected to consult in Q4 2023. 

While the U.S. SEC will not adopt the Standards, there likely will be some substantial overlap between the expected final SEC disclosure rules and the Standards with respect to climate disclosure.  However, one large open question is whether disclosure of Scope 3 emissions,  required by the Standards, will also be required under the SEC final rule.  Despite the lack of SEC rules mandating sustainability disclosure, the overwhelming majority of large US companies already produce voluntary sustainability reports (including Scope 3 emissions disclosures).  To the extent that the final SEC climate disclosure rule is less prescriptive than the Standards, many U.S. issuers may still seek to comply on a voluntary basis with the Standards in their voluntary sustainability reports. 

The ISSB will now work with jurisdictions and entities to support adoption of the Standards. The first steps will be creating a Transition Implementation Group to support entities that apply the Standards and launching capacity-building initiatives to support effective implementation.

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Photo of W. Andrew Jack W. Andrew Jack

Andy Jack is a broad gauge corporate and securities lawyer who leads multidisciplinary teams to help clients achieve complex business objectives and solve complex business problems.

Andy often serves in outside general counsel or senior strategist roles working closely on strategic matters with…

Andy Jack is a broad gauge corporate and securities lawyer who leads multidisciplinary teams to help clients achieve complex business objectives and solve complex business problems.

Andy often serves in outside general counsel or senior strategist roles working closely on strategic matters with C-suites and boards. His practice spans mergers and acquisitions, strategic alliances and joint ventures, venture capital, capital markets, securities compliance, corporate governance counseling, crisis management and dispute settlements.

With deep experience in the energy, diversified industrials, transportation, technology, sports and hospitality industries, much of Andy’s recent transactional and advisory work focuses on issues arising from global sustainability trends and ESG considerations, including the energy transition, vehicle electrification and advanced mobility.

Some examples of this trending work include:

  • Energy
    • Structuring and negotiating joint ventures to produce sustainable aviation fuels and to develop and deploy shared resources to respond to offshore well blowouts.
    • Advising on a carbon capture project funded by the U.S. Department of Energy.
    • M&A, finance, capital raising and commercial projects for solar PV panel suppliers.
    • Representing corporate offtakers in virtual power purchase agreements to procure renewable energy in support of wind and solar power projects.
    • Advising on U.S. public policy matters affecting the energy transition.
  • Vehicle Electrification and Advanced Mobility
    • A capital markets transaction for an industry leader in advanced mobility.
    • Multiple venture capital financing rounds for an electric truck manufacturer.
    • Joint venture restructuring and M&A transactions for EV battery manufacturers.
    • Collaboration agreements among vehicle electrification technology providers and OEMs.
    • M&A of advanced vehicle components suppliers and engineering service providers.
  • Other industries
    • Advising on board governance structures to address ESG and Sustainability oversight.
    • Assisting clients in developing voluntary sustainability reports and improving SEC reports and proxy statements to address these topics.
    • Responding to shareholder proposals on various ESG issues.

Andy co-chairs the firm’s multidisciplinary global Energy Industry Group and multidisciplinary Sustainability Solutions Initiative. He also serves as pro bono outside general counsel to the American Council on Renewable Energy and as a member of the World Resources Institute Global Leadership Council. With this background and experience, Andy frequently speaks at industry conferences and publishes on these topics. He also serves as an editor of the firm’s Inside Energy & Environment blog

He is Chambers-ranked in Corporate M&A & Private Equity, where clients report that Andy “gives practical advice with commercially reasonable solutions to problems.” He also has been ranked in Legal 500, both for Energy – Renewable/Alternative and Mergers & Acquisitions.