ISSB Draft Standards

On 3 November 2021, the International Financial Reporting Standards Foundation (IFRS) announced the creation of the International Sustainability Standards Board (ISSB), a standard-setting board mandated to deliver a comprehensive global baseline of sustainability-related disclosure standards (Standards).

On 16 February 2023, the ISSB moved a step closer to finalising its Standards by making final decisions on all technical content of the draft Standards. It is expected by the ISSB that the Standards will be issued at the end of Q3 2023 and will be effective from January 2024.  

The ISSB intends for its Standards to become the global baseline for climate risk and sustainability reporting. There is widespread support for the Standards, including from national regulators as represented by the International Organization of Securities Commissions (IOSCO), whose members include national securities regulators from amongst others Australia, China, France, the UK.

Sustainability reporting rules such as the ISSB’s Standards provide an intriguing lens through which to view the scope of directors’ duties relating to climate risk and sustainability. Ideally, compliance with reporting rules should largely synthesise what is necessary in discharging the full scope of a director’s relevant duties relating to disclosure of material corporate information. However, given the scope of directors’ duties is subject to differences at a national level, having a global standard that solves this problem is challenging.

ACSI Opinion

A recent opinion (available here) by Sebastian Hartford-Davis and Kellie Dyon of counsel, obtained and released by the Australian Council of Superannuation Investors (ACSI) looked specifically at the question, amongst others, of whether the draft Standards heightened liability risks to company directors in relation to forward looking statements required by the Standards. Broadly, the opinion states that:

• the draft Standards require disclosure “in a manner which is broadly consistent with existing requirements that apply to listed companies in Australia, and requires disclosure of things which in our opinion company directors should already be considering in the proper discharge of their duties as directors"
• “… for diligent company directors properly supported by competent management, the ISSB Draft Standards should not increase directors’ exposure”
• the implementation of the ISSB Standards by companies could lead to a change in the nature of the expectations placed on directors in the discharge of their duties because of the evolution of processes and disclosure standards

Therefore, the successful adoption by a company of the Standards provides an opportunity for diligent directors to mitigate risks relating to failure to discharge director’s duties. The adoption of these Standards should therefore be carefully considered with appropriate planning and capacity building designed to support that process.