ISSB proposes nature-related disclosures | Accounting Today
- Key insight: Here’s why the ISSB is proposing a Practice Statement instead of a mandatory standard.
- What’s at stake: Companies relying on resources like water and pollination if their access is threatened.
- What’s coming: The evaluation of stakeholder feedback to decide on the final disclosure format.
The International Sustainability Standards Board issued a set of proposals Thursday on nature-related disclosures in conjunction with a United Nations climate change conference.
Processing Content
The exposure draft,
The ISSB, which operates under the auspices of the International Financial Reporting Standards Foundation alongside the International Accounting Standards Board, decided that an IFRS Practice Statement is the most appropriate form through which to issue requirements for nature-related disclosures at this time. The ISSB is
Companies applying the ISSB’s foundational standard,
The focus of the ISSB’s nature-related disclosures project is to provide more detail on how companies can provide this information, improving the quality and comparability of nature-related financial information globally.
Avoiding siloed information
In line with its existing standards, the ISSB’s approach is designed to avoid siloed reporting so investors can understand the connections between nature-related risks and opportunities, other sustainability-related risks and opportunities including climate, and information in the financial statements.
“The ISSB standards are focused on the provision of information about the risks and opportunities that are the important drivers for the success and the resilience of a company over the short, medium and long term,” said ISSB vice-chair Sue Lloyd during a webinar Thursday. “And when it comes to nature, many companies depend on it for their businesses. What impacts nature, either directly in their own operations or in their value chains, can give rise to risks and opportunities that will have important consequences for their performance, and that’s what investors need to understand. The ISSB standards and the Practice Statement are focused on nature as a source of business risks and business opportunities.”
The ISSB has drawn extensively from the work of the TNFD in developing its proposals, especially to emphasize the relevance of location and interactions with Indigenous peoples, local communities and affected stakeholders when providing nature-related disclosures.
“I welcome the publication of the ISSB’s Exposure Draft on nature-related disclosures, which draws extensively on the TNFD’s framework,” said TNFD co-chair David Craig in a statement. “This milestone builds on the momentum achieved over the past five years by TNFD in driving better nature-related reporting and is a testament to both the progress made and the significant demand for high-quality nature-related information. At TNFD, we have now completed our own technical work on assessment and disclosure and we are focused on providing continued support to the ISSB as it finalizes its proposals and delivering capacity-building initiatives around the world.”
Getting input
The ISSB is asking for stakeholder feedback on the proposals by Feb. 19, 2027. The ISSB plans to evaluate the stakeholder feedback it receives on the exposure draft in deciding whether to confirm the proposed form or to issue nature-related disclosure requirements in a different form, such as a standard. The main difference is that a company is not required to comply with a Practice Statement to state compliance with ISSB standards, so this approach supports high-quality nature-related disclosures but prevents disruption in companies and jurisdictions’ efforts to implement the ISSB standards.
“Whether it is access to water for production, to rivers for transportation or to bees for pollination, companies around the world depend on nature,” said ISSB chair Emmanuel Faber in a statement. “When a company’s access to these environmental resources is threatened, the company can face risks and opportunities that affect its prospects. We believe companies that comply with an IFRS Sustainability Practice Statement on nature-related disclosures will be best placed to provide high-quality reporting to their investors.”
In developing its proposals, the ISSB said it has worked to ensure that companies that choose to or need to apply the Global Reporting Initiative standards or European Sustainability Reporting Standards alongside an IFRS Sustainability Practice Statement can do it efficiently.
“Understanding what the company will do to be compliant with that regulation would be material information for investors,” said Lloyd. “That company could choose to comply with the ISSB standards in one of two ways. The first option would be to provide information about how it’s governing this matter, the management of this air pollution regulation, its strategy to implement new processes, how it’s managing the risks and metrics for meeting the regulation by meeting the requirements in IFRS S1, and it could reference the guidance set out in IFRS 1 to help it, including the SASB standards. That company would then disclose that they are in compliance with the IFRS sustainability disclosure standards, but they didn’t need to use the Practice Statement at all. Alternatively, that same company could determine that they will use the Practice Statement.”
The nature-related risks and opportunities can vary. “What do we mean by nature, and why does it matter for a business?” said Yulia Feygina, IASB technical director, connectivity, during the webinar. “IFRS S1 explains that sustainability-related risks and opportunities arise from dependencies and impacts on resources and relationships throughout a company’s value chain, and this logic fully applies to nature. The Practice Statement explains how nature-related risks and opportunities arise from a company’s dependencies and impacts on environmental resources and associated benefits, including those provided by ecosystem services, for example, pollination. It also explains and provides examples of how changes in the availability, quality or affordability of environmental resources and associated benefits that an entity depends on can give rise to nature-related physical risks for the company, and also how efforts to mitigate and adapt to those changes, including efforts to conserve, restore or regenerate environmental resources and associated benefits, can give rise to nature-related transition risks for a company or nature-related opportunities.”
Companies will be able to use metrics to measure those nature-related risks and opportunities.
“In the case of a company that is in an industry with activities that are typically involving significant land use change, metrics that enable investors to understand their performance on related risks, such as regulatory risks, risks from community opposition, or physical risks associated with such changes in the types of activities, are likely to be material for investors,” said ISSB executive technical director Himani Phadke during the webinar. “But our research identified two particular nature-related metrics that would be decision-useful to investors, regardless of the industry that a company is involved in. So the Practice Statement requires companies to disclose these metrics on the amount and percentage of assets or business activities vulnerable to nature-related risks and those aligned with nature-related opportunities. These would be required to be provided by all companies when material for them. The proposals of the exposure draft and also the accompanying guidance providing illustrative examples, would support a company in identifying relevant assets and business activities, and in determining whether and how to disaggregate the information for purposes of disclosing these metrics.”
Introductory bullet points created by AI with editorial review.
