Asia has “huge momentum” in incorporating the International Sustainability Standards Board’s (ISSB) sustainability disclosure standards, says vice-chair Hua Jingdong.
China, Japan, Singapore and Malaysia are all mulling mandatory ISSB-aligned disclosure requirements, and have launched consultations on how to best apply this to their respective markets.
China proposed mandatory ISSB-aligned sustainability reporting in May and aims to implement it by 2030. Japan proposed the same in May, but with a shorter runway till 2027.
Malaysia launched a consultation on adopting mandatory ISSB-aligned reporting in February, which closed in March. Singapore Exchange S68 Regulation (SGX RegCo) launched a similar consultation in March, which closed in April. Both countries have yet to make further announcements about incorporating the ISSB’s standards.
Meanwhile, in April, the Stock Exchange of Hong Kong announced that all listed companies must provide ISSBaligned climate-related disclosures, starting with Scope 1 and 2 emissions data, from 2025. The bourse says it received 115 responses in a three-month consultation that ended in July 2023.
The ISSB issued in June 2023 its inaugural standards — IFRS S1 and S2 — which aims to align sustainability-related disclosures in capital markets worldwide. S1 helps companies disclose sustainability-related risks and opportunities over the short, medium and long term, while S2 targets climate-related disclosures. Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), another standards body.
See also: SGX RegCo launches consultation on incorporating ISSB standards into sustainability reporting rules
According to Hua, more than 20 jurisdictions — “all major financial centres” — have already decided to use, or are taking steps to introduce, ISSB standards in their legal or regulatory frameworks. “These 20 jurisdictions represent about half of global GDP, more than half of global carbon emissions [and] over 40% of global capital market capitalisation,” says Hua at the FT Moral Money Summit Asia 2024 on Sept 4. “If you exclude the United States, [the 20 jurisdictions account for] over 70% of global capitalisation.”
As more markets adopt the ISSB standards, investors and corporates will benefit from the interoperability of a common sustainability reporting standard, says Hua. “Different voluntary standards [are] each well-intended but cumulatively, bringing confusion and burden. Ultimately, investors are confused. They don’t bring comparability and consistency in terms of assessing investment opportunities… So, there is an urgent need from investors, but also from public policymakers.”
See also: ISSB standards 'best chance we have' at consistent sustainability reporting: SGX RegCo
Hua says a unified standard “will also reduce cost for everyone, not only for [the] company chief sustainability officer”. “Reporting under different standards is absolutely adding to the cost [for] users [and] the other stakeholders: governments, security regulators and prudential regulators.”
The ISSB’s 14 board members have embedded “proportionality and flexibility clauses” into the standards, says Hua. “[This means] that you would start reporting based on your capability, your skill sets [and] the data available, rather than going for perfection.”
He adds that the board has also embedded “transitional reliefs” so corporates can comply with the recommended disclosure standards in phases. This delays Scope 3 accounting, for example, which includes all emissions arising from a corporate’s investing activities, travel and supply chain, among others. “For example, people say Scope 3 takes a long time, so for year one, you don’t have to do Scope 3 emissions disclosures; you focus on your Scope 1 and 2. Next year, your Scope 3 is someone else’s Scope 1 and 2, so you can add them up.”
Hua says his board also communicates this point to governments and regulators. “You don’t start with SMEs; you start with your large-caps, then your [mid-caps], for a couple of years when they’re mandatory. Because of the value chain, most of the SMEs will already be required, through their value chain, to become familiar with reporting.”
This is similar to SGX RegCo’s proposal. From FY2025, issuers should refer to both S1 and S2 standards in preparing climate-related disclosures. Issuers should disclose Scope 1 and Scope 2 emissions and the measurement approach from FY2025, before disclosing “applicable categories” of Scope 3 emissions from FY2026.
Singapore’s large private companies are next. Firms with annual revenue of at least $1 billion and with total assets of at least $500 million will be required to report and file annual climate-related disclosures starting FY2027.
Even without mandatory reporting requirements, companies can start voluntary reporting, says Hua. He adds: “Don’t let perfect be the enemy of the good. We are creating a new global language. Nobody speaks a new language with perfection but you have to start speaking first.”
Photos: Financial Times Live
