Issue Brief: ISSB and TCFD

ISSB Oversight of Climate-related Disclosures

Earlier this month, the Financial Stability Board (FSB) and International Financial Reporting Standards (IFRS) Foundation announced that the FSB, which created the Task Force on Climate-related Financial Disclosures (TCFD), will transfer the responsibility of monitoring progress on companies’ climate related disclosures from the TCFD to the International Sustainability Standards Board (ISSB), which sits under IFRS. The IFRS S1 and S2 standards fully incorporate TCFD recommendations, and for reporting periods beginning in 2024, will be applied globally. The ISSB will monitor disclosures to ensure companies are effectively applying IFRS S1 and S2.

Comparison of IFRS S2 to TCFD Recommendations

The IFRS Foundation has published a comparison of the requirements in IFRS S2 Climate-related Disclosures and the TCFD recommendations. IFRS S2 includes all TCFD recommendations plus additional disclosures, including some of the key changes outlined below:

Disclosure of more detailed information; for example, how governance bodies’ responsibilities for climate-related risks and opportunities are reflected in official role descriptions or policies.
Industry-based disclosure topics relating to climate risks and opportunities
More detailed information on the current and anticipated risks and opportunities on a company’s financial performance, including qualitative information
Disclosure of industry-based metrics relevant to a company’s business model
Additional disclosure of emissions and targets, including following IFRS S2’s Scope 3 measurement framework, information about planned use of carbon credits to achieve targets, and information about financed emissions

HXE Partners’ Take

The announcement that ISSB will monitor progress on TCFD disclosures further reinforces the consolidation of ESG frameworks and standards that is slowly simplifying the fragmented, patchwork landscape of ESG reporting. Companies that currently apply SASB standards and TCFD recommendations will be well-prepared for IFRS S1 and S2 and should continue these disclosures until transitioning into fully applying the new standards in 2024. Companies should also begin evaluating areas where they may be lacking disclosures under the new ISSB framework, including the new industry-specific guidelines, ahead of the first ISSB reporting period.