ISSB under attack for proposing voluntary approach to nature risk standards

Key points

• The International Sustainability Standards Board (ISSB) has proposed non-mandatory guidance on nature-related disclosures instead of a binding sustainability standard, drawing heavy criticism from global campaigners.
• Critics argue the voluntary approach is a “regressive decision” that overlooks material risks affecting over half of global GDP, with an estimated US$44tn of annual economic output dependent on nature.
• The ISSB defended the practice statement, stating it minimises disruption for companies and jurisdictions adopting existing standards, while still guiding them on required disclosures.

The International Sustainability Standards Board (ISSB) is facing criticism after it proposed non-mandatory guidance on how companies should disclose risks relating to biodiversity and ecosystems rather than binding standards.

The ISSB, which creates standards that allow investors to better compare the sustainability of companies worldwide, announced last November that it was planning standards to introduce disclosure requirements on nature-related risks, drawing on the framework developed by the Taskforce on Nature-related Financial Disclosures (TNFD).

In response, the TNFD said it would pause its own work on developing new guidance to support the ISSB’s standardisation efforts, noting that 733 organisations representing over US$9.4tn in market capitalisation had adopted TNFD recommendations voluntarily. Back in November, the ISSB said it was considering either amendments to existing ISSB standards, an entirely new standard or non-mandatory guidance.

In the end, the ISSB’s board meeting in Beijing agreed to propose an IFRS “practice statement” rather than new standards for nature-related disclosures.

“This form of standard-setting … minimises disruption, which is particularly important because companies and jurisdictions are in the process of implementing and adopting the ISSB standards,” the standards board said.

“Applying the practice statement would have the full effect of an ISSB Standard for companies applying it. At the same time, it provides the ISSB with a pathway to a standard-based outcome in the future.”

Julie McCarthy, chief executive of Geneva-based think tank NatureFinance, slammed the decision, accusing the ISSB of failing to fulfil its mandate to give investors material information about companies’ sustainability risks.

“An estimated $44tn of annual economic output is directly dependent on nature. Declining to require disclosure of risks touching more than half of global GDP is not a procedural judgment. It is a determination about materiality that the evidence flatly contradicts,” she said.

“The ISSB is not simply declining to address nature. It is actively maintaining a disclosure framework that instructs companies to report climate risk against a baseline that the board’s own scientific advisors know to be false. A practice statement on nature does nothing to correct this.”

Leaders from business and finance as well as scientists, experts and civil society organisations have called upon the ISSB to introduce a new standard on nature.

“This is in essence a regressive decision that would delay progress – and it is clearly out of sync with today’s science, financial materiality, momentum and needs,” they wrote in an open letter to the ISSB.

ISSB chair Emmanuel Faber defended the approach: “Providing material nature-related disclosures is not optional; IFRS S1 already requires that. A practice statement will guide companies on how to provide such disclosures.”

Barbara Zonneveld, sustainability reporting director at consultants KPMG, said the ISSB guidance was aimed at helping companies to apply sustainability standards like IFRS S1 and S2 to nature-related topics, such as land use, pollution, resource extraction, water and biodiversity.

“By issuing the materials as an IFRS practice statement, the ISSB aims to provide flexibility for preparers, while also minimising disruption as jurisdictions adopt IFRS S1 and IFRS S2. Jurisdictions could choose to mandate the guidance, which would have a similar effect to introducing a new standard,” she said.

The ISSB said it wanted stakeholders to have the opportunity to give feedback, including on whether a practice statement was the right form of standard-setting. It plans to publish a draft for public comment in October.

Written by