Leading Singapore organisations have expressed concerns about harmonisation, comparability, usability and understanding in responses to the International Sustainability Standards Board’s (ISSB) draft standards on sustainability- and climate-related disclosures, a Business Times analysis has found.

ISSB in July wrapped up a public consultation on two Exposure Drafts (EDs), the first related to the disclosure of sustainability-related financial information (IFRS S1); and the other on climate-related disclosures (IFRS S2). By the end of the year, ISSB is expected to release the new disclosure standards under the widely adopted International Financial Reporting Standards (IFRS) accounting framework.

ISSB said it received more than 1,300 comment letters — over 600 responses to the draft climate standard, and close to 700 responses to the sustainability standard, originating from jurisdictions spanning six continents. Publicly available responses from Singapore companies and organisations included those from the Institute of Singapore Chartered Accountants (Isca), Monetary Authority of Singapore (MAS), NTUC Income Insurance Co-operative, Singapore Exchange (SGX), SMRT Corp and Temasek, among others.

The respondents were generally supportive of the ISSB’s proposals, and lauded its work and ambition. However, the concerns raised also suggest that ISSB standards on their own may not be a silver bullet to unify disclosure standards.

Harmonisation and comparability

Given the broad acceptance of IFRS, ISSB’s standards are widely anticipated as a crucial step toward harmonising the multitude of ways in which sustainability and climate are currently reported by organisations. ISSB said its drafts build on the work of the Climate Disclosure Standards Board, the International Accounting Standards Board (IASB), the Value Reporting Foundation (which houses Integrated Reporting and SASB Standards), the Task Force on Climate-Related Financial Disclosures (TCFD) and the World Economic Forum.

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Yet, respondents raised concerns about instances in which the proposed standards do not align with existing international standards and requirements. The worry appears to be that having a set of standards that differentiates rather than integrates works against efforts to establish a global baseline.

Temasek, for example, pointed out that IFRS S1 and S2 would require preparers to present a breakdown of greenhouse gas (GHG) emission scopes based on the accounting classifications of their investments. This is inconsistent with the widely used GHG accounting standard, GHG Protocol. GHG Protocol allows companies to define their reporting boundaries either using the operational control approach or the equity share approach.

SGX said standards developed by international independent standards organisation, the Global Reporting Initiative (GRI), “are currently widely used in Singapore and other jurisdictions … in this regard, we suggest that the ISSB provides guidance (including illustrative examples) on how the GRI Standards interact with the ISSB standards”.

SMRT Corporation believes comparability and efficiency in preparing disclosures could increase “if the current multitude of sustainability reporting standards and frameworks driving measurement protocols could eventually harmonise into a single set of international standards”.

And, the MAS said the interoperability of the IFRS Sustainability Disclosure Standards is key, to avoid duplicating resources in having to report in accordance with different standards and to allow investors to compare disclosures in order to allocate capital across different jurisdictions.

The financial sector regulator encouraged ISSB to map its standards against additional jurisdictional requirements, to maximise the alignment in areas such as definitions, concepts, and guidance; more broadly, ISSB could consider developing a methodology to cross-reference between reporting standards.

Usability and understanding

Many responses called for more guidance on the applicability of a number of the proposed standards, and for consideration to be given for different circumstances and levels of readiness among jurisdictions and industry sectors.

SGX said more guidance should be given on what is meant by the anticipated effects of climate-related risks and opportunities — in particular, whether this refers to the assessment of climate resilience through climate-related scenario analysis.

It also said the ISSB ought to adopt, or allow flexibility for companies and regulators to implement, a phased-in approach for the new standards, with the effective date for them perhaps being 24 months or longer, as preparers may face initial challenges in implementing them.

Isca asked for more examples or application guidance materials to be included in the standards, such as in the case of when entities have to determine which climate-related risks and opportunities are significant, as this involves a considerable level of judgement.

The national accountancy body also said consideration ought to be given to the current state of sustainability reporting and the readiness of preparers, and also suggested a phased approach, or having different tiers of compliance, among other things.

“It is difficult to expect the landscape to immediately progress from the current state to one where many preparers could fully comply with the standards … Through our outreach, we hear views that the requirements in the EDs are being set too high as a baseline, for example the requirements to disclose information about the effects of significant sustainability risks and opportunities on its value chain, particularly considering the gap in today’s practices,” Isca wrote.

NTUC Income expressed some concern about the industry-based climate disclosures, pointing out that these expect granular asset-class-level breakdown, which can be challenging for preparers especially when such detail is not reported in their general-purpose financial statements.

The insurer also said the ISSB needs to be mindful of the costs and benefits that these new standards would confer on businesses, given the current gap in technical expertise and data available for such reporting.

MAS said it would welcome guidance on how jurisdictions can phase in elements of standards that preparers may have less experience with, such as materiality assessments.

“We have to, however, acknowledge that different jurisdictions and entities have varying maturity levels in reporting systems, so a phased adoption will likely be necessary,” MAS said. “A phased approach with several step-up levels of requirements will facilitate and encourage first-step adoption of reporting on the IFRS Sustainability Disclosure Standards, and will also ensure there is consistency of reporting at each step-up level to ensure comparability is not compromised.”

Overall, the responses suggest great interest as well as concern in these new standards — indicating that their eventual implementation and compliance will likely be an intricate undertaking.