The inaugural International Sustainability Standards Board (“ISSB“) sustainability disclosure standards, namely IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) (the “ISSB Standards“), have received positive feedback from stakeholders across the globe since its issuance on 26 June 2023 (which we reported here). This includes endorsement by the International Organization of Securities Commissions (IOSCO) on 25 July 2023.
The long-awaited ISSB Standards are intended to serve as a global baseline for transparent, reliable and comparable corporate disclosure of climate and sustainability-related information, and will help to inform investment decisions. In this blog post, we summarise several Asian regulators’ responses to the ISSB Standards which have been positive.
On 27 June 2023, the Green and Sustainable Finance Cross-Agency Steering Group (“Steering Group”) published a press release welcoming the publication of the ISSB Standards. The Steering Group is co-chaired by the Hong Kong Monetary Authority and the Securities and Futures Commission. More recently, on 7 August 2023, the Steering Group announced it is developing a ‘comprehensive Hong Kong roadmap’ to adopt the ISSB Standards, taking into account local regulatory expectations and circumstances. A working group will be set up with participation from relevant authorities and stakeholders, to make recommendations to the Steering Group on the elements to be covered by the roadmap.
Notably, Hong Kong regulators have been working to align local disclosure standards with the ISSB Standards in tandem with the finalisation of the ISSB Standards. In April 2023, The Stock Exchange of Hong Kong Limited (“SEHK”) published a consultation paper seeking market feedback on proposals to enhance climate-related reporting requirements for Hong Kong listed companies. The consultation is based on the ISSB’s draft climate-related disclosure standards issued in March 2022. The SEHK is expected to take into account the ISSB Standards in updating existing ESG reporting requirements, with changes taking effect from 1 January 2024. The results and conclusion of the SEHK’s consultation, which closed on 14 July 2023, are pending.
On 27 June 2023, the Financial Services Agency in Japan (“FSA”) publicised a press release (in Japanese) issued by the IFRS Foundation Monitoring Board welcoming the finalisation of the ISSB Standards. However, the FSA and other Japanese governmental authorities have not yet made any formal announcements on the applicability of the ISSB Standards to companies operating in Japan. According to a report (in Japanese) published in April 2023 by the Sustainability Standards Board of Japan (“SSBJ”), a group within the Financial Accounting Standards Foundation of Japan, the SSBJ is preparing a local version that is equivalent to the ISSB Standards. The draft Japanese standards are expected to be released by the end of FY 2023 (31 March 2024), with the final standards expected to be released by the end of FY 2024 (31 March 2025). The effective date of the Japanese Standards has not been determined. SSBJ’s report states it will monitor the applicability of the ISSB Standards in other countries and the developments of relevant international agencies in making its decision as regards timing.
People’s Republic of China (“PRC”)
The PRC has a track record of supporting the work of the ISSB. During the consultation of the draft ISSB Standards, both the Ministry of Finance and China Securities Regulatory Commission actively provided feedback on the contents of the draft, focusing on the adaptability of the ISSB Standards to small- and medium-sized enterprises, emerging markets and developing countries. In addition, the Ministry of Finance has had regular engagement with the ISSB through the Jurisdictional Working Group and is represented on the Sustainability Standards Advisory Forum, a body which advises the ISSB.
PRC market participants have noted the ISSB Standards are likely to serve as a benchmark for the PRC’s ESG disclosure standards in the future. On 5 July 2023, China Securities Journal (in Chinese) reported the Shanghai and Shenzhen Stock Exchanges are currently studying and formulating guidelines on sustainable development disclosure for listed companies which takes into account the PRC’s local conditions and development stage. In this regard, we had previously reported on the PRC’s first ESG disclosure guidance with Chinese characteristics here.
Finally, it is noteworthy that the IFRS Foundation opened the ISSB’s office in Beijing on 19 June 2023. The Beijing office will serve as a hub for stakeholder engagement and capacity building in Asia, focusing on emerging economies, developing countries and SMEs. This is the ISSB’s second office in Asia, with the first office located in Tokyo.
On 6 July 2023, the Accounting and Corporate Regulatory Authority of Singapore and the Singapore Exchange Regulation released a consultation paper on the recommendations by the Sustainability Reporting Advisory Committee to advance climate reporting in Singapore (the “Consultation Paper”). The Consultation Paper proposes to (i) mirror the ISSB Standards in the local mandatory climate-related disclosures (to the extent practicable), (ii) require listed issuers in Singapore to report ISSB-aligned climate-related disclosures starting from FY2025 and (iii) extend the requirement for climate reporting to large non-listed companies in Singapore. The public consultation will run from 6 July 2023 to 30 September 2023. The Law Society of Singapore’s Corporate Practice Committee is expected to submit its review of the Consultation Paper to the advisory committee by the consultation deadline.
Further, on 27 July 2023, the Monetary Authority of Singapore and the HM Treasury of the United Kingdom published a joint statement on the UK-Singapore Financial Dialogue which, amongst others, re-affirmed both countries’ continued support for, and welcomed IOSCO’s endorsement of, the ISSB Standards. Both countries agreed to implement the ISSB Standards and to support global interoperability of disclosure standards.
Given the positive feedback from the abovementioned regulators, the voluntary ISSB Standards are expected to be integrated into local requirements for sustainability- or climate-related disclosures in various jurisdictions in Asia, with Hong Kong and Singapore emerging as the likely first adopters. At the same time, Asian regulators are mindful of the need for disclosure standards to suit local conditions. Whilst Asian regulators accelerate their work to ensure interoperability between the ISSB Standards and local standards, companies should make use of this interim period to familiarise themselves with the requirements of the ISSB Standards and prepare for increasing mandatory disclosure regimes in the region going forward.