Australia publishes ISSB-inspired draft sustainability reporting standards

The Australian Accounting Standards Board (AASB) has published an exposure draft of the country’s sustainability reporting standards, out for consultation until 1 March.

The draft Australian Sustainability Reporting Standards (ASRS) have been developed using the International Sustainability Standards Board’s (ISSB) two sustainability disclosure standards, released in June, for general reporting standards (IFRS S1) and those on climate (IFRS S2).

The announcement comes days after Brazil’s Ministry of Finance and its financial regulator announced that the ISSB’s disclosure standards will be incorporated into the country’s regulatory framework.

Brazil intends to adopt the standards on a voluntary basis starting in 2024, before moving to mandatory use in 2026.

The announcements come amid pushback against the European Sustainability Reporting Standards, which included a public attack by ISSB chair Emmanuel Faber on double materiality.

In response, Mirova CEO Philippe Zaouati told Responsible Investor that the ISSB momentum “is not that good”, adding that “not a lot of regulators [are] saying they are going to adopt ISSB”.

National standard-setters in Mexico are also publicly discussing plans for use of the ISSB’s standards, according to the International Financial Reporting Standards (IFRS) Foundation.

Aussie standards

The Australian standards have been developed in consideration of the Treasury’s second consultation paper on climate-related financial disclosure, which saw the finance sector push for full alignment with the ISSB to ensure global interoperability.

They include ASRS 1 for general requirements for disclosure of climate-related financial information, developed using IFRS S1 as the baseline, and ASRS 2 for climate-related financial disclosures, developed using IFRS S2.

A third standard – ASRS 101, References in Australian Sustainability Reporting Standards – has been developed as a service standard that would be updated periodically to list the relevant versions of any non-legislative documents published in Australia and foreign documents that are referenced in standards.

For ASRS 1, the AASB has proposed limiting the scope of disclosure to climate-related financial disclosures only. It has therefore replaced all references to “sustainability” in IFRS S1 with “climate”.

To avoid duplication with the ISSB’s climate standard (IFRS S2), the board has proposed that ASRS 1 cover the requirements relating to “core content disclosures of governance, strategy and risk management”.

In ASRS 2, relevant IFRS S2 paragraphs would be replaced with “Australian-specific paragraphs cross-referencing the corresponding paragraphs in ASRS 1”.

For the second standard, the AASB has suggested clarifying that its scope is limited to climate-related risks and opportunities related to climate change, and does not apply to other climate-related emissions that are not GHG emissions.

The other options for stakeholders include combining the two into a single ASRS standard which encompasses both, or to have two standards with the same requirements relating to disclosures of governance, strategy and risk management.

The consultation has also proposed removing from IFRS S1 and IFRS S2 the requirement for an entity to consider the applicability of Sustainability Accounting Standards Board (SASB) standards on the grounds that the ISSB’s consultation period was “too short” for Australian stakeholders to “appropriately consider the proposals”, and for AASB to “appropriately apply its own due process”.

The AASB added that the decision has also been made because not all the proposals are related to climate-related risks, and because the SASB standards are “US-centric” and “not representative of the Australian or global market”.

The AASB draft standards would require reporting entities to disclose climate-related financial information as part of their annual reports.

If the roadmap suggested by the Treasury remains unchanged, there would be a staggered introduction of reporting against the sustainability standards between 1 July 2024 and 1 July 2027.

The AASB has said that, depending on the nature and extent of feedback it receives, it may publish another exposure draft or a review draft to “enable further consultation with stakeholders”.