China questions ‘global baseline’ status of ISSB’s disclosure standards

Publication of the responses to the International Sustainability Standards Board’s (ISSB) draft corporate sustainability disclosure standards has revealed significant pushback from policymakers in China and elsewhere in Asia.

China’s ministry of finance recommended that the ISSB “re-examine” the positioning of its standards as a “global baseline” given their failure to fully cater for the capabilities of different jurisdictions to meet them.

Li Xianzhong director-general at the ministry’s accounting regulatory department, wrote: “The requirements proposed in the EDs [exposure drafts] are of such high standards (eg, Scope 3 and Scenario Analysis) that it has not fully considered the differences in economic development levels of different countries and in sustainability disclosure regulatory capabilities.”

It called on the ISSB to “re-examine ISDS’s [IFRS Sustainability Disclosure Standards] positioning as the global baseline” and “reduce the complexity of disclosures appropriately”.

The ISSB was launched in November by the IFRS Foundation specifically to develop a universal baseline for corporate sustainability reporting. Its consultation on the drafts – one on climate and the other on general sustainability – kicked off in March and closed on 29 July.

China’s finance ministry also recommended that the ISSB establish a “formal due process” when it comes to the selection of metrics and criteria to be used.

“Whether the metrics and criteria referenced in the EDs can be applied on a universal basis will directly impact ISDS’s worldwide acceptance and implementation,” it wrote.

As an example, the ministry highlighted that the requirement in ISSB’s climate draft that emissions be disclosed in accordance with the Greenhouse Gas Protocol Corporate Standard.

Based on its outreach with Chinese stakeholders, the ministry noted, this protocol is not the only one used globally and “may differ from certain existing national protocols applied by some countries in terms of measurement approach and scope”.

It recommended that ISSB’s standard provide options for companies to use “other established international protocols or those national protocols that have been developed in accordance with established international protocols”.

The China Securities Regulatory Commission (CSRC) raised similar concerns in its submission, stating that the drafts “fail to adequately incorporate differences between developed and emerging markets, large companies and SMEs”.

It suggested that the ISSB set different implementation timetables and arrangements for developed and emerging markets to enhance inclusivity.

“We believe it is necessary to provide the proportionality, scalability and phasing in the requirement and implementation of the ISSB standards by accommodating differentiated arrangements for companies in different markets, within different industries and of different sizes, which will facilitate ISSB’s standards to become a truly global baseline,” the CSRC added.

Phased approach

The Monetary Authority of Singapore (MAS), Singapore’s central bank and financial regulator, also raised the “principle of proportionality” in its response to the consultation. It said a phased adoption of the standards was “necessary”, in acknowledgement of the fact that “different jurisdictions and entities have varying maturity levels in reporting systems”.

“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,” it wrote.

Interestingly, Singapore’s sovereign wealth fund, GIC, called on ISSB to provide guidance on how companies can better disclose how they are capturing growth opportunities in the low-carbon transition in its response to the consultation.

To that end, it suggested the ISSB could “adopt a taxonomy for green activities, differentiated by region and industry, to guide companies in providing a breakdown of their revenues and capex based on the different categories of green activities they are involved in”.