AASB considering ISSB sustainability standards

The Australian Accounting Standards Board (AASB) is considering how to integrate climate change and sustainability-related financial accounting standards into Australian standards.

AASB is consulting on the recently draft International Sustainability Standards Board's drafts for global sustainability and climate change accounting standards. It is also working through the feedback from a proposed interim climate change reporting standards framework, released last year.

The International Sustainability Standards Board (ISSB) earlier in April released two drafts covering general sustainability-related disclosure requirements and specific climate-related disclosure requirements. The two documents are designed to form a "comprehensive global baseline of sustainability disclosures designed to meet the information needs of investors in assessing enterprise value," according to ISSB.

AASB is consulting to gather industry feedback to provide input into the ongoing work of the ISSB and inform the AASB of "the appropriateness of and support for its proposed approach to sustainability-related financial reporting in Australia."

AASB chair Keith Kendall told FS Sustainability that while the sustainability draft standards are new at a global level, the process of considering the standards for appropriateness for Australian entities will follow standard process for consideration.

"We will assess them at board level, because the only body that has the power to set an Australian accounting standard is the AASB," Kendall said. "There is a general expectation, and this is written in legislation, that we will adopt the international one unless there's a really good reason not to."

ISSB was established by the International Financial Reporting Standards (IFRS) Foundation, the governing body that develops and promotes the International Accounting Standards Board (IASB), which establishes the financial reporting standards that are used throughout the world.

"Once [ISSB] come out with a final standard, we will assess it for suitability," Kendall said. "These are so general that that's not usually a problem in the main. On occasion, we always review with an eye to see if there are any Australia-specific amendments, but we need a really good reason for wanting to depart from international practice."

The ISSB is seeking feedback on the proposals over a 120-day consultation period closing on 29 July 2022. It will review feedback on the proposals in the second half of 2022 and aims to issue the new standards by the end of the year, subject to the feedback.

The process to creating reporting standards for sustainability has moved at marked speed, however, ISSB vice chair Sue Lloyd previously told FS Sustainability that working from existing standards like the Taskforce on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) gave the ISSB the benefit of a prototype document.

The distribution of the two ISSB standards have occurred at an accelerated pace compared to most accounting standard processes, Kendall said.

"The consultation process was certainly not what you're accustomed to with the IASB," he said. "It's very new, there's a lot of pressure on the ISSB which was only set up late last year, with a lot of pressure to get things done last week."

Last year, AASB proposed an interim climate change reporting standards framework based on the TCFD. The public comment period for that consultation is finished and AASB is working through the feedback, Kendall said. Much of the feedback referred to both the AASB proposal and the potential ISSB standards.

"The feedback that we received was tied up with a broader consultation," Kendall said. "Whilst there were separate consultations, we tended to get feedback on the topic both simultaneously, and we had vast majority support."

The interim climate change reporting standards were designed to fill the gap between current demand for reporting standards and the potential result of the ISSB process, Kendall explained.

"It has always only intended to be something for stakeholder who wanted to know 'what do I do today,'" he said. "We've recommended adopting the TCFD without modification, and the ISSB standards are explicitly using TCFD as a starting point."

Read more: TCFDAustralian Accounting Standards BoardInternational Sustainability Standards BoardKeith KendallInternational Accounting Standards BoardInternational Financial Reporting Standards FoundationSustainability Accounting Standards Board