On July 18, 2023, the GIP Working Group on Climate and Environmental Information Disclosure organized a webinar, titled "ISSB Inaugural Sustainability Disclosure Standards," in collaboration with the Beijing Institute of Finance and Sustainability (IFS), the China-UK Financial Institution Sustainability Disclosure Pilot, and the Global Green Finance Leadership Program (GFLP). This webinar was actively attended by nearly 300 participants from China and abroad.

The International Sustainability Standards Board (ISSB) officially released two sets of disclosure standards in June 2023: IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures). These standards set a global baseline for sustainability-related disclosure. The focus of the webinar was to elaborate on the core concepts of these two standards and discuss their potential implications and challenges for financial institutions.

In his welcome remarks, Dr. MA Jun, Chairman of China Green Finance Committee and Co-chair of the GIP Steering Committee, underlined the crucial role of information disclosure in sustainable finance. He highlighted the broad support that the ISSB has received from the G20. 

Dr. MA pointed out that financial institutions still face some challenges in information disclosure and need to strengthen their capacity in various aspects, including carbon emission accounting, scenario analysis and stress testing for climate risks, as well as transition planning and implementation. However, he also emphasized the significant advantages that effective information disclosure can bring, such as improving reputation, attracting sustainability-oriented investors, and reducing regulatory risks. 

Dr. MA mentioned that Hong Kong may take the lead in implementing the ISSB standards, which can imply new regulatory requirements for Mainland Chinese enterprises listed in Hong Kong and generate a ripple effect on other enterprises and financial institutions.

CHEN Yaqin, Assistant General Manager of the Green Finance Department at China Industrial Bank, provided an overview of the progress made by the GIP WG2, co-chaired by the Industrial Bank and Crédit Agricole-CIB. She emphasized that the release of ISSB standards would play a positive role in the harmonization of global disclosure standards. For financial institutions, aligning their practices with these standards is an important and urgent task that demands proactive and comprehensive preparation.

Dr. LENG Bing, member of the ISSB, presented the progress in standard development, core concepts, main contents, and the complementary efforts undertaken by ISSB to promote the implementation of the standards. He pointed out that the ISSB standards aim to establish globally consistent and comparable baseline for sustainability disclosure, with which companies can provide comprehensive and comparable information for the use of investors to assess how companies identify and manage sustainable risks.

Dr. LENG emphasized the importance of "building blocks" and "global baseline" as the two key elements in the development process of ISSB standards. The overarching goal is to establish a global baseline while allowing flexibility for countries and regions to adopt them in a “building blocks” manner, tailored to their local contexts. This approach ensures that the standards can effectively cater to a broader range of stakeholders.

To ensure the interoperability of the standards, ISSB have been thoughtfully designed to integrate existing and influential standards related to sustainability disclosure. These include the Task Force on Climate-related Financial Disclosures (TCFD), the Climate Disclosure Standards Board (CDSB), and the Sustainability Accounting Standards Board (SASB). Additionally, ISSB draws upon the existing ecosystem of accounting standards.

In terms of the content of the ISSB standards, the "General Requirements for Disclosure of Sustainability-related Financial Information" (S1) addresses several crucial aspects as follows: It emphasizes the disclosure of material information, which refers to data that, if omitted, misstated, or obscured, could significantly impact investors' decision-making processes; It extended the four-pillar framework of TCFD to all aspects of sustainable risks and disclosures, providing a comprehensive approach; It mandates the inclusion of industry-specific indicators; It refers to sources for subject-specific guidelines that are yet to be introduced. Fifth, the ISSB standards can be used in conjunction with any accounting requirements.

For "Climate-Related Disclosures" (S2), S1 is the essential foundation for implementation of S2, meaning that climate-related disclosure should not contrast the general requirements. S2 focuses on critical aspects such as climate-related physical risks, transition risks, and opportunities. Additionally, it mandates the disclosure of industry-specific indicators, with commercial banks, asset management companies, and insurance companies subject to mandatory disclosure requirements.

Regarding the implementation of the standards, Dr. LENG highlighted that ISSB provides significant assistance, including by adopting accounting concepts and methodologies that financial institutions are already familiar with. Also, the board requires companies to explore approaches based on their unique skills, capabilities, and resources. Moreover, ISSB offers transitional exemptions, allowing entities to gradually adopt the standards, with the final timeline dependent on the regulatory requirements of each jurisdiction.

In the panel discussion session, experts from various financial institutions and professional service organizations from China and abroad, including Crédit Agricole-CIB, Industrial and Commercial Bank of China (ICBC), Ernst & Young (EY), CDP, and E Fund Management, shared their experiences, challenges, and insights on the future direction of climate disclosure.

Improved climate information disclosure has been fueled by both regulatory and investor requirements, compelling financial institutions worldwide to continuously enhance the scope and quality of their climate-related disclosures. These institutions have explored methods to calculate financed emissions and conduct climate risk analysis. However, current disclosures still remain largely qualitative, with most of the entities being large corporations. Nonetheless, financial institutions have made efforts to integrate climate and environment-related indicators into their investment and credit approval processes, encourage corporate clients to disclose their carbon footprints, and adopt responsible investment practices, which has prompted climate disclosure to some extent.

One of the prominent challenges, as pointed out by the panelists, is data availability. The limited availability of raw data from clients and the absence of carbon emission databases that align with local production contexts pose obstacles to calculating and disclosing financed carbon emissions. The lack of a standardized methodology for measuring financed carbon emissions and insufficient capacity for climate scenario analysis also present significant challenges.

Looking ahead, panelists unanimously agree that the ISSB standards would enhance market confidence in sustainable investments. The successful implementation would necessitate collective efforts from various stakeholders, including international cooperation and exchange of knowledge and best practices. For institutions already started climate disclosure, measuring financed emissions and conducting climate risk analysis should be key priorities. Meanwhile, institutions that have yet to begin climate disclosure are advised to utilize existing platforms and tools to prepare and pilot for the implementation of these standards.

Annex: AGENDA

Co-hosted by: Global Green Finance Leadership Program (GFLP)

China Green Finance Committee

Beijing Institute of Finance and Sustainability (IFS)

UK-China Financial Institution Sustainability Disclosure Taskforce

With Support from:   China Industrial Bank

Crédit Agricole CIB

Time: 15:30-18:00 Beijing Time (GMT+8), July 18, 2023

Location: Beijing Institute of Finance and Sustainability (Zoom)

Language: English & Chinese (Simultaneous interpretation)

(All time denoted in China Standard Time).