Tackling the Challenges of Transitioning to ISSB

The final versions of IFRS S1 and S2 have been released. IFRS intends these standards to become part of a global baseline for corporate reporting in combination with the global financial reporting standards that IFRS also oversees.

Since most Hong Kong companies currently adopt GRI standards for sustainability reporting, there are different aspects to be considered when navigating and transitioning to the newly released standards.

HK Stock Exchange is one of the first in the world with plans to align its ESG disclosure requirements with ISSB standards. The exchange has an ambitious timetable for this, expecting listed companies to report in this format in due time.

Other Green and Sustainable Finance Cross Agency Working Group members, led by the HK Monetary Authority and the Securities and Futures Commission, are already pledged to introduce reporting based on TCFD recommendations by 2025. Because ISSB is also based on TCFD recommendations, it is anticipated that these bodies will align with ISSB reporting requirements as the HK Stock Exchange is rolling out the new requirements.

Widely acknowledged key challenges navigating the new standards include:

• Data availability, particularly with regard to scope 3 emissions
• Absence of standardized methodologies for scenario analysis and financial impact quantification
• Technical knowledge and expertise
• Transition planning from GRI to ISSB, for companies currently adopting GRI for disclosure.

Deloitte CarbonCare Asia recommends the following key items for navigating this new era of ESG regulation, compliance and reporting:

• Governance. Clarity on ESG oversight structure and appropriate capacity
• Strategy. High level climate strategy and transition plan
• Risk management. Ensure climate risk management is comprehensive and aligned with overall enterprise risk management
• Metrics and targets. Agree on the metrics, taxonomies and standards most appropriate for your business sector and geographic location
• Opportunities. Identify and explain how the enterprise will capitalize on the opportunities emerging from the transition to a net zero future

We believe organisations should focus on investing in four priorities:

• Diagnose:

• Review the ISSB standards, identify key gaps and implications as well as assess the impact on existing reporting frameworks.
• Deloitte’s ISSB Preparation Diagnostic tool can help to guide companies through the process.

• Assess:

• Review current sustainability and climate performance in terms of gaps, peer comparison and international benchmarks
• Determine material climate and sustainability risks with impact on enterprise value. Seek inputs from a broad range of stakeholders and be ready to differentiate risks specific to different business operations, functions and geographies

• Plan:

• Develop the climate action strategy involving phases, KPIs, milestones, governance, financing and an ambitious but realistic transition plan
• Enhance organizational capacity to govern and manage climate and sustainability risk
• Adopt credible standards to measure, monitor and report progress

• Communicate:

• Communicate the strategy and its implementation. Make communication with stakeholders an element of dynamic feedback and strategic review process