Core content

The sustainability-related financial information disclosed would be centred on the following fourfold approach (“Fourfold Approach”):

(1)  Governance: information to enable investors to understand the governance processes, controls and procedures used to monitor and manage significant sustainability-related risks and opportunities.

(2)  Strategy: information to enable investors to assess a company’s strategy for addressing significant sustainability-related risks and opportunities are incorporated into its strategic planning, including financial planning; and whether they are core to its strategy.

(3)  Risk management: Information to enable investors to understand the process by which a company identifies, assesses and manages current and anticipated sustainability-related risks and opportunities and whether that process is integrated into its overall risk management process.

(4)  Metrics and targets: Information to enable investors to understand how a company measures, monitors and manages significant sustainability-related risks and opportunities and assesses its performance, including progress towards the targets it has set.

Requirement of fair presentation

A company would be required to:

·         apply International Financial Reporting Standards Disclosure Standards

·         consider the disclosure topics in the industry-based Sustainability Accounting Standards Board (SASB) Standards, the ISSB’s non-mandatory guidance and the most recent pronouncements of other standard-setters whose requirements are designed to meet investors’ information needs

·         consider the sustainability-related risks and opportunities identified by companies that operate in the same industries or geographical areas

Information related to company’s value chain

A company would be required to disclose material information about sustainability-related risks and opportunities across a company’s value chain.

The company’s value chain shall include the ‘full range of activities, resources and relationships related to a company’s business model and the external environment in which it operates’.

Relevant activities may include: human resources; those along its supply, marketing and distribution channels, such as materials and service sourcing and product and service sale and delivery; and the financing, geographical, geopolitical and regulatory environments in which the company operates.

Connected information

A company would be required to:

·         provide information that allows investors to assess the connections between different sustainability-related risks and opportunities

·         disclose how sustainability-related financial information is related to information in its financial statements.

Governance

The company would be required to disclose a description of the governance body, such as a board or committee, with oversight of climate-related risks and opportunities, key questions include:

·         What are the terms of reference for the company’s climate-monitoring governance body?

·         What is management’s role in assessing and managing climate-related risks and opportunities?

·         How does the company ensure that it has people with the right skills and competencies available to oversee its strategies?

Strategy

A company would be required to:

·         disclose information about how climate change could reasonably be expected to affect their business model, strategy and cash flows over the short, medium or long term, their access to finance and their cost of capital

·         identify physical risks (where acute physical risks could include the increased severity of extreme weather events and chronic physical risks include rising sea levels or rising mean temperatures) and transition risks (risks associated with a company’s transition to a lower-carbon economy and include policy or legal, market, technology and reputation)

·         disclose a description of its plans for responding to climate-related transition risks and opportunities

·         include in its disclosures an explanation of how significant climate-related risks and opportunities have affected its most recently reported financial position, financial performance and cash flows

·         disclose whether it has sufficient finance available to withstand the climate-related risks and to take advantage of climate-related opportunities

Metrics and targets

A company would be required to:

·         disclose its absolute gross Scope 1, Scope 2 and Scope 3 greenhouse gas (“GHG”) emissions, in metric tonnes of CO2 equivalent, and the intensity of those emissions. The company would be required to calculate these emissions using the GHG Protocol

·         (in case of consolidated group) disclose GHG emissions by associates and joint ventures separately from those by the consolidated group

·         identify the industry-based disclosure requirements applicable to its business model and associated activities

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2022