The Path Towards Sustainable Financial Disclosures and Climate Action in Southeast Asia

Alfred Tang

Hatched by Alfred Tang

Jul 29, 2023

4 min read

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The Path Towards Sustainable Financial Disclosures and Climate Action in Southeast Asia

Introduction:

Investors and financial institutions have been advocating for consistent and comparable data across all sectors and industries to support investment decision-making. To address this need, the International Sustainability Standards Board (ISSB) was established by the International Financial Reporting Standards (IFRS) Board of Trustees. The ISSB aims to develop a global baseline for sustainability-related financial disclosures. In the Southeast Asia region, there is an increasing alignment with global climate disclosure requirements, and it is anticipated that the ISSB standards will become a regulatory requirement.

The Proposed ISSB Standards:

The exposure drafts of the ISSB standards were released in April 2022 and open for comment until late July 2022. These standards are designed to provide clear, consistent, and comparable information about a company's sustainability and climate-related risks and opportunities. The proposed standards leverage the existing framework of the Task Force on Climate-related Financial Disclosures (TCFD) and require disclosure of governance structures, strategic choices, risk management approaches, and ESG and financial metrics and data across thematic and industry-specific domains.

Key Requirements of the ISSB Standards:

  • 1. Governance: The ISSB standards emphasize disclosures related to understanding the governance processes, controls, and procedures used to monitor and manage climate-related risks and opportunities. This includes identifying the responsible individuals or bodies within an organization, ensuring their skills and oversight, and incorporating their thinking into strategic decision-making.
  • 2. Strategy: Disclosures related to an organization's strategy for addressing significant climate-related risks and opportunities require a full account of how these factors can affect the business model, strategy, cash flows, and access to capital. The standards also require disclosure of the organization's response plans, business transformation initiatives, and actions to improve resilience to physical and transition risks. Additionally, there are explicit requirements for disclosing emission targets, their review process, and the role of carbon offsets in achieving these targets.
  • 3. Risk Management: The ISSB standards highlight the process by which climate-related risks and opportunities are identified, assessed, and managed. Unlike TCFD, the ISSB explicitly outlines the methodology used for prioritizing climate-related opportunities, the inputs used for assessing risks, and the obligation to disclose any changes in the application of this methodology between reporting periods.
  • 4. Metrics and Targets: The standards require organizations to disclose how they measure, monitor, and manage significant climate-related risks and opportunities. This includes separate disclosures of Scope 1 and 2 carbon emissions, as well as the addition of Scope 3 emissions from an organization's supply and value chains. Contextualizing disclosures using industry-based metrics is also expected.

Arctic Sea Ice Melting:

While the focus on sustainability and climate action is essential for financial disclosures, it is equally crucial to understand the environmental impact driving these concerns. Arctic sea ice cover has been steadily declining, with a significant decrease observed in the summer sea ice. Records indicate a decrease of almost 13 percent per decade. In 2020, the Arctic experienced the most sea ice melt since records began in 1979.

Conclusion:

As the need for consistent and comparable sustainability-related financial disclosures grows, the ISSB standards provide a framework for organizations to disclose their climate-related risks and opportunities. By aligning with global climate disclosure requirements, Southeast Asia is taking steps towards sustainable financial practices. To effectively implement these standards, organizations should focus on strengthening governance processes, developing robust strategies, enhancing risk management practices, and adopting relevant metrics and targets. Through these actions, organizations can contribute to the global effort of mitigating climate change and promoting sustainable development.

Actionable Advice:

  • 1. Enhance Governance: Establish clear roles and responsibilities for managing climate-related risks and opportunities within your organization. Ensure that the responsible individuals or bodies have the necessary skills and oversight, and incorporate their insights into strategic decision-making processes.
  • 2. Develop Robust Strategies: Conduct a comprehensive assessment of how climate-related risks and opportunities can impact your business model, strategy, cash flows, and access to capital. Create response plans, including business transformation initiatives, to improve resilience to physical and transition risks. Regularly review and adapt these plans to changing circumstances.
  • 3. Improve Risk Management Practices: Implement a systematic process for identifying, assessing, and managing climate-related risks and opportunities. Define the methodology used for prioritizing opportunities and assessing risks, and ensure transparency in its application. Regularly review and disclose any changes to the risk management approach between reporting periods.

By following these actionable advice, organizations can align with the ISSB standards, contribute to sustainable financial disclosures, and play an active role in addressing climate change.

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