Following the forum of the "2024 10th Taiwan and Asia-Pacific Sustainable Trends and Analysis Forum," Richard Chen, Director of Asia-Pacific Business Strategy Development at CSRone Sustainability Think Tank, and Assistant Manager Tracy Ni conducted an in-depth interview with Dr. Tae-Young Paik, a member of the ISSB who traveled from Korea. The interview aimed to understand Dr. Paik's perspective as a member of the standard setting body for the global baseline of sustainability disclosure and the challenges and difficulties encountered in its process.

Q1： The sustainability disclosure standards released by the ISSB are based on financial materiality. From your accounting background, how do you view the differences between corporate disclosure of "financial and non-financial" information and risks?

Ans：Currently, there are differing definitions and interpretations of "financial" and "non-financial" information in sustainability disclosures across various perspectives, leading to a degree of confusion among stakeholders. However, since the publication of the Task Force on Climate-Related Financial Disclosures (TCFD), we have seen a close interconnection between sustainability management and financial performance, which can influence organizational operations and decision-making. Therefore, the sustainability information required to be disclosed by ISSB's sustainability disclosure standards should be regarded as part of financial information. While this may differ from the traditional concept of defining financial information solely as "monetary information for financial statements," it broadens the boundaries of financial information. Even quantitative information denominated in non-monetary units or qualitative one, when assessed from a financial materiality perspective, is equally important to capital markets.

Furthermore, ISSB primarily focuses on finding and reporting information tha affects investor decision-making, thereby emphasizing that aspect of materiality. Under the standards provided by ISSB, the disclosure of sustainability information is about the related risks and opportunities affecting a reporting entity’s financial performance and valuation. By encouraging companies to concentrate on the most crucial information for investors, this concept promotes the investor-focused approach.

Q2： The ISSB has referenced or consolidated numerous sustainability information disclosure frameworks and initiatives, including the Task Force on Climate-related Financial Disclosures (TCFD), the International Integrated Reporting Council (IIRC), and the Climate Disclosure Standards Board (CDSB). During the finalizing of IFRS S1 and S2, what were the main challenges faced by the ISSB?

Ans：During the preparation and publication of IFRS S1 and S2, the main challenges faced were primarily twofold: balancing the burden of information preparation and its usefulness, and ensuring interoperability with other sustainability disclosure reporting standards.

Firstly, ISSB needed to balance the requirement for companies to provide more detailed "financially material and forward looking information" to meet the demand of investors while considering the costs involved in preparing this information. To achieve balance, ISSB adopted the ‘Proportionality Mechanism’ asking for reasonable and measurable information without undue costs and efforts at reporting date for key difficult disclosure areas.

Secondly, to ensure interoperability with other sustainability disclosure standards, ISSB closely communicated with the EFRAG (European Financial Reporting Advisory Group) during the formulation of its standards, aiming to maximize the interoperability with the European Sustainability Reporting Standards (ESRS). Additionally, ISSB also needed to consider how to achieve interoperability with standards from other major jurisdictions such as the U.S.

To address these challenges and respond to feedback from organizations worldwide, ISSB reviewed and used around 1,400 written opinions in the consultation period from corporate organizations, regulatory agencies, non-governmental organizations, and academic institutions in the process of the deliberation and decision-making. This demonstrates ISSB's openness and transparency in standard setting, addressing global issues.

Q3：The ISSB officially released the sustainability related general requirement and climate disclosure standards IFRS S1 and S2 in 2023. There have been difficulties in measuring the scope three emissions disclosure requirement. What suggestions do you have regarding this issue?

Ans: Let me briefly outline three main aspects related to GHG scope 3 emissions in IFRS S2.  

1. Materiality Assessment
   ISSB Standards allow corporate organizations to determine whether to disclose specific sustainability related information based on their own assessments of financial materiality. Therefore, even though all disclosure requirements must undergo a financial materiality assessment, if corporate organizations deem certain information (including Scope 1 and Scope 2 emissions) immaterial from a financial materiality perspective, they can choose not to disclose it.
2. Perspective on Risks and Opportunities
   Assessment of financial materiality must evaluate risks and opportunities faced by corporate organizations themselves. This includes transition risks, namely the potential risks and opportunities that corporate organizations face in response to changes in climate-related regulations and market trends.
3. Importance of Analyzing Scope 3 Emissions
   Even though many corporate organizations may find Scope 3 emissions difficult to control and calculate, when these emissions represent significant management risks originating from the upstream(e.g. supply chain) and downstream(e.g. customers), we still encourage corporate organizations to actively engage in risk prediction and analysis in this area. This enables them to proactively understand and prepare for the negative effects of these risks, safeguarding the long-term value of corporate organizations across all facets.

Q4：This year, the CSRone research team found that as many as 90.6% of companies in the Asia-Pacific region use the GRI framework for sustainability information disclosure, yet only 44.8% have adopted reference to SASB disclosure guidelines. For Asia-Pacific businesses about to transition to adopting IFRS S1 and S2, what recommendations would you give to help companies prepare and adapt in advance?

Ans：Firstly, try to adopt IFRS S1 and S2 proportionally as I explained before. If you feel you need more time to be ready, integrate SASB Standards and TCFD Recommendations in your report in right way. In the process of transitioning to the IFRS S1 and S2 standards, the primary task is to ensure that corporate organizations fully adopt and understand the recommendations of SASB and TCFD. The S1 standard requires that corporate organizations consider the industry-based disclosures in the SASB Standards. For those organizations that have not yet adopted SASB, now is a good starting point to begin implementation. For organizations already using SASB, further improvement for completeness, consistency of data, and reporting boundaries might be necessary. Additionally, TCFD's focus on climate-related financial information disclosure serves as the foundation for understanding and implementing the S2 standard. Corporate organizations should ensure comprehensive adoption and application of TCFD recommendations and pay attention to ISSB's enhancement projects on SASB, which will help organizations better meet the requirements of the S1 and S2 standards in the future.

Secondly, "Emphasize the Balance between Quality and Quantity." Even in countries like South Korea, where the adoption of TCFD and SASB is relatively higher compared to other regions, there is still room for improvement in report quality. Therefore, as corporate organizations prepare to transition to the IFRS S1 and S2 standards, they should focus on improving the quality of sustainability information disclosure and reporting. This ensures that they not only meet the standard requirements but also accurately reflect the efforts and achievements of the organization in sustainability development.

By treating the adoption and application of SASB and TCFD as a unified step and emphasizing the importance of reporting quality, businesses in the Asia-Pacific region should be able to more effectively prepare for and adapt to global sustainability and climate disclosure standards. This not only helps companies anticipate and prepare for transitions early but also ensures their competitiveness in the global market.

Q5： As the international community increasingly emphasizes DEI+J (Diversity, Equity, Inclusion, and Justice), ISSB has also considered incorporating "human capital" and "human rights" into its framework. What are your thoughts on the future development of ISSB's "social issues related disclosure standards"?

Ans: The importance of issues such as biodiversity, ecosystems, and ecosystem services(BEES), human capital, human rights, and integration in reporting has been acknowledged by ISSB in its agenda priority consultations.

On 23 April, ISSB decided to start future research projects on BEES and Human Capital (including Human Rights issues of workforce of its own and in its value chain) as a pre-step for standard setting. Further discussion on these projects will be made known to the public in the following months.

Lastly, I am aware that ISSB Standards are not the only sustainability disclosure framework. In the rapidly evolving landscape of sustainability frameworks and standards, corporate organizations should first understand the differences and relationships between various guidelines. This will enable them to examine their sustainability strategies and disclosure plans in a holistic perspective.

Sub-editing: SC. (Tracy) Ni / Assistant Manager, CSRone

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