The International Sustainability Standards Board (ISSB) has ushered in what it hopes will be a new dawn in global corporate sustainability reporting with the publication of International Financial Reporting Standard S-1, the General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S-2, Climate-related Disclosures.
Unveiling the new standards, ISSB chair Emmanuel Faber said: “Today represents the outcome of more than 18 months of intense work to deliver an inaugural set of sustainability disclosure standards for the global capital markets.
“The ISSB Standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner.”
He added that the new standards are a “proportionate” response to the challenge and “will result in disclosures that are relevant for investment decision-making.”
Klaus Schwab, founder and executive chair of the World Economic Forum, added that the new rules will empower “investors and stakeholders to gain a comprehensive understanding of a company’s performance and their commitment to driving sustainable value creation”.
The release of the standards comes at a crucial moment for international action on sustainability and climate change, with market and regulatory awareness of the importance of robust private-sector transition plans gathering pace.
The first of the two standards, IFRS S-1, sets out rules that companies must follow when they report on the sustainability-related risks and opportunities they face.
IFRS S-2 specifically addresses climate-related risks and opportunities and is intended to be used alongside IFRS S-1.
Both rulebooks incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Commentators have warned, however, that the success of the two new standards will depend on the willingness of jurisdictions to buy into the wider shift toward a global baseline in sustainability reporting.
The chair of the International Organization of Securities Commission (IOSCO), Jean-Paul Servais, commended the ISSB for its work.
He added that securities regulators were now “conducting an independent assessment of the ISSB Standards with a view to completing this review promptly”.
Since its inception during COP26, the ISSB has received backing from the Group of 20 Nations, the Financial Stability Board, and global finance ministers representing more than 40 jurisdictions.
While some individual jurisdictions such as the UK and Japan have already pledged to adopt the ISSB’s standards, more nations are expected to follow suit after IOSCO’s keenly awaited endorsement decision later this year.
Meanwhile, the reaction to the release of the standards was broadly positive and supportive.
Kate Levick, a sustainable finance specialist at climate-change think-tank E3G said: “Today’s launch of the ISSB standards comes at a critical moment for international action on sustainability and climate change.
“Market and regulatory awareness of the benefits of robust, credible private sector transition plans has skyrocketed in 2023, and the ISSB’s global baseline is a crucial piece of the architecture for their delivery.”
Companies will not, however, be expected to introduce the standards in one go.
Back in April, the board voted to introduce a one-year transitional relief for entities adopting IFRS S-1. The relief means companies can restrict their first year of sustainability reporting under the ISSB’s standards to the requirements set out in IFRS S-2.
In a post-meeting statement, ISSB chair Faber said: “This transitional relief ensures companies can phase in their approach, initially focusing on the quality of the climate-related information they provide.”
The vote followed a decision last December by the board to exempt companies from disclosing their Scope 3 greenhouse gas emissions for at least one year.
Climate and sustainability lawyer Euan McVicar from London law firm Pinsent Masons said he welcomed the ISSB’s decision to phase in the implementation of the new standards.
He said: “The newly-proposed phased implementation was an important concession which we believe is more likely to result in the standards being successfully implemented.
“What is now of paramount importance is how individual jurisdictions seek to implement the finalised standards. I suspect there is still much to come on that.”
Additionally, other relief measures agreed by the ISSB mean companies will not initially need to:
- provide annual sustainability-related disclosures at the same time as the related financial statements;
- report comparative information; and
- use the Greenhouse Gas Protocol to measure emissions where they already use a different approach.
KPMG’s global head of audit, Larry Bradley, called on business leaders around the world to get behind the new standards.
He said: “I believe that climate risk is business risk. For years, the world’s decision-makers have been pushing for consistency, clarity, and cooperation. That moment has arrived, and it’s time for us all to make it work.”
In addition to the release of the new standards, the ISSB earlier this month approved two packages of consequential amendments to align the legacy Sustainability Accounting Standards Board’s rulebook with the ISSB’s new climate-change standard, International Financial Reporting Standard (IFRS) S-2.
Separately, the ISSB is also consulting on a proposed five-step methodology for enhancing the international applicability of the SASB standards.
The ISSB’s standards are not, however, the last word on sustainability reporting.
Companies in the European Union will soon need to comply with the more exacting disclosure requirements of the Corporate Sustainability Reporting Directive (CSRD).
Using a so-called single materiality approach, the ISSB is asking businesses to focus on how sustainability-related issues affect them.
On the other hand, the EU’s double materiality approach requires companies to evaluate both how these issues impact their business and how their business impacts the environment or society at large.
The ISSB’s focus will now shift to supporting the implementation of the new standards through the establishment of a Transition Implementation Group.
Additionally, the board has said it will work with other organisations on implementation-related issues.
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- Climate change
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- International Financial Reporting Standards (IFRS)
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- Reform & Regulation
- sustainability standards
- Taskforce on Climate-related Financial Disclosures (TCFD)