Insight

ISSB – Revolutionising Sustainability Disclosures

26th June 2023

TCFD, SASB, CSRD, EU Taxonomy, and the list goes on… But could the latest ISSB announcement put an end to the alphabet soup of acronyms?

Today, the International Sustainability Standards Board (ISSB), which was set up by the IFRS Foundation following COP26 in 2021, issued two new global standards for non-financial reporting. The standards have been finalised following four months of thorough drafting and balloting, as well as wider formal feedback over the past year.

These standards have been created with the desired goal of a “core baseline” for sustainability reporting. If this is successful, they could bring about several significant changes to the complexity of sustainability reporting:

First and foremost, they could lead to global standardisation. By embracing the ISSB as the gold standard, we can leave behind the jumble of acronyms and focus on one unified approach. It will be a method in which businesses across the world can speak the same language, allowing for consistency and comparability across all industries.

Global standardisation will then lead to increased investor confidence. If we look towards the ISSB as the way forward, then investors will have reliable and comparable information to assess the risks and opportunities associated with their investments. This, subsequently, could steer capital into companies that showcase a strong performance across sustainability

Finally, if the demand from investors for sustainability reporting increases, then more companies will be pressured to do so until sustainability reporting is a recognised thing to do, like financial reporting for listed companies. Companies that refuse to do so will risk losing out on capital beyond their borders and will fall behind the pack.

Only time will tell if the ISSB is successful in reaching its goal of becoming a baseline.

Looking deeper into what the standards mean…

The first two frameworks – IFRS S1 and S2 – focus on climate-related reporting and sustainability-related risks and opportunities. Together, they will serve as a so-called “comprehensive global baseline of sustainability disclosures for the capital markets.”

IFRS S1 is designed to apply to all corporates globally. It will attempt to unify disclosures across the world by becoming the baseline standard. It sets out how companies can merge together sustainability-related and financial information. Meanwhile, the IFRS S2 will centre around material information about sustainability-related risks and opportunities including climate mitigation and climate adaptation.

Both standards build on the SASB Standards, the Integrated Reporting Framework and CDSB Framework, as well as fully incorporating the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD).

What does the announcement mean for you and how can your business prepare?

Whilst both standards will be voluntary, they will have a major impact on mandatory sustainability reporting requirements globally. It would therefore be beneficial for you to start collecting the data required for the ISSB to get ahead of the game, instead of having to catch up later on down the line.

The frameworks will be effective from January 2024. This will mean that you should start collecting information for the 2024 reporting period, publishing it in 2025. However, this does not mean you should lie back and relax for the remainder of 2023; start figuring out what disclosure requirements are relevant to you, how you would go about collecting the data necessary, and who you need to contact to gain the necessary information. If you start doing the heavy lifting now, it will become much easier for you later on.

What are people saying about it?

• Emmanuel Faber, ISSB Chair, said: “The ISSB Standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner. We have consulted closely with the market to ensure the Standards are proportionate and will result in disclosures that are relevant for investment decision-making.”
• Emily Pierce, Chief Global Policy Officer at Persefoni, has said: “The ISSB Standards offer a once-in-a-generation opportunity to catalyze comparable sustainability disclosures across the globe. The status quo is insufficient for investors and inefficient for companies. There are trillions of dollars of capital seeking sustainable investment opportunities. The ISSB standards will help companies speak the same language on sustainability issues across borders, allowing them to translate action into competitive advantage.”
• Nathan de Arriba-Sellier, Yale Lecturer, said: “The new sustainability reporting standards of the ISSB are here, but don’t expect that they will fulfill their goals “to improve trust and confidence in company disclosures about sustainability to inform investment decisions.” Despite some important and positive changes, the standards still fall short of what we need to make sustainability reporting reliable and comparable.”