The International Sustainability Standards Board (ISSB) published its first two IFRS Sustainability Disclosure Standards, announced at COP26, in 2023. These standards are a milestone for ISSB’s vision as they strive to establish a worldwide baseline of investor-focused impact reporting that local jurisdictions can build on.
The standards were curated to meet the needs of all companies and to simplify the current impact reporting progress for businesses. The ISSB standards offer a transparent view of what businesses must report to achieve the needs of worldwide capital markets. Keep reading to learn more about the new ISSB standards and what they will mean for businesses.
About the new ISSB standards
In June of 2023 the International Sustainability Standards Board (ISSB) finally released its first two standards – the IFRS S1 and S2. Businesses across the globe have welcomed the new standards with open arms as they place more importance on sustainability reporting. Investors have also shown appreciation for the new standards as they increasingly focus on financial materiality over double materiality. With all this in mind, let’s break down the two new standards.
The IFRS S1, the first standard, defines the requirements for businesses to communicate their sustainability-related opportunities and risks. Specific climate-related disclosure requirements are then covered in the second standard, the IFRS S2. This standard covers a holistic climate strategy, including transition plans, greenhouse gas emissions, mitigation and adaptation plans, and the consequences of climate risks utilising scenario analysis. It is believed the standards will be adopted by regulators gradually.
For instance, Singapore, the UK, Australia, Canada and Hong Kong have already announced they plan to align their mandatory impact reporting requirements with the new standards. These new standards will apply to yearly reporting periods beginning from January 2024. In line with this, companies around the world will issue disclosures against the standards in 2025. Despite this, it is important to keep in mind that the ISSB is a voluntary standard. Therefore, applicability will depend mostly on adoption timeframes, in particular justifications.
What is the purpose of the ISSB standards?
In announcing the new standards, the ISSB has laid out four key objectives. Firstly, it is hoped the standards will offer a global baseline of sustainability disclosures and meet all the needs of investors.
Moreover, the ISSB envisions the standards will help businesses offer comprehensive environmental information to worldwide capital markets. Finally, they hope the standards will allow for interoperability with disclosures that are jurisdiction-specific or aimed at wider stakeholder groups.
The ISSB is committed to bringing standards that are market-informed, cost-effective, and decision-useful. They have created these standards with efficiency in mind, enabling businesses to report what global investors require across worldwide markets.
The standards were also created to offer the right information in the right way to aid investor decision-making and enable global comparability to attract capital. Double reporting is another issue these standards are working to minimise through its global baseline.
How the ISSB standards and the TCFD connect
The new standards from the ISSB draw heavily on the Task Force for Climate-Related Financial Disclosures (TCFD). To this date, the TCFD has been held in high regard and considered the gold standard for environmental disclosure. With this in mind, it has been adopted in numerous jurisdictions across the world.
Therefore, from 2024, the ISSB will be taking over the monitoring of the progress of businesses reporting against the TCFD. The climate-specific standard, the IFRS S2, has adopted a very similar structure to the TCFD. It has followed the same four pillars of strategy, governance, risk management, and targets and metrics. However, in some parts, it does dive deeper than the TCFD.
Important things to keep in mind about the ISSB standards
There are several things you should keep in mind concerning the ISSB standards. For one thing, the standards enable investors and businesses to standardise on a single, worldwide baseline of sustainability disclosures for capital markets.
They can do this with any additional jurisdictional requirements being added on top of this global baseline. The ISSB, the organisation that established the standards, has already received strong support from businesses, market regulators, policymakers, investors, and others around the world.
This includes the G20, G7 Leaders, the International Organization of Securities Commissions (IOSCO), and the Financial Stability Board. The ISSB standards only require information that is proportionate, material, and decision-useful to investors. This is because they focus exclusively on capital markets.
In addition, by starting with climate, businesses can gradually phase into their sustainability disclosures. The ISSB’s baseline approach offers a means to achieve worldwide comparability for financial markets. Not to mention, it allows for jurisdictions to further develop more requirements if they are needed to achieve public policy or broader stakeholder needs.
This approach also helps to minimise duplicate reporting for businesses that are subject to several jurisdictional requirements. The ISSB standards will also help companies communicate worldwide in a very cost-effective manner. They have been designed to offer reliable information to investors which means businesses can communicate how they determine and cope with sustainability-related opportunities and risks they could encounter in the short or long term.
The ISSB standards have also been created using the same transparent, inclusive process utilised to create the IFS Accounting Standards. Their partnership with the Global Reporting Initiative (GRI) allows them to build its requirements to be interoperable with these standards too. This will help minimise the disclosure burden for businesses using both standards for impact reporting.
Moreover, the ISSB’s responsibilities do not stop at setting standards. They also announced plans for a capacity-building partnership programme at COP27. The programme is aimed at helping to gather the necessary resources for consistent, high-quality reporting across emerging and developing economies.
The ISSB standard metrics
The ISSB has followed the same four pillars of the TCFD. Let’s break down each of the pillars below.
Businesses must describe oversight in terms of climate-related opportunities and risks. Processes must be in place to determine climate-related problems. Companies then must keep informed frequently on these issues.
Ultimately, the purpose of this pillar is that climate needs are prioritised and seen as part of the company’s policies, plans, strategy, goals, targets, and budget.
Under this pillar, businesses must be able to describe the climate-related opportunities and risks and their impact on their company’s business, financial planning, and strategy.
With risk management, processes must be implemented for determining and analysing climate-related risks. How major climate-related risks are compared to other risks should be analysed and discussed.
Companies should consider the regulatory requirements concerning the environmental emergency. Under this pillar, they should also assess how to control material risks and mitigate their impact.
Metrics and targets
The organisation should utilise metrics to analyse climate-related opportunities and risks in line with their strategy. They should implement a risk management process and disclose this too.
Under this pillar, they should also be tracking and measuring their greenhouse gas emissions in line with the GHG Protocol methodology to enable comparability and aggregation across jurisdictions and organisations.
The arrival of the first two ISSB standards is being welcomed by organisations all across the world. This launch is a monumental moment for ISSB and for impact reporting in general. It is hoped that with these standards, we can simplify the sustainability reporting process and landscape for businesses. This would help encourage more businesses to engage in sustainability.
Designed to be used together, the standards will enable businesses to extract the information investors need while also assessing their climate-related opportunities and risks. If you are ready to build a more responsible business, a sustainability education is the best place to begin. In our Diploma in Business Sustainability Course, we break down everything you need to know to use your business as a force for positive change.