The IFRS Foundation made a significant announcement at COP26, unveiling plans to establish the International Sustainability Standards Board (ISSB). This week, ISSB published its first two standards: S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures that aim to create a common language for sustainability disclosures and better inform investment decisions. 

Understanding ISSB Standards

With sustainability factors becoming increasingly at the heart of investment decision-making, there is a growing demand for companies to provide reliable, but also globally comparable information on sustainability-related risks and opportunities. The global ISSB requirements regarding the content and presentation of disclosures enables comparability among entities, truly addressing the information needs of investors. These standards will help entities disclose their governance strategy, risk management, metrics and targets, and provide investors and stakeholders with access to consistent and reliable information. They will facilitate the assessment of companies’ environmental and social performance. 

 
Implications for sustainability reporting

According to ISSB’s Chair, Emmanual Faber, “companies have been wrestling with a complex reporting landscape for some time”. The introduction of ISSB standards is expected to have several implications for sustainability reporting within companies: 

  • It will prompt accountability and responsibility. By establishing clear guidelines, companies will be compelled to measure, manage, and report their sustainability impacts more effectively. This could encourage companies to integrate sustainable practices into their core strategies, promoting long-term value creation and resilience. 
  • The ISSB standards will enhance the ability to address global sustainability challenges collectively. Through a new common language and reporting framework, it will become easier to identify areas for improvement and track progress toward global sustainability goals, such as the UN SDG’s and the Paris Agreement targets.  
  • The ISSB standards are likely to have a significant impact on capital allocations decisions. Investors are increasingly recognizing the importance of incorporating ESG factors when assessing long term financial performance. The ISSB standards will provide investors with more reliable and comparable information, enabling them to make more informed decisions, allocate capital toward sustainable investments, and encourage companies to prioritize sustainability practices to attract investment. 
What’s next?

For the standards to have their desired impact on markets and companies, they must be properly adopted, but how will ISSB ensure that this is the case? Mr. Faber brings forward that companies won’t be expected to adopt everything in one go, and that transition reliefs will be implemented to ensure that the reporting burden is manageable for companies. For instance, throughout the first year following the release, companies will be allowed to publish their sustainability disclosures at a different time than their general financial report, while in the future they will be required together. Furthermore, in the initial year, companies will be given the choice to exclusively disclose their climate-related risks and opportunities, excluding the wide range of sustainability matters covered by ISSB standards. 

Significant economies from Japan to Nigeria have already indicated their commitment to incorporating ISSB standards into their national reporting obligations. In the meantime, the EU is progressing with its own standards, aiming to make them compatible with the ISSB framework. The United States has been lacking clear direction as the Securities and Exchange Commission has postponed the release of its sustainability reporting standards until October

The first two ISSB standards released in June 2023 mark a pivotal step toward achieving global sustainability goals. By establishing globally consistent and standardized reporting requirements, these standards will promote transparency, accountability, and collective action. They will enable investors, stakeholders, and the public to assess companies’ sustainability performance accurately and make informed decisions. With the ISSB standards, sustainability reporting will become a crucial tool for driving positive change and creating a more sustainable and resilient future. The role of these standards will be addressed at the 2023 Building Bridges Summit during a panel discussion with Sue Lloyd, ISSB’s Vice Chair. Buy your tickets for the next edition of Building Bridges.

IFRS Sustainability Standards