22 September 2023 – In this blog, David Carlin explains the new standards for sustainability and climate disclosures developed by the International Sustainability Standards Board and the implications of these new standards for business and investors.
Understanding the ISSB's Mission
The International Sustainability Standards Board (ISSB) was formed by the International Financial Reporting Standards (IFRS) Foundation in Glasgow in 2021 at the UN’s 26th Conference of the Parties (COP 26). The ISSB was established to develop a universal set of sustainability reporting standards. It has become a central part of the global sustainability landscape in the past two years. In a world facing the triple planetary crises of climate change, biodiversity loss, and pollution, sustainability has never been more critical for firms and communities. A standardised approach to sustainability reporting is not just beneficial but essential. The ISSB aims to ensure that businesses, regardless of their geographical location or sector, communicate their sustainability impacts transparently. This consistency enables stakeholders (both internal and external) to better manage sustainability-related risks and opportunities.
Decoding the ISSB Standards: IFRS S1 & S2
In late June 2023, the ISSB released two standards following a consultation period. These standards have been referred to as IFRS S1 and IFRS S2. IFRS S1 offers a comprehensive framework for general sustainability-related disclosures, covering various environmental, social and governance (ESG) topics. This standard serves as a foundational guide for businesses to disclose the financially relevant impacts of sustainability on their business. IFRS S2 focuses more specifically on climate, providing firms with detailed guidelines on reporting their climate-related financial risks and opportunities. Together, these standards play an important role as a benchmark for global sustainability reporting efforts.
Interoperability with New and Existing Standards
The ISSB standards were designed for compatibility with existing global frameworks such as the Taskforce on Climate-related Financial Disclosures (TCFD) and the European Sustainability Reporting Standards (ESRS). Indeed, the four pillars of IFRS S1 and S2: Governance, Strategy, Risk Management, and Metrics & Targets, have been self-consciously borrowed from the TCFD. This alignment ensures comparability and standardisation in reporting practices. Other global supervisors, such as the International Organization of Securities Commissions (IOSCO) have also expressed support for the ISSB's efforts, underscoring the global consensus for standardised sustainability reporting. When the ISSB standards officially come into effect at the start of 2024, they will provide the basis of mandatory reporting standards in multiple jurisdictions. Harmonising these expectations will provide businesses with a clear roadmap for their sustainability efforts and disclosures.
Charting the Course for Tomorrow's Reporting
The introduction of IFRS S1 and S2 marks a shift in sustainability reporting. Their uniformity allows stakeholders to understand and compare sustainability data easily. This standardisation, combined with improved data quality, empowers businesses to make informed decisions, attract investments, and identify new opportunities.
Sustainability has become a mainstream consideration for businesses in all economic sectors. Reporting on the ISSB standards helps a business to express its commitment to sustainability. At the same time, sustainability reporting may initially prove challenging for many firms, especially small and medium-sized enterprises (SMEs) due to data, resource, and experience limitations. However, to navigate this new reporting environment, businesses should invest time in understanding IFRS S1 and S2, undertake training programs, and engage experts as needed. By taking these proactive steps, businesses can position themselves as leaders in sustainability reporting.
The Business Implications of the ISSB Standards
The ISSB's standards have far-reaching implications. They set the tone for how firms approach sustainability reporting and influence global policies and regulations. As countries and regions look to align their sustainability goals with global benchmarks, the ISSB's standards will be an important reference point in shaping these discussions. Moreover, as consumers become more conscious of their choices' environmental and social impacts, businesses that demonstrate their commitment to sustainability in clear reports may benefit from new opportunities.
The Role of Technology in ISSB Reporting
Technology advancements have led to a proliferation of tools, platforms, and data that can aid businesses in their ISSB reporting journey. Advanced analytics, AI-driven insights, and cloud-based database solutions can streamline data collection and reporting processes. By leveraging these technologies, businesses can improve the accuracy of their sustainability metrics and enhance the usability of their sustainability reports for stakeholders.
The ISSB's IFRS S1 and S2 standards mark a new chapter for global sustainability reporting. As businesses navigate this new landscape, they must remain agile and informed. Businesses and markets have a critical role in enabling a sustainable future, and the new standards of the ISSB will support them in doing so.
CISL's Sustainable Finance course explores the current and emerging standards and frameworks, such as ISSB’s, that businesses and financial organisations can leverage to address the triple planetary crises of climate change, biodiversity loss, and pollution. Participants will come away with a personal action plan to support them in driving the transformational system-wide changes necessary to provide a sustainable future for all. Learn more about the Sustainable Finance online short course.
Image: Gabrielle Henderson / Unsplash
