Regulation | ~ 2 min. read
Incoming: new standards for sustainability reporting
The International Sustainability Standards Board (ISSB) expects to issue the technical content of its initial two sustainability reporting standards1 by the end of June. What does this mean for companies and investors?
Backed by international forums such as the G7 and G20, the ISSB was created by the International Financial Reporting Standards (IFRS) Foundation in 2021 with a mission to unify corporate sustainability disclosures.
What should be the impact of the launch of the new standards?
It is hoped that the creation of one global standard for sustainability disclosure will facilitate broader adoption by companies because it should reduce the number of standards a company must report against. It should also help investors and other stakeholders to better direct their capital flows by allowing them to compare sustainability performance more easily across global companies.
What are the two standards?
The first standard, IFRS S1, sets the global core baseline for general sustainability reporting while S2 focuses on climate-related disclosure.
Embedded in S1 is the concept of an integrated reporting framework, which means companies would report financially material sustainability topics at the same time as the related financial statements.2
The standards build on existing frameworks such as those of the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosures (TCFD).
What does it mean for companies?
The standards will be effective from January 2024. Companies can begin by prioritising reporting on climate-related risks and opportunities in 2025 but will need to provide full reporting on general sustainability-related topics beyond climate3 from 2026, together with Scope 3 emissions.4
Companies that already use existing market sustainability reporting standards are likely to find aligning to S1 and S2 standards easier. Companies that are new to sustainability disclosure should benefit from the ISSB’s guidance and capacity-building programmes (including workshops and seminars) in 2023 to prepare for the future application of these standards. The ISSB has a particular focus on supporting smaller companies and emerging markets5, and reporting requirements will be proportionate to a company’s size and scope.
Will adoption be mandatory?6
The ISSB collaborates closely with jurisdictions to foster adoption of the two standards. But it is for jurisdictional authorities to decide whether to mandate the use of the standards7, and variations will exist in different jurisdictions when applying the standards.
1 IFRS - ISSB ramps up activities to support global implementation ahead of issuing inaugural standards end Q2 2023
2 IFRS - ISSB Update February 2023
3 IFRS - ISSB decides to prioritise climate-related disclosures to support initial application
4 Scope 3 emissions are the indirect emissions associated with an organisation’s upstream and downstream activities
5 Seven key takeaways from the IFRS Sustainability Symposium - SASB
6 IFRS - ISSB: Frequently Asked Questions
7 IFRS - ISSB: Frequently Asked Questions
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