ISSB standards published
The IFRS Foundation’s International Sustainability Standards Board (ISSB) has published global sustainability and climate reporting standards – IFRS S1 and IFRS S2 – ushering in a new era of financial reporting related to sustainability in capital markets around the world.
The standards will help improve trust in corporate sustainability information to inform investment decisions by creating, for the first time, a common language to disclose the effect of climate-related risks and opportunities on a company’s prospects
IFRS and ISSB
The IFRS Foundation, a non-profit public interest organization established to develop high-quality, understandable, applicable and globally accepted sustainability and accounting standards, formed the International Sustainability Standards Board (ISSB) on November 3, 2021 at COP26 of Glasgow, following strong market demand. The ISSB has thus been developing, in the public interest, standards that will result in a high-quality and comprehensive global baseline of sustainability information focused on the needs of investors and the financial markets.
The standards were launched on 26 June by ISSB President Emmanuel Faber who said: “The ISSB standards were designed to help companies tell their sustainability story in a robust, comparable and verifiable way. We have consulted closely with the market to ensure that the Standards are proportionate and translate into information relevant to investment decision-making”.
ISSB has set four key objectives:
- develop standards for a global baseline of sustainability information;
- meet the information needs of investors;
- enable companies to provide comprehensive sustainability information to global capital markets;
- facilitate interoperability with disclosures that are jurisdiction-specific and/or targeted at broader stakeholder groups.
The standards are designed to provide the right information, in the right way, to support investor decision-making and facilitate international comparability to attract capital.
IFRS S1 requires companies to disclose the sustainability risks and opportunities they face in the short, medium and long term. The requirements are designed to ensure that companies provide investors with information relevant to decision-making.
IFRS S2 sets out specific disclosures related to climate and is designed to be used with IFRS S1. Both standards are based on the recommendations of the Task Force on Climate-Related Financial Information (TCFD).
A global baseline
The ISSB developed IFRS S1 and IFRS S2 with the benefit of extensive market feedback and in response to requests from the G20, the Financial Stability Board and the International Organization of Securities Commissions (IOSCO), as well as leaders of the business community and investors.
This support for a comprehensive global baseline of sustainability-related information demonstrates the widespread demand for a consistent understanding of how sustainability factors affect business prospects.
ISSB standards are designed to ensure that companies provide sustainability-related information alongside financial statements, in the same reporting package. The standards have been developed to be used in conjunction with any accounting requirements. They are also based on the concepts underpinning IFRS accounting standards, which are required by over 140 jurisdictions. ISSB standards are suitable for worldwide application, creating a truly global baseline.
Adoption of ISSB standards
Now that IFRS S1 and IFRS S2 have been issued, the ISSB will work with jurisdictions and companies to support adoption. The first steps will be to create a Transition Implementation Group to support companies enforcing the standards and launch capacity building initiatives to support effective implementation.
The ISSB will also continue to work with jurisdictions that wish to require incremental information beyond the global baseline and with the GRI to support efficient and effective reporting when the ISSB standards are applied in conjunction with other reporting standards.
Ten things to know about the first ISSB standards
Global Disclosure Standards: ISSB standards allow companies and investors to standardize on a single global baseline of sustainability information for capital markets, with any additional jurisdictional requirements being built on top of this global baseline.
International support: The work of the ISSB has received strong support from investors, companies, policy makers, market regulators and others from around the world, including the International Organization of Securities Commissions (IOSCO), the Financial Stability Board, the G20 and the G7 leaders.
Disclosure of material information useful for the decision: focusing exclusively on capital markets means that the ISSB standards require only information that is material, proportionate and useful for investor decisions. Furthermore, starting from the climate, companies can gradually introduce their sustainability disclosures.
Build and consolidate existing initiatives: IFRS S1 and IFRS S2 build on and consolidate TCFD Recommendations, SASB Standards, the CDSB Framework, the Integrated Reporting Framework, and World Economic Forum metrics to streamline sustainability reporting. Consolidation will help companies take advantage of their investments they’ve already made in sustainability disclosures, while reducing the “alphabet soup” of sustainability disclosures.
Duplicate reports reduction: The baseline approach provides a way to achieve global comparability for financial markets and allows jurisdictions to further develop additional requirements as needed to meet the public policy or wider needs of stakeholders. This approach helps reduce duplication of reporting for companies subject to multiple jurisdictional requirements.
Helping companies to communicate worldwide at low cost: ISSB standards are designed to provide reliable information to investors; help companies communicate how they identify and manage the sustainability-related risks and opportunities they face in the short, medium and long term.
Connections with the budget: Information required by ISSB standards is designed to be provided together with financial statements as part of the same reporting package. The ISSB standards were developed to work with any accounting requirement, but are built on the underlying concepts of the IFRS accounting standards, which are already required for use by more than 140 jurisdictions.
Developed through rigorous consultation: The ISSB standards were developed using the same inclusive and transparent process used to develop IFRS accounting standards, with over 1,400 responses to ISSB proposals.
Interoperability with broader sustainability reporting: The ISSB’s partnership with the Global Reporting Initiative enables the ISSB to build its own requirements to be interoperable with the GRI standards, helping to reduce the disclosure burden for companies using both the ISSB and the GRI standards to reporting.
A partnership for capacity building: ISSB’s responsibilities do not stop at setting standards. At COP27, the ISSB announced plans for a capacity building partnership programme, helping to establish the resources needed for high-quality and consistent reporting in developed and emerging economies.