1. Treo ESG
  2. What are the ISSB sustainability disclosure standards?

What are the ISSB sustainability disclosure standards?

Posted on: 1st October 2024 | 3 min

The International Sustainability Standards Board (ISSB) issued its long-awaited sustainability disclosure standards on 26th June 2023. The standards are designed to provide a global baseline of sustainability-related disclosures for capital markets, prevent double reporting and steer companies and investors towards clear and consistent reporting requirements.

We answer some key questions below.

 

What is the ISSB?

The ISSB is part of the International Financial Reporting Standards (IFRS) Foundation, which is a not-for-profit, public interest organisation established to develop high-quality, understandable, enforceable and globally accepted accounting and sustainability disclosure standards.

The ISSB was formed on 3 November 2021 at COP26 in Glasgow to develop – in the public interest – standards that will result in a high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets.

 

What is the ISSB’s approach to sustainability reporting?

With a focus on the needs of investors and financial markets, the ISSB is focused on sustainability disclosures that are financially material (sometimes referred to as ‘single materiality’), taking a sector specific approach. The ISSB also seeks to integrate disclosures alongside regular financial reporting, ensuring timely and consistent information is made available to financial markets.

 

What do the ISSB’s sustainability disclosure standards cover?

The ISSB’s standards bring together and consolidate several existing sustainability reporting frameworks into two standards:

  1. IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
  2. IFRS S2: Climate-related Disclosures

IFRS S1

IFRS S1 creates a universal structure for sustainability disclosures based on the sector-specific Sustainability Accounting Standards Board (SASB) framework. Specifically, an entity is required to provide information on:

  1. the governance processes, controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities;
  2. the entity’s strategy for managing sustainability-related risks and opportunities;
  3. the processes the entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities; and
  4. the entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.

IFRS S2

IFRS S2 is broadly consistent with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations (the ISSB will take on responsibility for the management of TCFD from 2024).

 IFRS S2 applies to:

  1. climate-related risks to which the entity is exposed, which are:
    1. climate-related physical risks; and
    2. climate-related transition risks; and
  2. climate-related opportunities available to the entity.

IFRS S2 sets out the requirements for disclosing information about an entity’s climate-related risks and opportunities. In particular, IFRS S2 requires an entity to disclose information that enables users of general purpose financial reports to understand:

  1. the governance processes, controls and procedures the entity uses to monitor, manage and oversee climate-related risks and opportunities;
  2. the entity’s strategy for managing climate-related risks and opportunities;
  3. the processes the entity uses to identify, assess, prioritise and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the entity’s overall risk management process; and
  4. the entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by law or regulation.

 

When do the standards come into effect?

IFRS S1 and S2 come into effect from 1 January 2024.

 

Are the ISSB disclosure standards mandatory?

Each jurisdiction will choose for themselves whether to adopt the ISSB’s standards. However, with support from G7 and G20 finance ministers it looks likely that IFRS S1 and S2 will be widely adopted.

The UK Government has signalled its support for the ISSB and announced that it would be establishing a mechanism for the formal UK endorsement and adoption of the standards. Once available for use in the UK, the Financial Conduct Authority (FCA) has stated its intention to update climate-related disclosure rules, which currently reference TCFD recommendation, to reference the ISSB standards.

The International Organization of Securities Commissions (IOSCO), the body representing the world’s securities regulators, has also announced its endorsement of the ISSB’s standards.