The International Sustainability Standards Board (ISSB), which sits under the International Financial Reporting Standards (IFRS) Foundation, is nearing the completion of a new and consolidated global baseline of sustainability reporting standards. Exposure drafts of these standards were released in March 2022, after which the ISSB received 1,400+ comment letters. The ISSB builds on the work of market-led investor-focused reporting initiatives, including the Climate Disclosure Standards Board (CDSB), the Task Force for Climate-related Financial Disclosures (TCFD), the Integrated Reporting Framework, the industry-based Sustainability Accounting Standards Board (SASB) Standards, as well as the World Economic Forum’s Stakeholder Capitalism Metrics.
The new IFRS Sustainability Reporting Standards (S1 and S2) are undergoing a formal approval process ahead of their issuance at the end of Q2 2023. To support the adoption of the standards, the ISSB will also focus efforts on capacity building by working with partners from jurisdictions globally to deliver education and raise awareness.
Key Elements of S1 (General Disclosure Requirements)
- Asks for disclosure of material information about a company’s sustainability-related risks and opportunities, using the same definition of materiality that is used in IFRS Accounting Standards (information that, which absent, obscured, or misstated, could be reasonably expected to influence investor decisions)
- Emphasizes the need for consistency and connections between financial statements and sustainability disclosures, requiring financial statements and sustainability disclosures to be published at the same time
Key Elements of S2 (Climate-related Disclosure Requirements)
- Sets out disclosure of material information about climate-related risks and opportunities, including disclosure about physical risks (such as flood risk), transition risk (such as regulatory change) and climate-related opportunities (such as new technologies)
- Provides companies more time to embed and improve processes for measurement and disclosure of Scope 3 emissions through guidance and reliefs (reporting on Scope 3 emissions will not be required in the first year a company applies S2)
What This Means for Corporate Reporters
- Scope: The SASB Standards will continue to be supported on a standalone basis by the ISSB for at least four years, and likely longer, while the ISSB continues its standard-setting activities using the SASB Standards as a basis. Using the SASB Standards now will help reporters prepare for the future application of IFRS Sustainability Disclosure Standards. S1 and S2 fully incorporate the TCFD Recommendations and structure.
- Impact: The largest impact will be the need for companies to further align their sustainability reporting approaches and controls with those of their financial reporting, including timing of publication. The ISSB has developed a package of reliefs and guidance to support initial use of the Standards, enabling companies at all stages of sustainability disclosure to scale up their approach to using them over time.
- Timing: The first reporting year to apply the new standards will be 2024 (with reporting in 2025).
HXE Partners’ Take
As an advisor who is intimately aware of the reporting burden companies face to meet the needs of various stakeholders, we welcome and are encouraged by the consolidation taking place in the sustainability disclosure landscape. Along with the U.S. Securities and Exchange Commission’s proposed rules for climate-related disclosure, the ISSB’s new standards signal a clear (and global) direction of travel of companies needing to manage their ESG data and disclosure with the same rigor and importance as financial data.