The ISSB was formed at the November 2021 UN climate change conference in Glasgow and released its first set of standards in June 2023. This development window of just 18 months was notably short.
Despite the numerous sustainability standards that already exist, many investors, compliance officers and others have welcomed the new ISSB standards. The Harvard Law School Forum on Corporate Governance notes that the standards attempt “to bring some order to the ever-changing landscape surrounding sustainability disclosures” and “have been well-received throughout the international community, garnering the support of oversight and regulatory bodies and several jurisdictions.”
This article explains the standards and how investors and multinational corporations could benefit from them. It also provides information on the standards’ expected rollout dates and lists the countries considering adopting them.
The ISSB’s goals
The ISSB intends to set worldwide benchmarks for disclosing sustainability-related information. Its goal is to satisfy investors' information needs and help companies present a full account of their sustainability initiatives to global capital markets. The ISSB also aims to ensure that these disclosures fulfil the requirements of specific jurisdictions and wider stakeholder groups.
Johan Tellvik, a business development strategist at Turnkey, a UK-based sustainability and ESG reporting firm, believes the standards will give investors the simplicity and comparability they need to make informed investment decisions.
“The ISSB’s ground-breaking standards underscore the pivotal role of standardization, transparency and the confluence of ESG metrics with financial metrics,” Tellvik said. “By embedding sustainability dimensions within financial disclosures, investors gain a panoramic compass to steer through the intricacies of sustainability.”
The ISSB’s first two sustainability disclosure standards
The ISSB released its initial two International Financial Reporting Standards Foundation (IFRS) sustainability disclosure standards in June 2023. IFRS S1 outlines global disclosure requirements for sustainability-related financial information, serving as a baseline for companies to integrate financial and sustainability data. Meanwhile, under IFRS S2, companies must disclose governance, strategy, risk management, and climate-related risks and opportunities.
Takashi Nagaoka, chair of the IFRS Foundation Monitoring Board, vowed to maintain support for the expanding standards.
“The monitoring board welcomes the ISSB’s publication of IFRS S1 and IFRS S2,” Nagaoka said. “We will continue to collaborate closely with the leadership of the ISSB and the IFRS foundation trustees, and remain focused on supporting the ISSB’s ongoing and future work including on other sustainability topics beyond climate, to ensure continued robust governance, due process and oversight of the foundation and its standard-setting boards.”
Potential benefits for investors
The ISSB’s creation may prove pivotal for investors. The board’s standards could fill a market gap by improving transparency and accountability among companies and their stakeholders. Supplying investors with consistent, reliable and comparable sustainability information can allow them to make more educated decisions and better risk assessments.
This is important in part because sustainability reporting standards have become increasingly fragmented. There are, for example, more than 200 voluntary reporting schemes and over 300 mandatory reporting schemes currently in use. Consequently, investors may struggle to identify a single, trustworthy source of sustainability-related data.
ISSB standards could also help investors manage financed emissions and avoid costs associated with manual collection, management and analysis of sustainability-related financial disclosures.
Potential benefits for multinational corporations
The ISSB standards can help multinational corporations refrain from creating duplicate reports. Moreover, by following a global baseline for jurisdictional requirements, companies can achieve compliance without sacrificing efficiency and comparability.
ISSB chair Emmanuel Faber emphasises that the standards were developed in part to aid multinational corporations. “The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner,” he said. “We have consulted closely with the market to ensure the standards are proportionate and will result in disclosures that are relevant for investment decision-making.”
Effective date and transition
The ISSB standards will apply to annual periods starting on or after 1 January 2024. However, companies can implement the first two measures concurrently to adopt sustainability disclosure standards sooner. Companies that decide to implement the standards earlier are required to disclose this.
Countries that are considering adopting ISSB's standards
The ISSB’s work is complete and it’s now transferring the responsibility to governments to incorporate the standards into their regulatory frameworks by 2025. Implementation timelines will vary by country, and local regulators can modify the standards and set compliance requirements for entities operating within their jurisdictions. The potential effects on cross-jurisdictional comparability is unclear.
Several major countries, including Australia, Canada, Hong Kong, Japan, Malaysia, New Zealand, Nigeria, Singapore and the UK, have shown interest in adopting the ISSB standards. Notably absent from this list are EU member states. As part of the EU’s green new deal, the bloc has developed and is adopting European Sustainability Reporting Standards, or ESRS. The European Commission states that the ESRS and ISSB have been developed in parallel and that the Commission has “worked to ensure a very high level of alignment between ESRS and the standards of the International Sustainability Standards Board.”
Michael Thomas, Vistra’s global head of information reporting services, cautions, “While the two sets of reporting standards are largely aligned, there are and will likely remain important differences. As with any compliance obligations, multinational organisations will need to keep abreast of and comply with all applicable sustainability disclosure obligations. While the ISSB is a step in the right direction, we’re still a long way from a single global disclosure framework.”
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