The International Sustainability Standards Board (ISSB) recently issued its first-ever global sustainability disclosure standards, marking a significant milestone in the drive for transparent and comparable sustainability reporting. The newly introduced IFRS S1 and IFRS S2 standards provide a common language for companies to communicate sustainability-related risks, opportunities, and climate-related impacts to investors and stakeholders. This blog post summarizes the key features of these standards and their potential impact on business.
The Role of the ISSB
The ISSB, established in November 2021, aims to develop comprehensive sustainability disclosure standards that meet the needs of investors and financial markets worldwide. By addressing the demand for globally comparable information on sustainability-related risks and opportunities, the ISSB aims to enhance transparency and reduce complexity in sustainability reporting.
Enhancing Trust and Confidence in Sustainability Disclosures
The ISSB's issuance of IFRS S1 and IFRS S2 is a response to the growing demand for standardized sustainability reporting frameworks. By establishing a global baseline for sustainability-related disclosures, these standards aim to enhance trust, confidence, and comparability in the information disclosed by companies. They provide investors with vital insights into a company's sustainability performance, enabling better-informed investment decisions.
Key Features of IFRS S1 and IFRS S2
IFRS S1 focuses on disclosure requirements that allow companies to communicate their sustainability-related risks and opportunities over the short, medium, and long term. It provides a comprehensive framework for reporting on a wide range of sustainability factors that impact a company's prospects. IFRS S2, on the other hand, specifically addresses climate-related disclosures. It complements IFRS S1 and aligns with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The integration of TCFD recommendations into the ISSB Standards ensures that climate-related risks and opportunities are reported consistently and transparently.
A Global Baseline for Sustainability Reporting
The ISSB Standards have been developed through extensive market feedback and in collaboration with global organizations such as the G20, the Financial Stability Board, and the International Organization of Securities Commissions (IOSCO). This inclusive approach ensures that the standards meet the expectations of the business and investor communities worldwide.
Moreover, the ISSB Standards are designed to be used alongside any accounting requirements and are built upon the concepts that underpin the widely adopted IFRS Accounting Standards. With their suitability for application globally, these standards establish a common language for sustainability reporting, creating a truly global baseline.
Adoption and Implementation
Following the issuance of IFRS S1 and IFRS S2, the ISSB will work closely with jurisdictions and companies to support the adoption of these standards. A Transition Implementation Group will be established to assist companies in applying the standards effectively. Additionally, capacity-building initiatives will be launched to ensure the standards' successful implementation.
Furthermore, the ISSB will continue to collaborate with jurisdictions seeking to require additional disclosures beyond the global baseline. The cooperation with the Global Reporting Initiative (GRI) aims to promote efficient and effective reporting when the ISSB Standards are used in conjunction with other reporting frameworks.
Industry Support for ISSB Standards
The introduction of the ISSB Standards has received widespread support from various stakeholders:
- Emmanuel Faber, ISSB Chair, emphasizes the standards' robustness and their ability to provide relevant information for investment decision-making.
- Erkki Liikanen, Chair of the IFRS Foundation Trustees, highlights the global baseline approach and its potential to reduce duplicative reporting while accommodating additional jurisdiction-specific requirements.
- Leaders from organizations such as the Financial Stability Board, IOSCO, and the Task Force on Climate-related Financial Disclosures commend the ISSB for its pace, quality of work, and contribution to globally consistent disclosures.
- Representatives from the investor community emphasize the importance of high-quality data to facilitate efficient capital markets and support informed investment decisions.
- Industry leaders, including the World Business Council for Sustainable Development and the World Economic Forum, recognize the ISSB Standards as a vital step toward consistent and comparable sustainability reporting worldwide.
The ISSB's inaugural global sustainability disclosure standards, IFRS S1 and IFRS S2, represent a significant advancement in sustainability reporting practices. By establishing a common language and global baseline, the ISSB standards aim to provide companies with a framework to communicate their sustainability-related risks, opportunities, and climate impacts comparably and transparently. The standards hope to build trust, foster sustainable investment, and support the transition toward a more resilient and sustainable global economy.