After nearly two years of collaboration, extensive market research, public consultations, support from business leaders and draft revisions, IFRS Foundation’s International Sustainability Standards Board (ISSB) published two global sustainability disclosure standards on Monday, June 26 – one focused on general sustainability and one focused on climate-related reporting. In the current era where the financial markets are demanding consistent, comparable, global standards, the publication of the standards aims to bolster investor trust and confidence in sustainability-related disclosures, allowing for more informed investment decisions.
What are the ISSB standards?
The Standards aim to provide “high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets.” Pioneering a common language for disclosing the impact of climate-related risks and opportunities, the Standards also reduce reporting burdens and allow investors to easily compare sustainability performance.
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (S1) provide a set of reporting requirements designed to enable companies to communicate to investors their sustainability-related risks and opportunities over the short, medium and long term.
- IFRS S2 Climate-related Disclosures (S2) sets out specific climate-related disclosures that could reasonably be expected to affect cash flows, access to finance or cost of capital over the short, medium, or long term and is designed to be used with IFRS S1.
Both standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
When will they go into effect?
The standards will go into effect for annual reporting periods beginning January1, 2024 with earlier application permitted as long as both standards are applied. Fortunately, companies who already use existing reporting standards will be better positioned to apply the standards to their reporting.
What does it mean for companies?
With the publication of the Standards, under S1, reporting companies will be required to:
- Disclose the governance processes, controls and procedures used to monitor, manage and oversee sustainability-related risks and opportunities.
- Explain their strategy for managing sustainability-related risks and opportunities
- Disclose the processes used to identify, assess, prioritize and monitor sustainability-related risks and opportunities.
- Share its performance in relation to sustainability-related risks and opportunities, including progress towards any targets it sets or is required to meet by law
Under the requirements of S2, reporting companies will be required to:
- Disclose the processes used to identify, assess, prioritize and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the overall risk management process
- Measure GHG emissions in accordance with the Greenhouse Gas Protocol unless required to use alternative measure, including Scope 1, 2 and 3
- Share its performance in relation to climate-related risks and opportunities, including progress towards any climate-related targets it sets, and any targets it is required to meet by law or regulation
- State the percentage of assets or business activities that are vulnerable to climate-related transition and physical risks
What’s Next?
Although the ISSB is backed by international coalitions, such as the G7, G20, IOSCO, GRI, Finance Ministers and Central Bank Governors, and works closely with various jurisdictions to encourage adoption of its standards, it will be up to individual jurisdictional authorities and countries to decide whether to mandate the use of the standards. The ISSB is now working with jurisdictions and companies to support adoption, while acknowledging jurisdictional differences when applying the standards.
The ISSB’s first steps to adoption include, creating a Transition Implementation Group to support companies applying the Standards and launching capacity-building initiatives to support effective implementation.
The ISSB will also continue to work with jurisdictions who require incremental disclosures beyond the global baseline and with the GRI to support efficient and effective reporting when applying the ISSB Standards with other reporting standards.