Global sustainability reporting: how the ISSB is changing the game?

The International Sustainability Standards Board (ISSB) was formed in November 2021 at the 26th United Nations Climate Change Conference (COP 26) in Glasgow, Scotland. It was established by the International Financial Reporting Standards (IFRS). The need for the ISSB arose from the increasing demand for reliable, comparable, and decision-enabler sustainability information by investors and other capital market participants. Before the ISSB, there was a proliferation of different sustainability reporting frameworks and standards, leading to fragmentation and inconsistency in reporting practices. This made it difficult for investors to assess and compare companies' sustainability performance, hindering the efficient allocation of capital towards sustainable investments.

The formation of the ISSB involved the convergence of several organizations and standard-setting bodies:

• IFRS Foundation: the parent organization of the ISSB, responsible for the overall governance and oversight.
• Climate Disclosure Standards Board (CDSB): a standard-setting body focused on climate-related disclosures, merged into the ISSB.
• Value Reporting Foundation (VRF): an organization that housed the Sustainability Accounting Standards Board (SASB) and the Integrated Reporting Framework (IR), also merged into the ISSB.
• World Economic Forum (WEF):contributed to the formation of the ISSB through its International Business Council (IBC).

In December 2023, the IFRS Foundation announced the conclusion of the work of the Task Force for Climate-related Financial Disclosures (TCFD) and its full integration into the ISSB standards. The TCFD provided a crucial role in establishing a widely accepted and globally recognized framework for climate-related reporting. The responsibility for monitoring companies' climate-related disclosures now shifts to the IFRS Foundation.

The ISSB is supported by international organizations like the G7, G20, International Organization of Securities Commissions (IOSCO), the Financial Stability Board, as well as the finance ministers and central bank governors from over 40 jurisdictions. This support underscores the significance and global relevance of the ISSB's work in establishing sustainability disclosure standards.

# I. What does the ISSB aim to address?

• Fragmentation: by developing a comprehensive global baseline of sustainability disclosure standards, the ISSB seeks to harmonize reporting practices and reduce fragmentation in the market.
• Comparability: the ISSB standards are designed to enhance the comparability of sustainability information across companies and jurisdictions, facilitating informed decision-making by investors and other stakeholders.
• Decision-usefulness: the ISSB focuses on developing standards that provide investors with the information they need to assess the sustainability-related risks and opportunities of companies.
• Global adoption: the ISSB aims to achieve widespread adoption of its standards by jurisdictions worldwide and ensure interoperability between standards, creating a truly global baseline for sustainability reporting.

# II. What are the standards of the ISSB?

• In June 2023, the ISSB published its first two sustainability disclosure standards (SDS), the General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and the Climate-related Disclosures (IFRS S2). These two documents form the global baseline of sustainability disclosure.
• The SDS can be used by any type of organization, including listed and non-listed companies, financial institutions, and governmental entities. Companies that apply the SDS must disclose the information in their financial reports. The sustainability-related disclosures are to be made at the same time the company’s financial statements are reported and cover the same reporting period.

• It is also important to note that the IFRS S1 also addresses the following key elements that apply across all standards:
  • Fair Presentation – requires the disclosure of relevant information about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects.
  • Materiality – the IFRS S1 opts for the financial-materiality approach to disclosure. This means that an issue is material enough to be reported only if it has the potential to affect the enterprise’s prospects (i.e. cash flow, access to finance) over the short, medium, or long term.
  • Value chain – sustainability-related risks and opportunities arise not just in the reporting entity itself, but right across a company’s value chain. Under the IFRS S1, companies are expected to report on a wide range of activities, resources, and relationships across the value chain that may help investors understand a company’s impacts and dependencies.
• In the first year of applying the SDS, companies may opt to only disclose information on climate-related risks and opportunities (IFRS S2) and only apply the IFRS S1 to climate-related risks and opportunities. In the second year of applying the SDS, companies must also provide information about their other sustainability-related risks and opportunities (IFRS S1).

# III. What is the current landscape of ISSB standards adoption?

While full adoption of ISSB standards is still emerging, the current landscape shows:

• Growing momentum: an increasing number of companies and jurisdictions are expressing interest in adopting or aligning with ISSB standards.
• Early adopters: some companies have already started to prepare for or implement the ISSB standards, recognizing the benefits of early adoption.
• Investor demand: investors are increasingly demanding high-quality, comparable, and decision-useful sustainability information, which is driving the adoption of the ISSB standards.
• Regulatory alignment: regulatory authorities are increasingly incorporating ISSB standards into their requirements, further incentivizing companies to adopt them.
• As of June 2024, a growing number of jurisdictions are expressing interest in adopting or incorporating ISSB standards into their regulatory frameworks. However, the adoption process is still ongoing, and the full extent of global adoption is yet to be determined. Notable examples of jurisdictions that have publicly expressed support for the ISSB standards include:

• In May 2024, the IFRS Foundation and EFRAG released interoperability guidance between the ISSB Standards and the European Sustainability Reporting Standards (ESRS), aiming to simplify compliance for companies reporting under both frameworks. The ESRS provides a structured framework for Corporate Sustainability Reporting Directive (CSRD) compliance and enables effective communication of their sustainability strategies and outcomes. While this is not a full adoption, there's already a confirmed high level of alignment between the ESRS and the ISSB standards, particularly concerning climate-related disclosures. The EU's commitment to interoperability signals a strong inclination towards integrating ISSB standards within the CSRD framework.  

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