On 3 November 2021, the IFRS Foundation Trustees announced the creation of a new standard-setting board—the International Sustainability Standards Board (ISSB)—to help meet the demand of international investors with global investment portfolios for high-quality, transparent, reliable and comparable reporting by companies on climate and other environmental, social and governance (ESG) matters.
The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.
The International Sustainability Standards Board (ISSB), at its meeting on 16 February 2023 in Montreal, has taken its final decisions on all the technical content of its initial Standards, informed by feedback it received during extensive consultation last year. With the substance of the Standards now fully agreed, the ISSB unanimously approved entering the thorough drafting and formal ‘balloting’ process of the Standards, ahead of their expected issuance at the end of Q2 2023.
During this time, given the importance of capacity building to ensure this is a truly global initiative, the ISSB will focus efforts on developing further guidance and training material, as well as working with partners to deliver a core capacity building programme across different economic settings, so that all market participants can access its benefits. There is also a particular need to consider the specific circumstances of emerging and developing economies and smaller companies. To deliver this, the ISSB is introducing structured partnerships that leverage specialist expertise to build local understanding for the implementation of the standards. The ISSB has already announced a package of reliefs and guidance to support use of the Standards, enabling companies to scale up their approach to using them over time.
At the meeting, the ISSB agreed that its initial IFRS Sustainability Disclosure Standards, S1 and S2, will become effective starting January 2024. Given sustainability disclosure is new for many companies globally, the ISSB will introduce programmes that support those applying its Standards as market infrastructure and capacity is built.
The decision on effective date is answering the strong demand from investors for companies globally to disclose comprehensive, consistent and comparable sustainability-related information. IOSCO and governments around the world, including G20 leaders and others, have been vocal about the urgent need for standards that enable companies to disclose information about sustainability-related risks and opportunities, starting with climate, to support systemic financial stability and for investor protection.
Furthermore, at the meeting, ISSB members voted to reference European Sustainability Reporting Standards (ESRS) within an appendix to S1—the ISSB’s general requirements standard—as a source of guidance companies may consider, in the absence of a specific ISSB standard, to identify metrics and disclosures if they meet the information needs of investors. The ISSB announced with the European Commission and EFRAG last December that they are working toward a shared objective to maximise interoperability of their standards and aligning on key climate disclosures. Given the substantive decisions on the content of the ISSB Standards are now finalised, this joint work will now focus on detailed terminology within the standards, to be completed with the finalisation of both sets of standards.
The ISSB is currently engaging with a number of other jurisdictions and organisations active in sustainability standard-setting in support of the interoperability of its global baseline of cost-effective, decision-useful Standards, and to prepare for their effective rollout. The ISSB is also looking ahead to future standard setting priorities and will be consulting in Q2 of this year on its future work.
Commenting, ISSB Chair Emmanuel Faber, said: “We responded to capital market and G20 demand for a common language of investor focused sustainability-related disclosure, working diligently to deliver standards that fulfil the global baseline. Setting a 2024 effective date is consistent with this demand. Now, we will work with regulators around the world as they play their part, creating the conditions within their markets for adoption, so that investors can use comparable information about sustainability-related risks and opportunities in their investment decisions without delay. We will also actively engage with the many preparers who are considering voluntary adoption of S1 and S2, to better answer their investor needs. As requested by our stakeholders we have built from existing market-accepted frameworks and standards. This means that the thousands of companies already using the TCFD Recommendations and SASB Standards will be in a strong position to use S1 and S2”.