The International Sustainability Standards Board (ISSB) has taken a crucial step in the world of sustainability by presenting its new standards in June. The launch has attracted considerable interest from business, finance and the media. While adoption may vary from country to country, the standards are expected to transform the way sustainability is reported, improving transparency and comparability in reporting and enabling investors, regulators and other stakeholders to make more informed decisions.

The ISSB, founded by the IFRS Foundation (International Finance Reporting Standards), has a strong reputation for creating high quality global standards that influence investment decisions and strengthen capital markets. The creation of the International Sustainability Standards Board (ISSB) was announced at COP26 in Glasgow in November 2021, in recognition of the growing importance of sustainability factors in investment decisions.

Key objectives of the ISSB standards

  • The ISSB standards have a set of key objectives:
  • Develop global standards: these standards will become the primary reference for sustainability disclosures.
  • Meet the information needs of investors: They will facilitate access to crucial data for investors interested in sustainability.
  • Global access to sustainability information: Enable companies to provide sustainability information in financial markets around the world.
  • International compatibility: Facilitate compatibility with jurisdiction-specific disclosures and other stakeholder requirements.

Inaugural sustainability standards

On 26 June 2023, the ISSB published its first International Financial Reporting Standards on sustainability, IFRS S1 and S2 (IFRS S1 and S2).

  • IFRS S1: Sets out requirements for companies to communicate sustainability-related risks and opportunities to investors in the short, medium and long term.
  • IFRS S2: Focuses on specific climate-related disclosures and provides recommendations on governance, strategy, risks and opportunities, and metrics.

An expansive horizon

The ISSB has expansion plans to address other key issues, such as biodiversity, human rights and mainstreaming in reporting.

While adoption of these standards is initially voluntary from 2024 (for 2025 reporting), they may eventually become mandatory in a number of jurisdictions. In fact, the UK government announced last August that it will rely on the IFRS standards for the development of the UK Sustainability Disclosure Standards (SDS), with the idea that they will be as aligned as possible and have minimal differences.

The endorsement of the ISSB standards by the International Organisation of Securities Commissions (IOSCO) marks an important step forward in the global harmonisation of sustainability disclosure practices, supporting the transition to a more sustainable global economy. This milestone promises to boost transparency and accountability in business and finance in relation to sustainability.

It is worth mentioning that the ISSB and EFRAG, the organisation responsible for the development of the European Sustainability Reporting Standards (ESRS), have been working closely together to ensure interoperability. The latest version of the standards was published at the end of July following the European consultation, and while there are important differences between the two standards, such as the dual materiality approach versus the financial materiality approach, terms, definitions, or indicators have been unified as far as possible.

 

For more information contact with Jose Correa (jcorrea@globalfactor.com)