The forthcoming standard from the International Sustainability Standards Board
Sustainability reporting has seen steady growth over the past decade, with sustainability factors becoming an increasingly mainstream feature of investment decision-making. Out of this, more and more companies are being called upon to provide high quality and globally comparable information on risks and opportunities related to sustainability.
In this blog, we look at why the ISSB standard is being developed and how companies can prepare for reporting against it.
Why Do We Need Another Sustainability Reporting Standard?
As there is a great variation on what sustainability-related information companies publish and when there is a need for a consistent and comparable global standard to support the investors' requirements for sustainability data.
During the Glasgow COP26 on 3 November 2021, the Trustees of the IFRS Foundation announced the formation of the International Sustainability Standards Board (ISSB), in response to a strong market demand and public interest. At their core, the standards will provide a comprehensive, high-quality global baseline of sustainability disclosures, focusing on the needs of investors and financial markets.
What Are the Aims of ISSB?
ISSB standards will address four key objectives:
1. Developing standards for a global baseline of sustainability disclosures,
2. Meeting the information needs of investors,
3. Enabling companies to provide comprehensive sustainability information to global capital markets,
4. Facilitating interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.
What Do the ISSB Standards Cover?
To achieve these objectives, the ISSB will provide two standards for reporting:
First, is IFRS S1 - Requirements for Disclosure of Sustainability-Related Financial Information. With this, companies must disclose any meaningful information related to sustainability risks and opportunities that could be used in general-purpose financial reporting. This reporting will help to assess an enterprise’s exposure to sustainability risks and identify investment opportunities.
Secondly, is IFRS S2 - Climate-Related Disclosures. Here, companies are required to use climate-related scenario analysis to identify climate-related risks and opportunities and report on climate resilience. Organisations must disclose material information about these risks and opportunities. Their disclosures may include:
physical risks e.g. flood risk
transition risk e.g. regulatory change
climate-related opportunities e.g. new technologies
This information becomes part of an entity’s general purpose financial reporting.
Want to know how the ISSB Standards fit in with existing standards and frameworks? Check out part two here!
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