What Guidance do the ISSB Standards Provide?
The ISSB standards are not mandatory for companies to report against, as they cannot impose requirements on any jurisdiction or company. However, as they are aiming to be the new norm for sustainability reporting, this means that customers, investors and other stakeholders will request this information going into the future. ISSB will support emerging and developing economies to benefit from their standards by providing a package of reliefs and guidance to support its scalability over time.
ISSB includes “scalable solutions”
Scenario analysis and Scope 3 emissions were flagged to the ISSB Standards Board as two challenging requirements. To address these concerns, ISSB includes their “scalable solutions” approach, which states that disclosures should be based on “reasonable and supportable information that is available at the reporting date without undue cost or effort.” This method allows a flexible approach for companies but, this does not mean that they are lowering expectations, as the focus is on guidance and capacity building.
For example, in scenario analysis, ISSB will allow for flexibility application. Once data quality improves, companies can scale up to quantitative scenario analysis but can start with a qualitative analysis of their climate risks and opportunities. A similar focus on scalable solutions is provided by ‘phasing in’ Scope 3; meaning the requirement only starts after the first year a company applies ISSB standards.
When Will It Come into Action?
Both IFRS S1 and IFRS S2 will be effective for annual reporting periods beginning on or after 1 January 2024. This effective date recognises the urgent need for a global baseline, however, the adoption of the standards and the rate of which it occurs is dependent on local jurisdictions.
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