ISSB Standards

Context: The International Sustainability Standards Board (ISSB, a part of IFRS Foundation) has issued two standards under the IFRS Sustainability Disclosure Standard programme.

• Issuance: The International Sustainability Standards Board (ISSB), part of the IFRS Foundation, has released two standards:
  • IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information.
  • IFRS S2: Climate-related Disclosures.
• Objective of IFRS S1:
  • Requires entities to disclose sustainability-related risks and opportunities affecting cash flows, access to finance, or cost of capital over various timeframes.
  • Aims to provide useful information to primary users of financial reports for resource allocation decisions.
  • Excludes risks and opportunities not expected to impact the entity’s prospects.
• Definition of Financial Information:
  • Relates to critical factors affecting operations (e.g., water resource depletion impacts).
  • Appendix A defines sustainability-related financial disclosures.
  • Appendix D discusses qualitative characteristics of useful disclosures.
• Influence from IASB:
  • Draws on IASB accounting standards for definitions of ‘Materiality’ and ‘Reporting Boundaries’.
  • Incorporates judgments in preparing disclosures, estimates, uncertainties, and error corrections.

Comparison with ESRS

• ESRS Overview:
  • Comparable standards for the EU, piloted by EFRAG, with collaboration from GRI.
  • Extends applicability beyond primary users to additional stakeholders.
• Materiality Concepts:
  • ISSB: Focuses on the financial impact of environmental factors.
  • ESRS: Employs a ‘double materiality’ approach, requiring disclosure of both financial impacts and environmental impacts of the entity.

Core Content of ISSB Standards

• Built around four key areas:
  1. Governance: Management controls for monitoring risks and opportunities.
  2. Strategy: Approaches for managing identified risks and opportunities.
  3. Risk Management: Processes for assessing and prioritizing risks.
  4. Metrics: Measurement and target-setting for goals.
• Influenced by the TCFD (Task Force on Climate-related Financial Disclosures).

Reporting Requirements

• Disclosures must align with financial statements covering the same period.
• Comparative information should be included.
• An explicit compliance statement is required.
• Special Consideration (Paragraph 34):
  • Entities must disclose the effects of sustainability-related risks on financial position, performance, and cash flows.
  • May complicate auditors' assessments regarding financial statement impacts.

Historical Context and Developments

• In 2019, Nick Anderson highlighted that existing IFRS standards could support climate-related disclosures, but no framework existed for mandatory disclosures.

Conclusion and Future Considerations

• Concerns about interoperability among ISSB, ESRS, and the SEC standards (2024).
• Entities operating in multiple jurisdictions will need to meet varied reporting requirements.
• Assurance Requirement: Essential for credibility of disclosures.
• Emerging Frameworks: The TNFD (Taskforce on Nature-related Financial Disclosures) aims to shape future sustainability reporting standards.
• Adoption Status: ISSB standards not yet officially adopted in any jurisdiction, while ESRS is part of EU legislation.
• Current requirement in India: Business Responsibility and Sustainability Reporting (BRSR) by SEBI.
• Endorsement: In July 2023, the ISSB standards were endorsed by the International Organization for Security Councils, enhancing their global acceptability.
• Momentum: Developments in sustainability reporting are gaining significant traction.

The International Sustainability Standards Board (ISSB) was established in November 2021 during the UN Climate Change Conference (COP26) in Glasgow. The ISSB’s primary goal is to develop global standards for sustainability disclosures, ensuring that companies provide high-quality, comparable information on sustainability-related risks and opportunities.

Key points about the ISSB:

• Global Baseline: The ISSB aims to create a comprehensive global baseline of sustainability disclosures focused on the needs of investors and financial markets.
• Support and Collaboration: The ISSB’s work is backed by major international bodies like the G7, G20, and the International Organization of Securities Commissions (IOSCO).
• Integration of Existing Initiatives: It builds on the work of existing initiatives such as the Climate Disclosure Standards Board (CDSB) and the Task Force for Climate-related Financial Disclosures (TCFD).
• Leadership: Emmanuel Faber is the first chair of the ISSB.
• The ISSB’s standards are designed to be cost-effective, decision-useful, and market-informed, helping companies report necessary information globally to investors