The International Sustainability Standards Board finalized its
The board
IFRS S1 offers a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short-, medium- and long-term. IFRS S2 lays out specific climate-related disclosures and is designed to be used with IFRS S1. Both standards fully incorporate the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures, also known as the TCFD.
The ISSB emerged in 2021 as a way to bring together various standard-setters under the auspices of the International Financial Reporting Standards Foundation, which also oversees the International Accounting Standards Board (see
"Today represents the outcome of more than 18 months of intense work to deliver an inaugural set of sustainability disclosure standards for the global capital markets," said ISSB chair Emmanuel Faber in a statement Monday. "The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner. We have consulted closely with the market to ensure the standards are proportionate and will result in disclosures that are relevant for investment decision-making. We know that better information leads to better economic decisions. Today's publication is just the starting point as we consult on our future priorities, beyond climate."
Now that IFRS S1 and IFRS S2 have been issued, the ISSB plans to work with jurisdictions and companies to support adoption, which is expected in 2024. The initial steps will involve creating a transition implementation group to support companies that apply the standards and launching capacity-building initiatives to support effective implementation. The board will also continue to work with jurisdictions in various countries that want to require incremental disclosures beyond the global baseline and with the Global Reporting Initiative to support efficient and effective reporting when the ISSB standards are applied in combination with other reporting standards.
GRI, whose sustainability standards are widely used in the European Union, opted to remain outside the ISSB, but has been consulting with the board on the new standards and plans to continue to work together on providing guidance.
"I congratulate the ISSB on reaching this significant milestone," said GRI CEO Eelco van der Enden in a statement. "I believe the new IFRS Sustainability Disclosure Standards will have an important role in ensuring that the risks and opportunities related to sustainability issues are firmly anchored in the decision-making of investors. Our respective standards have distinct yet complementary purposes; with GRI ensuring transparency on an organizations' impacts on people and planet, while the ISSB is focused on supporting efficient and resilient capital markets. Taken together, I believe our standards can provide the complete picture on sustainability impacts and performance."
Carol Adams, chair of the GRI Global Sustainability Standards, added, "I welcome publication of the IFRS S1 and S2 standards, which will help provide insights into sustainability-related risks and opportunities of reporting organizations. The GSSB recognizes that such insights are helpful for markets to allocate funding towards sustainable outcomes. We are working on an amendment within the Universal Standards to show how reporting on impacts using the GRI standards informs IFRS-S disclosure on risks and opportunities. The GSSB is engaging with the ISSB to develop questions and answers regarding the use of both sets of standards, and to align our work programs. This will allow a double materiality perspective that meets the needs of reporters and other information users."
Other reactions
Many other groups also praised the new standards, including the Association of Certified Professional Accountants, which included the American Institute of CPAs and the U.K.'s Chartered Institute of Management Accountants.
"Clear, consistent and globally accepted reporting standards are essential for high-quality sustainability accounting, and the disclosure baselines released today move us closer to that goal," said Barry Melancon, CEO of AICPA & CIMA, in a statement. "We're in a new era in corporate reporting. Investors, lenders, regulators and other stakeholders are demanding broader sets of business information, and capital markets are looking for the same level of rigor in reporting for sustainability as for financial information. As this global framework matures, we expect professional accountants to play a critical role in delivering consistency and trust in both sustainability reporting and assurance."
AICPA & CIMA are among the sponsors of the NYSE event. The organization also signed a related joint statement of support from members of the Global Accounting Alliance.
Accounting firms like Deloitte and KPMG also weighed in.
"By building on existing standards and frameworks, the ISSB has been able to make good progress," said Veronica Poole, global IFRS and corporate reporting leader at Big Four firm Deloitte, in a statement. "Its first standards set out the principles and overall requirements for disclosure of sustainability-related risks and opportunities and specific requirements for climate-related disclosures."
She noted that both the Securities and Exchange Commission and the European Union are also coming out with their own disclosure requirements for climate reporting.
"Three reporting bodies can require the same disclosures, but if the underlying metrics, inputs and methodologies are wholly distinct, preparers will be working overtime," said Maura Hodge, KPMG's ESG audit leader, in a statement. "There's much more to come on ESG reporting this fall and in the coming year. As rules and regulations continue to take shape, it's important to remember that ESG reporting is not just a check-the-box exercise; it's an opportunity to tell your story transparently, build trust with stakeholders and create long-term value."
Other global standard-setters like the International Auditing and Accounting Standards Board are developing sustainability standards for auditors in conjunction with the ISSB.
"Capacity building in reporting is also key to ensuring standards achieve their objective," said Kristen Sullivan, Deloitte's global audit and assurance sustainability and climate services leader, in a statement. "Companies will need to bring sustainability standards and reporting into their everyday vocabulary and skill set, and build their reporting capacity, including in relation to governance, controls and assurance. Deloitte is pleased to support the ISSB's Partnership Framework for Capacity Building, announced at COP27, the main purpose of which is to drive adoption of a global sustainability baseline that is truly inclusive in nature. ... Deloitte is therefore encouraged by the progress the International Auditing and Assurance Standards Board is making to develop a sustainability assurance standard — ISSA 5000."
The IAASB is affiliated with the International Federation of Accountants, which has been a longtime proponent of global sustainability standards and pushed for the creation of the ISSB back in 2021.
"In one sense, the finalization of S1 and S2 by the ISSB marks the beginning of the work to be done by the accountancy profession," said IFAC CEO Kevin Dancey in a statement. "All professional accountants — whether working in business, as preparers or auditors, or serving as leaders of professional accountancy organizations — must now advocate for and implement these standards so that high-quality corporate reporting of sustainability-related information becomes a reality. The ongoing work of the IAASB and [the International Ethics Standards Board for Accountants] will bring trust and confidence through high-quality — and hopefully mandatory — assurance. To that end, IFAC calls on the global accountancy profession to work with local regulators and stakeholders to support the adoption of ISSB standards, to help build capacity for their implementation alongside any local complementary reporting requirements, and to continue to contribute our expertise and feedback to the ISSB as its important standard setting work continues."
One thorny area has been the disclosure of so-called Scope 3 emissions, which include emissions from vendors, suppliers and customers. They may be dropped from the SEC's climate-related disclosure rules when they're eventually finalized this year. But they appear to be part of the ISSB standards.
"The inclusion of Scope 3 emissions in the ISSB standard, announced at the end of 2022, is very welcome," said Nicolette Bartlett, chief impact officer at the Carbon Disclosure Project. "Reporting of Scope 3 emissions through CDP's disclosure platform has been increasing for many years, but not as much as we need it to. CDP is confident that the inclusion of Scope 3 emissions in ISSB climate will drive more companies to disclose this important information."
Ceres, a nonprofit organization that has worked to improve sustainability disclosure for investors and other stakeholders, co-founded GRI, and has collaborated over the years with a number of different standard-setters and frameworks to improve disclosures, said it's pleased to see its work incorporated in the ISSB's standards.
"The ISSB standards address the urgent need for a global baseline for measuring and evaluating climate and sustainability risks," said Ceres CEO and president Mindy Lubber in a statement. "Sustainability factors are a vital consideration in investment decision-making. We congratulate the ISSB for their leadership in taking on the ambitious task of streamlining the reporting of those factors and encourage nations to swiftly adopt these standards."
One of the goals of coming up with a common set of standards was to deter so-called "greenwashing" by companies that could pick and choose which sustainability practices made them look better in their marketing.
Amir Amel-Zadeh, professor of accounting at Oxford University's Saïd Business School, commented, "This is a significant step toward harmonizing global sustainability standards to enable investors and other stakeholders to understand how companies measure, monitor and manage significant sustainability-related risks and opportunities and progress toward the sustainability targets they have set, particularly in relation to climate change adaptation and mitigation. Enhanced sustainability disclosures will support the integration of ESG information in capital markets and lead to more efficient pricing of this information, reducing opportunities for greenwashing."
Many other statements of support were released:
- Takashi Nagaoka, chair of the IFRS Foundation Monitoring Board: "The Monitoring Board welcomes the ISSB's publication of IFRS S1 and IFRS S2. We will continue to collaborate closely with the leadership of the ISSB and the IFRS Foundation Trustees, and remain focused on supporting the ISSB's ongoing and future work including on other sustainability topics beyond climate, to ensure continued robust governance, due process and oversight of the Foundation and its standard-setting boards."
- Klaas Knot, chair of the Financial Stability Board: "I welcome the publication today by the ISSB of its final standards on general sustainability-related disclosures and on climate-related disclosures. The publication of the ISSB standards marks an important milestone for achieving globally consistent disclosures."
- Jean-Paul Servais, chair of the International Organization of Securities Commission: "IOSCO has been actively involved in the IFRS Foundation's consideration of whether and how to apply its trusted reputation and internationally renowned global standard-setting process to the topic of sustainability disclosures. We commend the leadership of the ISSB for the pace and quality of their work. IOSCO is conducting an independent assessment of the ISSB Standards, with a view to completing this review promptly."
- Richard Manley and Carine Smith Ihenacho, chair and vice-chair of the ISSB Investor Advisory Group: "High-quality data is necessary to support price discovery and capital formation, and facilitates efficient capital markets. ISSB Standards will equally support preparers in communicating sustainability information to their investors and other providers of capital."
- Mary Schapiro, a former chair of the SEC and now head of the TCFD Secretariat and vice chair for global public policy at Bloomberg LP: "The global economy needs common reporting standards to reduce fragmentation and drive comparability in climate-related financial data. ... The ISSB standards provide a global baseline for companies to disclose decision-useful, climate-related financial information — information that is critical for creating more transparent markets, helping achieve a smooth low-carbon transition, and building a more resilient and sustainable global economy."
- Ilham Kadri, executive committee chair of the World Business Council for Sustainable Development: "I commend and applaud the ISSB for issuing both the climate-related and the general requirements disclosures standards: Companies and investors are in dire need to have a common language to report and value their climate and social sustainability strategies."
- Klaus Schwab, founder and executive chairman of the World Economic Forum: "The publication of the first two ISSB standards represents a vital step forward in establishing a global baseline for sustainability reporting. Consistent and comparable sustainability information, paired with financial information, empowers investors and stakeholders to gain a comprehensive understanding of a company's performance and their commitment to driving sustainable value creation. We look forward to our continued collaboration."
- Woochong Um, managing director general of the Asian Development Bank: "We welcome the inaugural IFRS Sustainability Disclosure Standards, which deliver a global baseline of sustainability-related financial disclosures that have the potential to enhance Asian capital markets through attracting more investment and boosting private sector development in Asia. We encourage Asian Development Bank members to give their consideration to the adoption of the Standards."
- Jean-François van Boxmeer, chair of the European Round Table for Industry and chair of the Vodafone Group: "ERT has strongly supported the ISSB and the development of a single trusted set of global standards for sustainability reporting. Global alignment is crucial to provide a comprehensive and clear view of a company's sustainability performance and to allow for the comparability of disclosures on a global level. Separate and differing sets of standards for sustainability reporting in different jurisdictions would lead to a de facto double reporting for preparers and, consequently, unnecessary additional costs and reduced validity and comparability for users. We therefore strongly encourage jurisdictions around the globe, including the EU, to take on board the ISSB standards and to integrate them into their own regulatory framework."
- Nicolette Bartlett, chief impact officer at the Carbon Disclosure Project: "CDP welcomes the release of the ISSB standards and is delighted to support the rapid implementation of the S2 climate standard across the global economy by incorporating it into our disclosure system from 2024. This means that from next year all companies disclosing through CDP (18,700 in 2022, worth half of global market capitalization) will be asked to disclose against the ISSB climate standard. This will enable simplified and streamlined reporting for companies, in turn providing data to a range of stakeholders in a way that is consistent and comparable across regions and regulatory requirements. The long-awaited global baseline standard for climate-related disclosure is an important step towards more transparency, accountability, and management of risk within financial markets. It will support companies and financial institutions to build resilience, creating an incentive for companies and their investors to improve their sustainability performance."
