International Sustainability Standards Board (ISSB) by the IFRS Foundation is a new entity that will establish global standards for climate and ESG reporting to help investors and companies integrate sustainability risks and opportunities into decision-making in a more transparent way. The ISSB has been welcomed worldwide.
IFRS (International Financial Reporting Standards) announces three significant developments to provide the global financial markets with high-quality disclosures on climate and other sustainability issues:
- The formation of a new International Sustainability Standards Board (ISSB) to develop—in the public interest—a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs;
- A commitment by leading investor-focused sustainability disclosure organisations to consolidate into the new board. The IFRS Foundation will complete consolidation of the Climate Disclosure Standards Board (CDSB—an initiative of CDP) and the Value Reporting Foundation (VRF—which houses the Integrated Reporting Framework and the SASB Standards) by June 2022;
- The publication of prototype climate and general disclosure requirements developed by the Technical Readiness Working Group (TRWG), a group formed by the IFRS Foundation Trustees to undertake preparatory work for the ISSB. These prototypes are the result of six months of joint work by representatives of the CDSB, the International Accounting Standards Board (IASB), the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the VRF and the World Economic Forum (Forum), supported by the International Organization of Securities Commissions (IOSCO) and its Technical Expert Group of securities regulators. The TRWG has consolidated key aspects of these organisations’ content into an enhanced, unified set of recommendations for consideration by the ISSB.
Together, these developments create the necessary institutional arrangements, set out in the Foundation’s revised Constitution, and lay the technical groundwork for a global sustainability disclosure standard-setter for the financial markets. They fulfil the growing and urgent demand for streamlining and formalising corporate sustainability disclosures.
“Development of the ISSB’s global baseline will deliver transformative change in sustainability disclosures for the financial markets. The TCFD welcomes the formation of the ISSB, which builds upon the foundation of the globally accepted TCFD framework and the work of an alliance of sustainability standard setters. The ISSB represents a major step forward in establishing consistent, comparable global reporting standards.”Mary Schapiro, Head of the TCFD Secretariat
“The creation of the ISSB, with the consolidation of the Climate Disclosure Standards Board and Value Reporting Foundation, is a transformational event for ESG reporting. We are pleased that this strategic convergence will enable the ISSB to leverage existing standards and we encourage policy makers to build upon and align with the global sustainability standards issued by the ISSB as they consider reporting needs. The ISSB is rightly starting with climate change, but it is important to quickly move on to other significant ESG areas. And, while investor needs are crucial, so are the needs of other stakeholders. This is not just a technical issue – it is an important element of the kind of systemic economic reform we need to see to address issues like climate change. Increasing transparency shifts incentives, and makes it easier for markets to support organisations that perform well in a sustainable way. This is good for society and good for business.”Bob Moritz, PwC Global Chairman
“GRI is pleased that the IFRS Foundation has recognized the merits of incorporating sustainability considerations into financial disclosures, through the creation of a sustainability standards board. We also welcome that the reporting organizations with a core focus on investors needs are to come together under one house.
We advocate for a comprehensive corporate reporting system, with a two-pillar structure in which robust sustainability and financial reporting are on an equal footing. The sustainability pillar, under which GRI sits, addresses a company’s external impacts on society and the environment, while the financial pillar needs to reflect sustainability risks to a company’s value. Today’s announcement marks a significant step towards strengthening that second pillar.
Disclosure on a company’s financially material sustainability topics – while important from the context of helping markets to assess opportunities and risks – is not sufficient to deliver full transparency on sustainability impacts, as envisioned by the GRI Standards and embraced by the EU.
Corporate transparency that meets the needs of all stakeholders requires improved connectivity between sustainability and financial reporting. I therefore reiterate once again that GRI stands ready to engage with the IFRS Foundation in support of this aim. We look forward to hearing more about the remit and scope of their new ventures, as well as inputting to the development of the proposed climate standard.”Eric Hespenheide, Interim CEO of GRI
Comprehensive global baseline
The ISSB will develop IFRS Sustainability Disclosure Standards, including disclosure requirements that address companies’ impacts on sustainability matters relevant to assessing enterprise value and making investment decisions. The ISSB’s standards will enable companies to provide comprehensive sustainability information for the global financial markets. The standards will be developed to facilitate compatibility with requirements that are jurisdiction specific or aimed at a wider group of stakeholders (for example, the European Union’s planned Corporate Sustainability Reporting Directive as well as initiatives in the Americas and Asia-Oceania).
More specifically, the Climate-related Disclosures Prototype for Financial Markets contains several important features :
- It incorporates the recommendations of the Task Force on Climate-related Financial Disclosures, including disclosures regarding strategy, risk management, governance and metrics and targets.
- It requires disclosures of absolute gross Scopes 1, 2 and 3 GHG emissions, in accordance with the Greenhouse Gas Protocol standards.
- Industry-specific disclosure requirements are fully integrated and have been derived from SASB Standards, which is important as climate risks manifest in different ways by industry.
- Many other disclosure requirements are notable, such as those related to: scenario analysis, targets set by management to mitigate or adapt to climate-related risks or maximise climate-related opportunities, transition risks, physical risks, and internal carbon prices.
The ISSB will sit alongside and work in close cooperation with the IASB, ensuring connectivity and compatibility between IFRS Accounting Standards and the ISSB’s standards – IFRS Sustainability Disclosure Standards. To ensure public interest legitimacy, both boards will be overseen by the Trustees, who are in turn accountable to a Monitoring Board of capital market authorities responsible for corporate reporting in their jurisdictions. The ISSB and the IASB will be independent, and their standards will complement each other to provide comprehensive information to investors and other providers of capital.
Proven demand from financial markets
Financial markets need to assess the risks and opportunities facing individual companies which arise from environmental, social and governance (ESG) issues, as these affect enterprise value. This is driving significant demand for high-quality information. Investors and other providers of capital want global sustainability disclosure standards that meet their information needs. Voluntary reporting frameworks and guidance have prompted innovation and action, although fragmentation has also increased cost and complexity for investors, companies and regulators.
Many investors and regulators have called for the IFRS Foundation to build upon market-led initiatives and to use its experience in creating accounting standards used in more than 140 jurisdictions to bring globally comparable reporting on sustainability matters to the financial markets.
The Trustees’ decision to create the ISSB is informed by the feedback received in their two public consultations, discussions with advisory groups, frequent dialogue with the IFRS Foundation Monitoring Board and with support from IOSCO and others.
Informed by expert advice
The ISSB will draw upon expertise from several advisory groups. Technical advice on sustainability matters will be provided to the ISSB by a new Sustainability Consultative Committee, whose members will include the International Monetary Fund, the Organisation for Economic Co-operation and Development, the United Nations, the World Bank and additional expert members drawn from public, private and non-governmental organisations.
The remit and expertise of the IFRS Advisory Council will be extended to provide strategic sustainability-related advice and counsel to the ISSB, as well as the Trustees and the IASB. Finally, the Trustees have formed a working group to create a mechanism for formal engagement on standard-setting between the ISSB and jurisdictional representatives, including from emerging markets (similar to the Accounting Standards Advisory Forum, which fulfils this role for the IASB).
The Foundation intends to leverage the existing CDSB and VRF advisory groups, which include investors and other experts who have demonstrated long-standing support for improved sustainability disclosure. As well, the Forum’s private sector coalition will be engaged. The Foundation also intends to use the International Integrated Reporting Council to provide advice on establishing connectivity between the work of the IASB and the ISSB via the fundamental concepts and guiding principles of integrated reporting.
“Creating long-term value requires both a focus on financial and sustainability performance. This means we need tools for measuring sustainability performance just as we have for financial performance. The World Economic Forum and its private sector coalition made a contribution on this front, proposing a core set of ‘Stakeholder Capitalism Metrics’. We are pleased that this effort will provide a basis for the technical work of the ISSB. We look forward to continuing our partnership with the IFRS Foundation in support of the ISSB, during its establishment and as it delivers on its historical mandate.”Klaus Schwab, Founder and Executive Chairman of the World Economic Forum