Many have longed for harmonized ESG reporting standards. With the announcement of the International Sustainability Standards Board (ISSB) first two finalized standards, we may be on our way. These standards hope to be the backbone of comprehensive sustainability disclosure guidelines to support investors and businesses. They draw from other leaders in the space, including the Task Force on Climate-related Financial Disclosures (TCFD), the Climate Disclosure Standards Board (CDSB), Sustainability Accounting Standards Board (SASB) and the Value Reporting Foundation’s Integrated Reporting Framework.
Let’s dig into the standards themselves, and what businesses need to know.
Why is reporting important?
Environmental, social, and corporate governance (ESG) is an emerging indicator of financial risk. Through reporting frameworks, investors and other stakeholders can assess investment risks arising from climate and other sustainability issues.
When do companies need to comply?
The tentative date for compliance is the start of 2024, however, transition periods are likely. This will allow companies to move in stages, and prioritize scalable reporting practices that meet both investor needs and meaningful data around sustainability and climate impacts. In the first year, companies can focus on the requirements of the ISSB Standards, before they move into reporting on climate and other sustainability related risks and opportunities.
Why do we need unified reporting standards?
There are two key reasons to create a global baseline:
- By standardizing how companies measure and disclose environmental and social impacts, comparative benchmarking data and third party evaluation gets simpler.
- Frameworks help the industry align on what to prioritize, so we can make meaningful improvements. The IFRS standards were built in collaboration with the G20 as well as leading global businesses eager to create a streamlined format for reporting.
A global baseline for companies to provide sustainability-related information alongside financial statements is a crucial next step in ESG investing and reporting. Universal standards help create a common language for disclosing the effect of climate-related risks and opportunities for a company’s prospects. By using the same methodology globally, the standards can improve trust and confidence around company disclosures and support more informed investment decisions.
What you need to know about Standard 1: General Requirements for Disclosure of Sustainability Related Financial Information
S1 (Standard 1), the first standard set out by ISSB, is aimed at providing a set of disclosure requirements to enable companies to communicate to investors about their sustainability-related risks and opportunities across various time horizons. S1 creates the foundation for a comprehensive baseline to meet the needs of global capital markets.
What you need to know about Standard 2: Climate-related Disclosures
IFRS’s S2 (Standard 2) creates specific climate-related disclosures. It is designed to be used with IFRS S1. This standard offers a common language for disclosing the impact of climate-related risks and opportunities. By creating a unified standard for collecting comparable information about a company’s climate-related risks and opportunities, we can ensure there is clarity across the industry around opportunities and urgent challenges.
What’s next for sustainability-related disclosures?
We’re eager to see how these standards impact global disclosures and reporting. Ultimately, it’s clear that investors and financial institutions want to see Scope 3 data, but understand the immense challenge in gathering this information. As a result, IFRS has provided companies extra time to collect and report on it. In addition, an emphasis on alignment between the EU CSRD helps reduce the need for companies to duplicate or expand their work while still remaining in compliance with ISSB standards.