ISSB launches first two standards, aiming to unify corporate climate disclosures

As promised back in February, the Board has today (26 June) issued two new standards as it works to develop a comprehensive international baseline standard for sustainability disclosures. The intention is to end the differentiation of disclosure reporting requirements and report quality between different nations and regions.

The two new standards – IFRS S1 and S1 – are climate-focused, but the former also covers other related environmental risks and opportunities.

IFRS S1 has been described as the “core baseline” of sustainability reporting. It has been designed to be applicable to all large businesses, regardless of sector or geographical location.

It covers company impact, including emissions across all scopes and waste management. It sets out how to report these factors alongside financial information.

IFRS S2, meanwhile, is more detaied in regard to specific topics – particularly climate mitigation and climate adaptation. It is designed to build on existing disclosure frameworks in this field, chiefly the Taskforce on Climate-Related Financial Disclosures (TCFD).   The standard also outlines how businesses can assess how future climate-related risks and opportunities could impact their valuation.

A key talking point is the fact that both standards cover Scope 3 (indirect) emissions. Most large businesses will see Scope 3 accounting for most of their overall climate footprint, making lowering Scope 3 emissions a key part of any credible climate plan.

But some facets have pushed back against stronger Scope 3 reporting requirements, particularly in the US. The chief concern is that is that data is hard to collect and verify. The issue has also been seized upon by the broader anti-ESG-investing movement in the States.

Next steps

Now that IFRS S1 and IFRS S2 are live, the ISSB will work with jurisdictions and companies to support adoption. The first steps will be creating a Transition Implementation Group to support companies that apply the Standards and launching capacity-building initiatives to support effective implementation. The hope is for the first aligned corporate reports to be published in 2025.

The ISSB has pledged to ensure that its standards build on existing frameworks, rather than adding extra burden. They built on the concepts that underpin the IFRS Accounting Standards, which are required by more than 140 jurisdictions.  In support of the ISSB are the G20 and G7 groups of wealthy nations, plus finance ministers from dozens more nations and states, including the coalition of African Finance Ministers.

The G7 have notably agreed to mandate TCFD-aligned reporting, with the UK having led the way with its domestic mandate in April 2022. The UK is now plotting mandatory net-zero transition planning – an approach which may well also be mirrored elsewhere.

The International Organization of Securities Commission (IOSCO) is expected to endorse the standards later this year. At that point, more countries will likely commit to adopting them on a mandatory basis. Already committed are the UK and Japan.