An introduction to ISSB’s new International Sustainability Disclosure Standards (IFRS SDS) 

In response to the growing complexity of existing sustainability frameworks, the IFRS launched IFRS S1 and IFRS S2, effective from January 2024. EcoAct’s Frankie Bright provides an overview of these new standards, how they were developed, their key requirements and how they might shape the reporting landscape in the UK. 

Capital markets have spoken, and the view is that the evidence based, consistent, comparable sustainability data needed to make informed decisions is lacking. Over the years there have been several sustainability frameworks or standards that have focused on increasing the quality of disclosure around climate and sustainability-related topics but this has led to an overburdening of companies and confusion on where to focus sometimes limited resource. This blog will focus on how the ISSB has helped to reduce some of this burden. For a wider picture of sustainability reporting see our Big eBook of Sustainability Reporting Frameworks. 

Whilst the ambition of these standards and frameworks is to increase focus on sustainability, the sheer number of them has meant that the reporting landscape is complex for both reporting companies and investors to navigate.  In response to these comments, the IFRS (International Financial Reporting Standards) has developed a new reporting framework that consolidates a number of key sustainability reporting frameworks, and is designed for global application.  

Who is the IFRS/ISSB? 

The IFRS Foundation is a public interest organisation that was established to develop high-quality, understandable, enforceable, and globally accepted accounting standards. In 2021, the IFRS established the ISSB (International Sustainability Standards Board) with the remit of developing a global baseline for sustainability-related financial disclosures. The ISSB has international support and is backed by G7, G20 and Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO) to name just a few. 

Using the starting basis of Integrated Reporting, CDSB, SASB and TCFD, the ISSB has consolidated and built upon these to develop its own sustainability reporting standards. Published in June 2023 and becoming effective from January 2024, these are the IFRS S1 and IFRS S2.  

Simplification of the reporting landscape: What has been consolidated in to the IFRS S1 and S2?  

CDSB 

Established in 2007 by the World Economic Forum, the CDSB (Climate Disclosure Standards Board) had a remit that covered both environmental (including natural capital) and social information.  In 2022, the CDSB announced that it had achieved its mandate ‘to fill a gap in the absence of a globally authoritative body to set sustainability standards for investors in the mainstream corporate report and accounts’, as the IFRS assumed responsibility for this standard and consolidated this within its ISSB framework. 

SASB 

The SASB (Sustainability Accounting Standards Board) standards were developed as industry specific disclosure sustainability issues including climate risk and opportunity. As part of the move to clarify the ‘alphabet soup’ that has surrounded ESG reporting, this standard is also now managed by the IFRS and has been incorporated into ISSB. 

TCFD 

Similar to the other frameworks, the TCFD (Task Force on Climate-related Financial Disclosures) recommendations will be under the management of IFRS, rather the Financial Stability Board, from 2024. The TCFD was set up to develop recommendations on the types of information that companies should disclose to support investors make informed decisions on climate-related risks and opportunities. In October 2023, the Financial Stability Board (FSB) asked the IFRS to take over the monitoring of the progress of climate-related risk reporting. The recommendations of the TCFD have also been incorporated into the ISSB standard which is due for global roll out in 2024. 

Requirements of the new standards 

IFRS S1  

IFRS S1 provides the general requirements for disclosure of sustainability-related risk and opportunities that could affect a company. It provides an overview of the disclosure requirements and prescribes how an entity should prepare and report including content and presentation.  

IFRS S2 

IFRS S2 focuses on climate-related risks and opportunities and requires entities to disclose information on how these risks and opportunities could impact cashflow, access to capital, and financial position & performance over short, medium- and long-term time horizons. It provides details on exactly what companies should disclose to allow investors and capital markets comparable insight into the impacts of these. 

Who will be impacted by these new standards? 

Given that the IFRS S1 and S2 standards are voluntary, regulators will adopt these standards in various ways, taking into consideration the specific needs of their jurisdictions. The ISSB is aware of these anticipated differences and will soon release an Adoption Guide that outlines different pathways for adoption. 

Several regulators have already taken the lead by committing to implementing disclosure rules based on the ISSB standards. These include the UK, Brazil, Mexico, Canada, Singapore, Hong Kong, and Japan. 

For CFOs and CSOs whose businesses are located or operating within these jurisdictions, it is crucial to carefully monitor how these regulators plan to adopt the ISSB’s standards in the coming months.  

How does this impact the UK? 

The UK Government have recently revealed plans to develop a UK Sustainability Disclosure Standard (SDS) that will form the basis of any future legislation requirement related to sustainability. As a supporter of the ISSB since its launch, the SDS will be based upon the IFRS ISSB standards. Endorsement of this is expected in July 2024. from which the SDS can be referenced in legal and regulatory requirements. 

In keeping with the need to ensure the interoperability of frameworks, the ISSB standards have been kept in mind in the development of the Transition Plan Taskforce’s (TPT) development of their transition plan framework. 

What is happening between now and July 2024? 

Two committees have been established to assist with the assessment and endorsement of IFRS S1 and S2. The UK Sustainability Disclosure Technical Advisory Committee (TAC) will consider the technical detail and contextualise the information, supported by the Financial Reporting Council (FRC). The UK Sustainability Disclosure Policy and Implementation Committee (PIC) will provide advice on endorsement decisions based on the work of the TAC. An endorsement decision is expected by Summer of 2024 in the UK. 

Alongside IFRS S1 and S2, the UK is also consulting on the mandatory disclosure of transition plans, which if agreed could come in to force for accounting period from January 2025, meaning we could see the first Transition Plan Taskforce aligned reports being released in 2026.