Meet the new ISSB Standards, IFRS S1 and S2: A new era of global sustainability reporting
After many years of consultation, the first set of global sustainability Standards are now available. The International Sustainability Standards Board, (ISSB) released its first two Standards in June, providing investors and companies with a global baseline of sustainability disclosures.
Based on the premise that ‘better information leads to better decision making’, the new Standards are designed to bring an improved measure of transparency and comparability to what can only be described as a crowded, and often confusing, sustainability disclosure regime. They aim to narrow the ESG information gap between companies and their stakeholders, notably investors.
What are the ISSB Standards?
IFRS S1 – sets out the general framework for companies to communicate their sustainability-related financial risks and opportunities over the short, medium and long term.
IFRS S2 – focuses on the disclosures required for companies to communicate their climate-related risks and opportunities.
Both standards draw on disclosures from the established Taskforce on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). The ISSB will take over responsibility for monitoring TCFD and SASB from July 2024.
What are the benefits of the Standards?
The new ISSB Standards aim to provide global, standardised and comparable sustainability disclosures for investors and companies. For investors and financiers, it will ensure that they get improved data quality and financially material information so they can make informed investment decisions. For companies reporting across numerous jurisdictions, it will streamline their reporting requirements, reduce duplication and costs and improve access to capital markets. Stakeholders can choose who they want to work with based on clear, consistent data, no matter where they are based.
How were they developed?
The ISSB Standards incorporate the Taskforce on Climate-Related Financial Disclosures (TCFD) and build on materials from the industry-based Sustainability Accounting Standards Board (SASB), as well as the Climate Disclosure Standards Board (CDSB), International Integrated Reporting Council (IIRC) and the International Accounting Standards Board (IASB). They were developed through an extensive consultation process involving over 30,000 stakeholders from industry, regulators, standards-setters and accounting firms.
How will they work with other Standards, including GRI?
In addition to the above standards, IFRS S1 & S2 are designed to be interoperable with other well-established standards such as the Global Reporting Initiative (GRI), used by over 68% of the top 100 companies in 58 countries (KPMG, 2022). Companies that use any of these standards in their previous reporting will be in a good position to disclose their impacts under the new ISSB Standards.
When are companies required to report under the new Standards?
A phased approach, beginning with very large companies, will apply the new Standards to annual reporting periods that commence on, or after 1 January 2024. The ISSB allows a period of relief from some climate disclosures in the first year of reporting. This would expand to smaller companies (determined by revenue thresholds) in 2026-27 and 2027-28.
What does it mean for reporting in Australia?
The Australian government will follow other G20 countries and adapt the ISSB climate disclosures (IFRS S2) in the development of its own Australian Sustainability Reporting Standards (ASRS), which will first apply to climate risk disclosures. Treasury has worked closely with industry and the Australian Accounting Standards Board (AASB) to establish a roadmap for alignment with the Standards, beginning with large entities and financial institutions who will be required to report under the Standards for annual reporting periods that commence on 1 July 2024. A phased-in approach will apply for smaller entities in subsequent years. You can view our factsheet and roadmap of the draft Australian Standards and read the Exposure Draft of the new Standards, which are now available for public comment.
How are they enforced?
There is no mandate for companies to use the ISSB Standards. Instead it is up to respective governments to decide if companies should apply them and the degree of regulation required. As outlined above, mandatory climate risk reporting will be a requirement in Australia over the coming years, beginning with large entities and financial institution in FY24.
Is your business ready?
Futureproof can help your company prepare for the new Standards by building your ESG capability. We recommend a review of governance structures and Board and governance committees education to ensure preparedness. We also conduct materiality evaluation, ESG disclosure gap analysis, governance audits, climate scenario and transition planning, sustainability strategy, roadmaps and reporting and guidance on sustainability leadership communication.