Tax & AccountingJune 26, 2023
ISSB releases first global sustainability standards
The International Sustainability Standards Board (ISSB) has issued its inaugural standards intended for companies to use to make sustainability-related disclosures in capital markets worldwide. The ISSB expects the Standards to help improve trust and confidence in company disclosures about sustainability to inform investment decisions.
The ISSB believes that the new Standards, IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2, Climate-related Disclosures, create for the first time a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.
ISSB Chair Emmanuel Faber officially launched IFRS S1 and IFRS S2 at the IFRS Foundation’s annual conference today. Launch activities and announcements will continue through a week of events hosted by stock exchanges around the world, including those in Frankfurt, Johannesburg, Lagos, London, New York, Santiago de Chile; the ASEAN Capital Markets Forum also is hosting a launch event in Singapore.
Emmanuel Faber’s remarks focused on the role the ISSB Standards will play in ensuring that companies disclose globally comparable information about sustainability-related risks and opportunities that is decision-useful for investors.
About IFRS S1 and IFRS S2
IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium, and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.
The objective of IFRS S1, as noted in paragraph 1, “is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.” IFRS S2, paragraph 1, in turn notes that “[t]he objective of IFRS S2 . . . is to require an entity to disclose information about its climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.”
Both standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Global baseline
The ISSB developed IFRS S1 and IFRS S2 using market feedback and in response to calls from the G20, the Financial Stability Board, and the International Organization of Securities Commissions (IOSCO), as well as leaders in the business and investor community.
This support for a comprehensive global baseline of sustainability-related disclosures demonstrates the widespread demand for a consistent understanding of how sustainability factors affect companies’ prospects.
The ISSB Standards are designed to ensure that companies provide sustainability-related information alongside financial statements and in the same reporting package. The ISSB intend the Standards to be used in conjunction with any accounting requirements. It also built the Standards on the concepts that underpin the IFRS Accounting Standards, which are required by more than 140 jurisdictions. The ISSB believes that IFRS S1 and S2 are suitable for application around the world which would create a truly global baseline.
Adoption of IFRS S1 and IFRS S2
With the issuance of IFRS S1 and IFRS S2, the ISSB plans to 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 ISSB also will continue to work with jurisdictions wishing to require incremental disclosures beyond the global baseline and with GRI to support efficient and effective reporting when the ISSB Standards are applied in combination with other reporting standards.
Effective date
IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted as long as both standards are applied.
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