The International Sustainability Standards Board (ISSB) standards are set to become effective starting January 1, 2024. These new standards are a significant step forward for sustainability reporting. They will have a major impact on the way companies disclose their ESG (Environmental, Social, Governance) initiatives.
One major challenge that companies face when it comes to ESG reporting is the lack of standardisation.
There is currently a lot of freedom in what companies can disclose, because there is no global standard for reporting. As a result, they have the ability to present reports in a way that benefits them the most. This not only lacks scientific validity but also opens the door to greenwashing.
The ISSB standards are intended to be the foundation for a comprehensive global baseline of sustainability disclosures. They are specifically focused on the needs of investors and the financial markets — something investors have long desired.
So, what do you need to know about this next phase of evolution in ESG reporting?
What is the ISSB?
The International Sustainability Standards Board (ISSB) is an independent, private-sector body that develops and approves IFRS Sustainability Disclosure Standards. The ISSB operates under the oversight of the IFRS Foundation.
Today, economic and investment decisions are increasingly incorporating sustainability information. In response to this, the IFRS Foundation created the ISSB as a sister board to the IASB in 2021. The ISSB provides a global baseline of sustainability disclosures to further inform economic and investment decisions.
There are two sets of proposed standards under the ISSB – sustainability related disclosures and climate disclosures. Both of these are structured around the four pillars outlined by the TCFD: governance, strategy, risk management, metrics and targets.
General sustainability disclosures:
The ISSB extends the framework established by the Task Force on Climate-related Financial Disclosures (TCFD). This means the framework now encompasses non-climate-related sustainability issues. Additionally, these standards outline intentions to disclose all potential risks and opportunities relating to sustainability matters.
Climate disclosure standards:
These standards are primarily focused on climate-related aspects, aligning with the TCFD approach. They tackle important factors including potential risks to the environment, climate resilience, greenhouse gas emissions, and carbon footprint.
The governance and risk management pillars of the ISSB are closely aligned with the TCFD's recommendations. However, this new standard calls for further information and more details on strategy, metrics and targets.
After extensive consultation and feedback since the start of the standards’ development, and with the two proposed standards having been announced, the ISSB will come into force in January 2024 for the subsequent reporting year.
What is the ISSB’s purpose?
Given the number of ESG standards that already exist, it might leave companies wondering what the ISSB is even supposed to achieve.
The ISSB is designed to address this developing disclosure fatigue. By continuing a process of consolidation in sustainability standards, it seeks to create a global standard for ESG reporting.
The ISSB has set out four objectives:
- To develop standards for a global baseline of sustainability disclosures.
- To meet the information needs of investors.
- To enable companies to provide comprehensive ESG information to global capital markets.
- To help facilitate comparability within disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.
The ISSB builds on the work of already existing reporting initiatives; the Climate Disclosure Standards Board (CDSB), the Task Force on Climate-related Financial Disclosures (TCFD), and the industry-based SASB Standards.
This new standard addresses the existing information gap within ESG reporting. This has been achieved through working with stakeholders from existing disclosure frameworks, and international government and corporate representatives.
As well as this, it focuses on concerns around the reliability, usefulness, and comparability of sustainability disclosures.
The establishment of the ISSB confirms to the global financial system that merely presenting a brief overview of a company's financials is no longer enough to prove its long-term sustainable worth.
Why is the ISSB important?
Sustainability factors are developing into a mainstream part of investment decision-making. There is a growing demand for companies to offer reliable and comparable data on sustainability risks and opportunities.
There is also a strong need to address the fragmented landscape of ESG standards. The sheer amount of sustainability requirements adds cost, complexity and risk to both companies and investors.
Easy and simple access to accurate sustainability information ensures informed investment and economic decisions. This enables the proper functioning of capital markets, as well as the building of trust, resilience, efficiency, transparency and accountability.
The IFRS sustainability disclosure standards, developed by the ISSB, aim to provide the necessary framework for disclosing sustainability data.
These guidelines are created to supplement the current financial reporting standards and improve the clarity and consistency of sustainability reporting.
The ISSB addresses the current fragmentation and lack of consistency in ESG reporting. It consolidates different local and global efforts under a single international regulatory authority.
What does this mean for UK companies?
The UK government has announced that the ISSB will have a significant part in shaping future obligations under company law and the Financial Conduct Authority (FCA) requirements for listed companies.
After the ISSB standards are approved for use in the UK, the FCA intends to consult on changing its disclosure regulations to incorporate these standards.
The UK government also intends to conduct a review of the non-financial reporting framework. This will assess its alignment with the UK Sustainable Disclosure Regulation (SDR). The purpose of this review is to analyse the limits for reporting requirements, with the goal of reducing burdens for reporting companies.
How should companies prepare for the ISSB?
In order to prepare for the introduction of the ISSB standards, companies should familiarise themselves with the draft standards. They should also get a comprehensive grasp of the four pillars: governance and risk management, strategy, metrics, and targets.
Organisations should then assess their existing ESG reporting practices, identifying any gaps that need to be addressed. Creating strong systems for data collection and management is essential for gathering important sustainability information.
By proactively preparing and aligning reporting practices with the ISSB standards, companies can demonstrate their transparency. As well as this, they can display responsiveness to investor demands and regulatory requirements.
Companies should also continue using and adopting the SASB Standards, TCFD Recommendations, CDSB Framework and Integrated Reporting Framework. The ISSB has been built on these materials, so applying them now will help implementation in the future.
Companies that are new to sustainability disclosure prepare for the future application of IFRS Sustainability Disclosure Standards by:
- Assessing the company's internal procedures and methods of gathering, combining, and verifying sustainability-related data.
- Considering the sustainability-related risks and opportunities that could affect business.
- Reviewing the ISSB’s proposed standards.
- Reviewing or using the previous standards like the SASB Standards and CDSB Framework, TCFD Recommendations and the Integrated Reporting Framework.
Convene is here to help with your ESG Reporting
Creating accurate ESG reports poses a significant hurdle for numerous organisations. The range of ESG measurements is extensive and differs depending on the industry, company scale, and level of complexity.
It’s why it’s important to have the right ESG reporting software for your company; to help navigate the developing landscape of ESG regulations.
Convene ESG allows you to do just this by providing an end-to-end platform to collect data, track progress, compare with peers, align with frameworks and produce ESG reports.
With various global and regional frameworks also built in to Convene ESG, you will easily comply and report against any other standards without the need to repeat the reporting process.
Convene ESG is designed to make the process as easy as possible, meaning that you can anticipate changes in current ESG legislation, be ready to face the challenges of future regulations and fully integrate ESG considerations into your company culture.
To find out more about how Convene ESG can help your organisation, book a demo today.
