One of the biggest obstacles for companies navigating the landscape of sustainability reporting is the lack of standardization. Because there is no global baseline for what businesses need to report, what actually gets documented can be a bit of a free-for-all. Companies can choose for themselves what to release and are able to frame reports to their advantage. Not only is this unscientific – it makes way for greenwashing.
Luckily, progress is happening. For instance, in March 2022, the International Sustainability Standards Board (ISSB) Sustainability Disclosure Standards were published with the goal of providing global financial markets with high-quality disclosure on climate and sustainability issues. This critical milestone will make sustainability data more reliable, measurable, and comparable for global markets – finally allowing businesses and investors to make sense of the jumble of acronyms and confusing frameworks so frequently associated with ESG reporting. And for those wondering what specific changes this might mean moving forward, this blog post will get you up to speed on where these proposals came from, what each of them contains, and how they are likely to impact you and your business.
What are the ISSB Sustainability Reporting Standards?
The ISSB Sustainability Reporting Standards are a set of up-and-coming sustainability reporting standards proposed by International Sustainability Standards Board(ISSB). Developed to meet the urgent need for a comprehensive global baseline of corporate sustainability reporting, there are currently two standard drafts. The first focuses on climate, while the second outlines the general requirements for sustainability-related financial disclosures. More standards, covering additional themes and industries, will be issued in the future.
Creating IFRS’s International Sustainability Standards Board – the beginning of global sustainability standards
IFRS is an international non-profit organization responsible for developing global accounting and sustainability disclosure standards (also known as IFRS standards). Up until 2021, it consisted of just one board called the Accounting Standards Board (IASB). However, at COP26 – last year’s global summit in Glasgow where world leaders met to discuss climate change – the IFRS announced that they had created a brand new board: the International Sustainability Standards Board, which would, by their own account: “lay the technical groundwork for a global sustainability disclosure standard-setter for the financial markets…[and] fulfill the growing and urgent demand for streamlining and formalizing corporate sustainability disclosures.”
This major news marked an exciting development for the financial community, which had already expressed the need for global climate standards that would simplify the reporting process, steer people away from confusing and inconsistent reporting standards, and prevent double reporting for good – not to mention make sense of confusing acronyms like GRI, SDGs, TCFD. It also came at a particularly well-timed moment for the industry, considering the SEC’s proposed rule on climate-related disclosures, plus the EU Sustainability Reporting Standards (ESRS).
At a glance, what should you know about ISSB Sustainability Reporting Standards?
They consolidate and build upon existing initiatives.
This announcement is long-anticipated by an industry that has already identified the need for – and taken steps toward – a set of globally aligned climate standards. As the IFRS explained: “The ISSB will build on the work of existing investor-focused reporting initiatives to become the global standard-setter for sustainability disclosures for the financial markets.”They were created to help you cut through the noise.
Right now, sustainability reporting standards lack the same coherency of financial reporting standards. Because of this, different stakeholders might demand different information from your business, and it is easy for anyone to get lost in a sea of abbreviations and frameworks (often known as the “alphabet soup” of sustainability reporting). The new proposed standards will solve all of these problems. With them in place, for the first time there will be “a comprehensive global baseline of high-quality sustainability disclosure standards.”There are currently two standard prototypes.
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information: requires companies to disclose information about any meaningful sustainability-related risks and opportunities that could be weighed by primary users of general purpose financial reporting. This would help people to assess enterprise exposure to sustainability risk and identify opportunities for investment.
- IFRS S2 Climate-related Disclosures: focuses on the specific requirements for the identification, measurement, and disclosure of climate-related financial information.
When will the final ISSB Sustainability Reporting Standards be adopted?
ISSB aims to complete the technical, standard-setting work for IFRS S1 and IFRS S2 by the end of 2022 – with the goal of issuing the final standards as early as possible in 2023.
Who do the IFRS Sustainability Reporting Standards apply to? And will they be mandatory?
At this point, each jurisdiction will choose for themselves whether or not to adopt the ISSB Sustainability Disclosure Standards. The IFRS themselves indicate that “it’s too early to say which jurisdiction will adopt the new standards,” but the good news is that they have already received widespread international support, including from the UK Government, along with G7 and G20 finance ministers. And considering the fact that many jurisdictions, including the EU, have made IFRS accounting standards mandatory in the past, it could suggest that their sustainability standards will become widely adopted as well.
Set up your sustainability reporting process in Worldfavor
For businesses and investors who want to keep up with the pace of progress, you do not need to wait for the adoption of IFRS S1 and S2 to start working with climate data. You can already collect, manage, and report all of your sustainability information easily in Worldfavor. Automated calculations will save you time and prevent reporting errors – plus, you will have one dedicated place to communicate with colleagues and partners. Book a demo so that we can help you future-proof your business and start working from sustainability insights right now.
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