Policy Outlook

A global baseline for sustainability reporting: the ISSB standards

The first two sustainability disclosure standards of the International Sustainability Standards Board (ISSB) came into effect in January 2024. These standards are important because regulatory and reporting institutions around the world are using them as a launchpad for their own disclosure requirements. These developments could influence how your company reports to investors, or how you as an investor compare the value of different companies. Here’s what you need to know.

What are the ISSB standards?

The IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures are the foundation for the “global baseline” of sustainability disclosure (see Figure 1).

Figure 1. The International Sustainability Standards Board initially published two sustainability disclosure standards, and it plans to develop more.

Intended to provide investors with decision-useful information, the ISSB standards incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and feature four pillars of disclosure: (1) governance, (2) strategy, (3) risk management, and (4) metrics and targets. To ensure its standards align with other disclosure frameworks, the ISSB continues to work with the EU (e.g. on interoperability with the European Sustainability Reporting Standards [ESRS]) and other standard-setting bodies such as the Global Reporting Initiative (GRI).

How the standards address materiality

A distinct feature of the ISSB standards is their focus on financial materiality. IFRS S2 asks companies to disclose “material information” about sustainability-related risks and opportunities that may affect the company’s financial prospects in the short, medium, and long term. Information is considered material if “omitting, misstating or obscuring that information could reasonably be expected” to influence investor decisions.

The ISSB’s approach to materiality differs significantly from the impact-materiality approach of the GRI, which focuses on how a company’s activities affect the environment and society. It also differs from the double-materiality approach of the EU Commission, which considers both impact and financial materiality.

National alignment with the standards

The ISSB is collaborating with jurisdictions and companies to support their adoption of the standards. Several countries (see Figure 2) have already introduced or are preparing plans to align their sustainability reporting requirements with the ISSB standards. The International Organization of Securities Commissions (IOSCO) endorsed the ISSB standards in July 2023, which may prompt further regulatory action in IOSCO member jurisdictions.

* Jurisdictions that have begun developing local sustainability disclosure standards based on the ISSB standards.

Figure 2. Countries that have committed to aligning their sustainability disclosure expectations with the ISSB standards (as of February 2024).

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At ECOFACT, we track developments like these through our Policy Outlook tool to help you stay on top of sustainability regulation across more than 50 jurisdictions. Learn more about Policy Outlook and subscribe today.

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