The International Sustainability Standards Board (ISSB), founded in 2021, is expected to publish its first two IFRS Sustainability Disclosure Standards later this year:
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
- IFRS S2 Climate-related Disclosures
Currently businesses, depending on where they are based, face a variety of local sustainability frameworks, standards, and regulatory disclosure requirements. One aim of the ISSB is to help multinationals avoid having to comply with the differing requirements in various jurisdictions by developing a global baseline.
The new standards will enforce a minimum level of reporting requirements to meet the needs of global investors and stakeholders, who are demanding transparent, reliable and comparable reporting on sustainability issues.
The ISSB have been working to enhance the interoperability of S1 and S2 with other international and jurisdictional sustainability-related standards, such as the European Sustainability Reporting Standards (ESRS). There is expected to be a lot of overlap with current frameworks in operation around the world.
Europe: Large European companies will have to comply with the European Financial Reporting Advisory Group (EFRAG) reporting requirements, as well as the ISSB global requirements. However anyone reporting within the ESRS will also be working within the ISSB baseline standards, because the EU standards cover far more topics than the ISSB. EFRAG has gone above and beyond to meet its aim of "striking a balance between a game-changing step forward and a pragmatic implementation" (Kerstin Lopatta, former EFRAG Acting SRB Chair).
UK: In contrast the UK government recently scaled back its sustainability reporting requirements to encompass only larger corporations - to help SMEs in the current challenging economic climate. But, despite the resource constraints faced by businesses, stakeholder and investor demand is likely to make this an urgent issue to be addressed across the board. The UK is expected to follow Europe in implementing assurance requirements, to improve the reliance and credibility of financial reporting in this area.
So far the new ISSB standards only cover climate-related financial issues, requiring companies to disclose information on how they manage, measure, and monitor certain risks, such as floods and other extreme weather events. Feedback on the 2022 Exposure Drafts has led to new requirements for disclosures on the details of greenhouse gas emissions and clarity on disclosures about strategy and decision-making, including transition plans towards a lower-carbon economy and climate-related targets.
Following its recent meeting in Frankfurt in January the next step for the ISSB is to make its final decisions about the content for S1 and S2, including the effective date for the standards.
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