Introduction
The International Sustainability Standards Board (ISSB) is a standard-setting body established in 2021 under the IFRS Foundation. Its mandate is creating and developing sustainability-related financial reporting standards to meet investors’ needs for sustainability reporting. The ISSB is an independent, private-sector body that develops and approves IFRS Sustainability Disclosure Standards (IFRS SDS). Its role is critical in developing a global common language of sustainability-related financial disclosures, providing a clear framework to companies, investors, and other stakeholders.
Sustainability reporting is increasingly important in the financial industry, and the ISSB is a key player. The board is responsible for creating and maintaining sustainability standards, ensuring that they meet the needs of investors and other stakeholders, and promoting their adoption worldwide. The ISSB is also responsible for integrating sustainability reporting into financial reporting, making it easier for companies to disclose their sustainability information to investors.
Background
The need for sustainability-related disclosures has been recognized for many years, but it was only in the past decade that specific frameworks were developed to address this issue. The Climate Disclosure Standards Board (CDSB) was formed in 2007 in London as part of the Climate Disclosure Project, which started in 2002. The International Integrated Reporting Committee (IIRC) was formed in London in August 2010, with the participation of several stakeholders, including the Global Reporting Initiative, International Accounting Standards Board, U.S. Financial Accounting Standards Board, International Organization of Securities Commissions, and International Federation of Accountants.
Separately, the Sustainability Accounting Standards Board (SASB) was created in 2011 in San Francisco in the context of U.S. securities disclosures. In June 2021, the IIRC and SASB announced their combination to form the Value Reporting Foundation (VRF). The ISSB was announced at the 2021 United Nations Climate Change Conference (COP26) in Glasgow, and the IFRS Foundation announced it would consolidate the VRF and CDSB with the ISSB by June 2022.
The ISSB is in its early development stages, with staff resources in Frankfurt, Montreal, and London. Emmanuel Faber was appointed ISSB Chair in December 2021, and Sue Lloyd was appointed ISSB Vice-Chair in January 2022. In late March 2022, the ISSB published its first two exposure drafts on climate and general sustainability-related financial disclosures. The board is expected to become fully functional in the course of 2022.
Role and Responsibilities of the ISSB
The International Sustainability Standards Board (ISSB) is an independent, private-sector body that develops and approves IFRS Sustainability Disclosure Standards (IFRS SDS). As part of the IFRS Foundation, the ISSB has complete responsibility for all sustainability-related technical matters of the foundation. This includes developing and pursuing its technical agenda, subject to certain consultation requirements with the Trustees and the public. The ISSB is responsible for preparing and issuing Sustainability Disclosure Standards (SDSs) and exposure drafts, following the due process stipulated in the Constitution.
The ISSB’s role in developing sustainability-related financial reporting standards is essential for providing investors with a global common language of sustainability-related financial disclosures. With this common language, investors can compare sustainability performance across companies and make more informed investment decisions. The ISSB’s work is also critical for promoting transparency and accountability in sustainability reporting, which in turn helps organizations identify risks and opportunities associated with sustainability-related matters.
ISSB Standards
The ISSB’s Sustainability Disclosure Standards will be part of the broader body of International Financial Reporting Standards (IFRS) and are to be known as IFRS-S (“S” for sustainability) to distinguish them from accounting standards issued by the ISSB’s sister body, the International Accounting Standards Board. IFRS-S will be designed to meet investors’ sustainability reporting needs and provide a globally consistent framework for sustainability-related financial disclosures.
The ISSB is developing standards to address key sustainability-related matters such as climate change, natural ecosystems, and social and governance issues. The ISSB aims to develop standards that are comprehensive, clear, and relevant to the needs of investors while being flexible enough to be applied across different industries and sectors.
These standards are developed through a rigorous due process, including public consultations, stakeholder discussions, and expert input. The ISSB will release exposure drafts for public comment, after which it will consider feedback received from stakeholders and incorporate it into the final standards. The standards will be regularly reviewed and updated to reflect changes in sustainability-related matters and emerging best practices.
ISSB’s Approach to Sustainability-Related Financial Reporting Standards
The International Sustainability Standards Board (ISSB) has taken a significant step towards developing a global common language of sustainability-related financial disclosures. The ISSB’s main goal is to clarify the relationship between sustainability matters and financial value creation. Doing so aims to understand better how companies use and affect resources and relationships for creating, preserving, and eroding value over time.
Sustainability is described as the ability of a company to sustainably maintain resources and relationships within its whole business ecosystem over the short, medium, and long term. This means that sustainability is a condition for a company to access the resources and relationships needed over time, including financial, human, and natural resources. By referring to this articulation of the value creation process, companies will be better placed to explain to their investors how they are working sustainably within their business ecosystem.
The ISSB focuses on information for investors, addressing the impacts, risks, and opportunities that can affect a company’s performance and prospects, ultimately delivering financial value for investors.
ISSB’s Plans for Advancing Work on Natural Ecosystems and Just Transition
In response to the growing concern about climate change and nature loss, the ISSB is advancing work on natural ecosystems and the just transition. The ISSB will research incremental enhancements that complement the Climate-related Disclosures Standard (S2), including relating to natural ecosystems and the human capital aspects of the climate resilience transition (just transition).
To deliver this, the ISSB will consider the work of the Taskforce for Nature-related Financial Disclosure (TNFD) and other existing nature-related standards and disclosures where they relate to the information needs of investors. This will include considering the TNFD’s recent work on the intersection of climate and biodiversity disclosures in scoping the ISSB’s research on complementing its climate-related disclosures to address disclosures related to natural ecosystems.
Emmanuel Faber, Chair of the ISSB, also announced the appointment of two Special Advisers to provide strategic counsel on issues relating to natural ecosystems and just transition. Karin Kemper, former Global Director for Environment, Natural Resources, and Blue Economy at the World Bank, will provide strategic counsel on various natural ecosystem topics. Geordie Hungerford, CEO of the First Nations Financial Management Board in Canada, will provide strategic counsel on issues important to Indigenous Peoples, which include biodiversity. These appointments reflect the ISSB’s commitment to holistically addressing sustainability issues and collaborating with key stakeholders.
Next Steps
The International Sustainability Standards Board (ISSB) plays a crucial role in developing sustainability-related financial reporting standards. The ISSB’s work is critical in promoting transparency and accountability in sustainability reporting, providing a globally consistent framework for sustainability-related financial disclosures, and helping organizations identify risks and opportunities associated with sustainability-related matters. Its approach to sustainability-related financial reporting standards focuses on delivering financial value for investors by addressing the impacts, risks, and opportunities that can affect a company’s performance and prospects. As the ISSB develops these standards, Veritrove can help companies navigate the changing landscape of sustainability reporting and ensure they meet the needs of investors and other stakeholders. Contact Veritrove today to learn more.
