The launch of the ISSB’s first standards heralds a new era for corporate reporting, with sustainability matters now fully established in the mainstream reporting ecosystem.

The new standards bring us closer to the development of a global baseline of sustainability disclosures, which has long been demanded, particularly by investors, and will enable companies to start to disclose more comprehensive and comparable sustainability information to global capital markets.

The new standards

IFRS S1: General requirements for disclosure of sustainability-related financial information sets out the general reporting requirements for sustainability-related financial information.

It requires an entity to disclose material information about the sustainability-related risks and opportunities to which it is exposed, including information about the entity’s:

• governance,
• strategy,
• risk management, and
• metrics and targets. 

IFRS S2: Climate-related disclosures is designed to be used with IFRS S1. It is a topic specific standard which requires an entity to disclose certain information about its governance, strategy, risk management, and metrics and targets in respect of climate-related risks and opportunities. This includes information about physical risks, such as extreme weather events, as well as transition risks, for example changes in customer behaviour.

Both standards incorporate the recommendations of the Task Force on Climate-Related Financial Disclosures.

Michael Izza, CEO, ICAEW, described the publication of the new standards as a major milestone for international corporate reporting. “This is a key step towards the development of a global baseline of sustainability disclosures,” he said. “Congratulations must go to the ISSB for the speed in which it has produced these standards, while upholding proper due process which is essential to high quality reporting.

“The ISSB is already consulting on its future work plan and will need to reflect carefully on its priorities when deciding on its next standard setting activities, while also building on the momentum of its recent achievements.”

Adoption

The UK Government has indicated its intention for UK companies to adopt the ISSB’s standards and is in the process of setting up an appropriate endorsement mechanism.

As part of this process, the government is establishing two advisory committees; the first to provide a recommendation on whether a standard should be endorsed, the other to cover matters of public policy and to consider how the ISSB Standards fit alongside existing reporting requirements for UK companies in scope.

An endorsement decision on the first two standards is expected to be made in the next 12 months.

ICAEW’s Director of Audit and Corporate Reporting, Dr Nigel Sleigh-Johnson, said: “We welcome the announcement by the UK government of plans to establish an endorsement mechanism for these and future ISSB standards. Its details should be finalised as soon as possible, following appropriate consultation with stakeholders.

“There is much at stake. A clear timeline for the UK implementation of the standards will encourage business to start preparations in earnest, and a successful process of UK adoption and implementation will be a very important signal to other jurisdictions around the world.”

More broadly, the ISSB plans to work with jurisdictions and companies to support adoption of its standards. This will include the development of a Transition Implementation Group to support companies that apply its standards and launching capacity-building initiatives to support effective implementation.

Future priorities

The ISSB has already started to consider its future work and in May published its first request for information, Consultation on Agenda Priorities, requesting feedback on its priorities for 2024-2026.

The feedback will help the ISSB finalise its research and standard-setting projects, as well as influence the strategic direction of the ISSB’s activities. The deadline for comments is 1 September 2023.

Looking to the future, Michael Izza said: “I look forward to following the progress of ISSB activities in the coming months, including how it addresses important matters such as the interconnectivity of sustainability and financial information, the interoperability of ISSB standards with other jurisdiction-specific disclosures, and how it plans to expand its suite of standards over time.”

Information from the ISSB on the new standards

• ISSB announces the launch of the inaugural global sustainability disclosure standards
• IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
• IFRS S2: Climate-related Disclosures

ICAEW guidance on non-financial reporting

• Information on the ISSB and its IFRS Sustainability Disclosure Standards
• ICAEW’s non-financial reporting hub