ISSB issues first sustainability disclosure standards

July 3, 2023|Written by Scott Speer|International Sustainability Standards Board

The International Sustainability Standards Board (ISSB) has officially unveiled its global standards for sustainability and climate disclosure. The standards are anticipated to serve as the foundation for forthcoming reporting obligations on sustainability imposed by regulatory bodies worldwide.

Speaking at the launch event, ISSB chair Emmanuel Faber said: “Essentially, what we are doing here is bringing a solution which is accounting-based language. It is not a suite of ESG metrics or disclosures – it is a comprehensive language which is deemed to be consistent, verifiable and therefore decision useful.”

Starting in January 2024, the standards will be implemented for annual reporting periods. By 2025, companies will commence issuing disclosures in accordance with the standards.

The standards consist of two components and their respective risks and opportunities: S1, which pertains to general sustainability, and S2, focusing specifically on climate-related issues.

S1 mandates companies to disclose information concerning sustainability-related risks and opportunities which are relevant to the main recipients of general-purpose financial reports, including those who might be impacted by the entity’s financial position. S2 includes reporting of scopes 1, 2 and 3 greenhouse gas emissions, with an extra year allowed for scope 3 reporting.

Furthermore, the standards necessitate disclosure of the extent and proportion of assets and business operations susceptible to climate-related physical and transition risks, along with those aligned with climate-related opportunities. They also require the reporting of capital expenditure, financing and investment allocated towards climate-related risks and opportunities.

Additionally, companies are required to disclose how climate-related factors are taken into account when determining executive remuneration, including the percentage of executive pay associated with climate considerations.

Speaking to Green Central Banking, Paul Schreiber of Reclaim Finance raised concerns about the limited scope of the standards, “notably due to its single materiality logic” which leaves room for companies to decide how they report, resulting in difficulties assessing the relevance and ambition of information derived from the standard. This, Schreiber says, differs from the European Sustainability Reporting Standards which are bound to the 1.5°C goal of the Paris Agreement.

“It is worth noting the standard includes the baseline indicators that are greenhouse gas emissions on scopes 1, 2 and 3 and elements on climate transition plans,” Schrieber said. “However, to have any impact these will need in-depth analysis from investors, NGOs or regulators, something that is not likely to happen that often.”

Aligning and complementing other standards will be a continuous problem in the world of ESG. China’s Ministry of Finance recommended re-examining the ISSB’s positioning of the standards as a “global baseline” given their failure to fully cater to the abilities of different jurisdictions to meet them. The CEO of the Global Reporting Initiative, Eelco van der Elden, welcomed the standards, saying that, where the GRI ensures transparency on an organisation’s impact, the ISSB supports efficient and resilient capital markets.

To initiate the process of adopting the standards, a transition implementation group will be established to provide assistance to companies. Furthermore, Faber indicated that additional requirements related to climate reporting might be included in the near future. These could encompass aspects such as the relationship with natural ecosystems, deforestation, biodiversity, and integration of just transition considerations.

This page was last updated July 3, 2023

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