The International Sustainability Standards Board (ISSB) has made a historic leap forward in sustainability reporting with the release of its inaugural standards, IFRS S1 and IFRS S2. These standards represent a significant milestone in enhancing trust and transparency in company disclosures, empowering investors with valuable information for informed decision-making. A key breakthrough of these standards is the introduction of a common language for communicating the impact of climate-related risks and opportunities on a company’s future prospects.
Official Launch and Global Adoption
Led by ISSB Chair Emmanuel Faber, the official launch of the standards took place at the prestigious IFRS Foundation’s annual conference. To promote their widespread adoption, stock exchanges around the world, including Frankfurt, Johannesburg, Lagos, London, New York, Santiago de Chile, and Singapore’s ASEAN Capital Markets Forum, will host dedicated events.
Key Details about the Standards
IFRS S1 establishes disclosure requirements that enable companies to communicate their sustainability-related risks and opportunities over different timeframes to investors. Complementing IFRS S1, IFRS S2 provides specific climate-related disclosures. Both standards incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), ensuring alignment with global best practices.
Responding to Market Demand
The ISSB developed these groundbreaking standards based on extensive market feedback and in response to calls from influential organizations such as the G20, the Financial Stability Board, and the International Organization of Securities Commissions (IOSCO). This widespread demand for consistent sustainability disclosures underscores the need for a global baseline that facilitates a comprehensive understanding of how sustainability factors impact companies’ prospects.
Unified Reporting Package
The ISSB Standards require companies to present sustainability-related information alongside financial statements, providing stakeholders with a holistic view of a company’s performance. These standards are designed to be compatible with various accounting requirements and are built upon the conceptual framework of the widely adopted IFRS Accounting Standards used in over 140 jurisdictions.
Supporting Adoption and Collaboration
With the issuance of IFRS S1 and IFRS S2, the ISSB is committed to supporting jurisdictions and companies in their adoption efforts. Initiatives include the establishment of a Transition Implementation Group to assist companies in applying the standards effectively. The ISSB will also collaborate with jurisdictions interested in mandating additional disclosures beyond the global baseline. Additionally, collaboration with the Global Reporting Initiative (GRI) aims to streamline reporting practices when combining ISSB Standards with other reporting frameworks.
A Promising Future for Sustainability Reporting
The introduction of ISSB’s IFRS S1 and IFRS S2 standards marks a significant step towards standardized sustainability disclosures. These standards promote transparency, enable better-informed decision-making, and foster a consistent approach to reporting sustainability-related risks and opportunities. Companies embracing these standards will enhance their ability to meet the increasing expectations of investors, regulators, and the public.
What Are the Next Steps for Companies?
What should companies do next to prepare for the forthcoming sustainability standards? Here are some recommended steps:
- Define reporting metrics and targets: Identify the key environmental, social, and governance (ESG) indicators and goals that are relevant to your business and align with the upcoming standards.
- Elevate ESG and sustainability reporting: Ensure that ESG and sustainability reporting becomes a regular agenda item for the Board of Directors, highlighting its strategic importance and commitment to transparency.
- Integrate the finance function: Involve the finance team in sustainability reporting to ensure accurate data collection, analysis, and reporting. This integration enhances the credibility and reliability of sustainability information.
- Engage in the standard-setting process: Actively participate in industry discussions and contribute to the development of sustainability standards. Sharing your expertise and insights can shape the future of reporting frameworks and ensure they meet the needs of your business.
- Seek assurance for trust-building: Consider obtaining third-party assurance for your sustainability reports to enhance their credibility and instil confidence in stakeholders. Independent verification demonstrates a commitment to transparency and accuracy.
In this era of evolving sustainability and climate-related disclosures, companies must proactively align their reporting efforts with their corporate strategies. Boards, senior management, and employees should embrace and adopt sustainability as a fundamental principle to drive organisational success. By taking these steps, companies can position themselves for success and effectively navigate the changing landscape of sustainability reporting.
To explore further details on implementing sustainability disclosures and reporting for your company, feel free to reach out to us at Kreston Stanley Williamson. Contact us today to embark on your sustainability journey.
Author – Pamela Perry
*Correct as of 28 June 2023
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.
