The International Sustainability Standards Board (ISSB) made a monumental stride today with the launch of its first-ever sustainability standards – IFRS S1 and IFRS S2. This significant development ushers in a new age of sustainability-related disclosures in global capital markets. These inaugural standards are anticipated to engender heightened trust and confidence in corporate sustainability-related disclosures, thereby informing and improving investment decisions.
Marking a pioneering shift, the new standards offer a common language for businesses to disclose the impacts of climate-related risks and opportunities on their prospects. This introduction will promote uniformity and understanding across the global business community, addressing the complex issue of climate change through unified action.
The official launch of these innovative standards will be presided over by the ISSB Chair, Emmanuel Faber, at the annual conference of the International Financial Reporting Standards (IFRS) Foundation. To celebrate this landmark moment, a week-long series of events have been organized worldwide, with the involvement of stock exchanges in cities including Frankfurt, Johannesburg, Lagos, London, New York, and Santiago de Chile. Further adding to the global appeal, the ASEAN Capital Markets Forum will also host a launch event in Singapore.
Providing an overview, IFRS S1 sets out a range of disclosure requirements, aiming to enable companies to communicate effectively with investors about the sustainability-related risks and opportunities they face over short, medium, and long-term horizons. Its counterpart, IFRS S2, spells out specific climate-related disclosures designed to be used in tandem with IFRS S1. Notably, both standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
These two trailblazing standards, IFRS S1 and IFRS S2 are the outcome of extensive market feedback and the ISSB’s response to calls from influential global entities, such as the G20, the Financial Stability Board, the International Organization of Securities Commissions (IOSCO), and leaders within the business and investor sectors. The broad-based support for these standards underlines the demand for a consistent and comprehensive global baseline for understanding how sustainability factors impact a company’s future prospects.
The ISSB Standards are geared to ensure that companies provide sustainability-related information alongside their financial statements, thereby presenting a complete picture in a single reporting package. They have been developed to be harmoniously used in conjunction with any accounting requirements. These standards are also underpinned by the concepts that form the basis of the IFRS Accounting Standards, which are mandated by more than 140 jurisdictions. The intention is to make the ISSB Standards globally applicable, thereby creating a universal baseline.
As the IFRS S1 and IFRS S2 standards come into being, the ISSB is committed to assisting jurisdictions and companies with their adoption. Key first steps involve establishing a Transition Implementation Group to support companies applying these standards and launching capacity-building initiatives that foster effective implementation.
Emmanuel Faber, the ISSB Chair, emphasized the intensity of the work leading to this point, which spanned over 18 months. He added that these inaugural sustainability disclosure standards for the global capital markets had been designed with the intention of helping companies share their sustainability story in a robust, reliable, comparable, and verifiable manner. Faber further added that these standards, conceived in close consultation with the market, are intended to result in disclosures relevant to investment decision-making. He stressed that this publication was merely the starting point, with the board planning future consultations on other priorities beyond climate.
Various figures from the financial and sustainability sectors have lauded the launch of the ISSB standards, underlining their potential to significantly influence the future of sustainability reporting, enhance market efficiency, and contribute to building a resilient and sustainable global economy. Erkki Liikanen, Chair of the IFRS Foundation Trustees, said that the new standards have the potential to move market prices and help companies and investors by reducing duplicative reporting. The global baseline approach, supported by the G20 and others, he said, will provide investors with globally comparable sustainability-related disclosures.
As the new era of sustainability reporting emerges, it’s crucial that ESG-certified professionals stay informed and updated. With the introduction of the ISSB standards, sustainability ESG-certified individuals are tasked with the responsibility of familiarizing themselves with the new disclosure requirements, encompassing the immediate, mid, and long-term sustainability-related risks and opportunities, as well as the specific climate-related disclosures.
In conclusion, the launch of these standards demonstrates the growing global commitment to sustainable business practices and the significant role of sustainability in the future of global finance. The ISSB standards signify a new era of transparency and accountability, underscoring the imperative for businesses to incorporate sustainability into their strategy and operations.