International Sustainability Standards Board issues first global sustainability disclosure standards

Why should I read this?

The International Sustainability Standards Board (ISSB) has issued its inaugural sustainability disclosure standards, IFRS S1 and IFRS S2 (the standards). IFRS S1 provides a set of disclosure requirements intended to enable companies to communicate with investors about the sustainability-related risks and opportunities that they face over the short, medium, and long term. IFRS S2 provides specific climate-related disclosures.

The standards are a significant step towards the development of a global baseline of corporate reporting standards on sustainability and climate change, integrated with financial reporting standards.

The standards are likely to be adopted by governments and regulators in many jurisdictions and could be effective for accounting periods in the UK and elsewhere commencing as early as 1 January 2024. Once adopted, they are expected to be relevant to companies required to report climate-related and sustainability information, such as TCFD reporting in the UK.

What do the standards cover?

IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) requires a company to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the company's cash flows, its access to finance or cost of capital over the short, medium, or long term. It sets out general requirements for the content and presentation of those disclosures so that the information disclosed is useful to stakeholders in making investment decisions in relation to the company.

IFRS S2 (Climate-related Disclosures) requires a company to disclose information specifically about its climate-related risks (both physical risks and transition risks) and opportunities and is similarly intended to be useful to stakeholders in making investment decisions in relation to the company.

Both standards incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

In terms of the core content, under both standards, for both sustainability and climate-related risks and opportunities, companies will be required to make disclosures about:

1. the governance processes, controls and procedures the company uses to monitor, manage and oversee those risks and opportunities;
2. the company’s strategy for managing those risks and opportunities;
3. the processes the company uses to identify, assess, prioritise and monitor those risks and opportunities; and
4. the company’s performance in relation to those risks and opportunities, including progress towards any targets it has set, and any targets it is required to meet by law or regulation.

What else do I need to know about the standards?

Both IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024, with early application permissible so long as both standards are applied together.

Individual jurisdictions will decide whether companies will be required to comply with the standards. A key milestone will be endorsement by the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB). The UK government has stated that it will consult on a framework to adopt and endorse the ISSB's standards for the UK. For listed companies, the Financial Conduct Authority (FCA) intends to update its climate-related disclosures under the Listing Rules to reference them once the standards have been endorsed for use in the UK and is expected to consult in Q4 2023.

The launch of the standards has been long-awaited since the issue of exposure drafts in 2022, and has been welcomed by the FCA, noting that the standards “answer the clear market demand for complete, consistent, comparable and reliable corporate sustainability disclosures”. The Financial Reporting Council is also strongly supportive of the standards. Adoption of the standards will also be welcomed by investors, given the absence of uniform best practice reporting standards in this area to date, enabling companies to disclose more comprehensive and comparable sustainability information.

Further reading

Read the ISSB press release.

You can download the standards and various supporting materials and guidance from the above link.

Access the IFRS Sustainability Standards Navigator here.

For more information about the standards