ISSB Board Approves First Sustainability Standards

Peter Polanowski

Published February 17, 2023
in News

By Peter Polanowski

Today, the International Sustainability Standards Board (ISSB) approved the first of two disclosures standards for organizations, to be issued at the end of Q2, 2023.

This decision was announced during the International Financial Reporting Standards (IFRS) Sustainability Symposium in Montreal this week.

The IFRS has approved two draft standards – IFRS S1 – General Requirements for Disclosure and Exposure Draft, and IFRS S2 Climate-related Disclosures. These drafts will be effective starting January 2024, meaning that businesses can start collecting sustainability-related disclosure information for the 2024 period to publish reports in 2025.

Commenting on the approval of the standards, ISSB Chair Emmanuel Faber stated:

We responded to capital market and G20 demand for a common language of investor focused sustainability-related disclosure, working diligently to deliver standards that fulfil the global baseline. Setting a 2024 effective date is consistent with this standard.

The date of implementation reflects demand from investors to disclose comprehensive, consistent and comparable sustainability-related information.

Thirteen of fourteen members of ISSB’s board agreed to reference both the Global Reporting Initiative (GRI) and the European Sustainability Reporting Standard (ESRS) frameworks in sources of guidance for IFRS S1.

Opposition to referencing both GRI and ESRS stems from differing definitions of materiality between GRI and ESRS. The ESRS focuses on “double materiality”, which attempts to capture a company’s impact on the environment and society, along with the sustainability impacts to the organization. In contrast, the ISSB has widely adopted an enterprise value approach, focusing on sustainability impacts that are financially material to the company.

Last December, The ISSB, the European Commission and the European Financial Reporting Advisory Group (EFRAG) announced that they are working toward a shared objective to maximize the interoperability of their standards and aligning on key climate disclosures.

The ISSB Chair also stated:

As requested by our stakeholders, we have built from existing market-accepted frameworks and standards. This means that the thousands of companies already using the TCFD Recommendations and SASB Standards will be in a strong position to use S1 and S2.

Governments and industry around the world are increasingly advocating for common standards that enable companies to disclose information about sustainability-related risks and opportunities, staring with climate, to support systemic financial stability and for investor protection.

What does this mean for Canadian companies and investors?

Mandatory ESG disclosures are being introduced in Canada in 2024. Initially, they will focus on federally regulated financial institutions – requiring them to begin reporting on climate-related financial risks in accordance with the Task Force on Climate-related Financial Disclosures Framework (TCFD).

The release of S1 and S2 will further give clarity for both investors and companies on a common set of standards and frameworks to accurately disclose on their sustainability related risks.