At COP26 in Glascow in 2021, the trustees of the International Financial Reporting Standards (IFRS) announced the formation of the International Sustainability Standards Board (ISSB). The ISSB’s primary objective is to create comprehensive global sustainability standards which prioritise the needs of investors so that they are able to make informed investment decisions. By creating a universal global baseline for sustainability reporting, the ISSB seek to streamline the previously fragmented landscape of voluntary standards and frameworks.
In June 2023, following extensive market feedback and in response to input from prominent entities such as the G20 and the Financial Stability Board, the ISSB published its inaugural standards. The first of these, IFRS S1, provides a set of disclosure criteria for companies to convey sustainability-related risks and opportunities to investors across the short, medium, and long term. The second, IFRS S2, is designed to be used in tandem with IFRS S1, and details specific climate-related disclosures. Much like the TCFD recommendations, the IFRS S2 requires entities to disclose details pertaining to their climate-related risks and opportunities, including the governance procedures, strategies, and monitoring and assessment procedures employed to manage them. Disclosers are also expected to supply information on their transition strategies, climate scenario analysis, climate resilience evaluations and Scope 1, 2 and 3 emissions.
Both standards require information to be presented alongside financial statements and incorporate various pre-existing reporting frameworks, including the Sustainability Accounting Standards Board (SASB) and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
“By building on the TCFD’s framework, the ISSB’s climate proposal will create further consistency, comparability, and reliability across climate disclosures so investors can make more informed financial decisions.” – Mary Schapiro, Head of TCFD Secretariat.
The standards will be effective for annual reporting periods on or after January 2024, meaning that entities who wish to report against the ISSB Standards must report on their activities beginning in January 2024 for that year and release sustainability reports based on the ISSB Standards in 2025. Although the ISSB will be working with jurisdictions and companies to support adoption of the standard, ultimately it is up to the jurisdictional governments themselves to decide whether it will become a mandatory reporting framework.
CDP adopts ISSB Standard
COP27 in 2022, CDP stated its intention to incorporate the ISSB’s IFRS S2 Climate-related disclosures into its global disclosure platform from 2024. This incorporation guarantees that the data provided conforms to the global benchmark for climate disclosure, mirroring CDP’s alignment with the TCFD recommendations in 2018. In this way, CDP intends to reduce the reporting burden on its near 20 000 disclosing entities and contribute towards creating a comprehensive global baseline of sustainability disclosures for capital markets. CDP is confident that this initiative will streamline and simplify reporting for companies, thereby providing data to diverse stakeholders and investors in a consistent and comparable manner, irrespective of their geographical location or regulatory demands.