ISSB issues its first sustainability standards

The ISSB aims to establish through the issuance of these Standards a global baseline of sustainability-related financial disclosures. All the standards the ISSB will issue will aim to provide the right information, in the right way, to support investor decision-making and facilitate international comparability to attract capital.

To achieve this, the ISSB is working closely not only with jurisdictions but also with other global organisations such as the International Organisation of Securities Commissions (IOSCO) to gain support for the use of these Standards. In many jurisdictions it is highly probable that some additional disclosures will be added to the baseline requirements created by the ISSB. This process of taking the ISSB standards and then adding to them is often referred to as the building block approach.

The sustainability standards that have been released are:

• IFRS S1 ‘General Requirements for Disclosure of Sustainability-related Financial Information’
• IFRS S2 ‘Climate-related Disclosures’.

These Standards create a common language for disclosing sustainability risks and opportunities, initially focusing on climate related risks and opportunities, to achieve global comparability. Together these Standards will provide decision-useful, sustainability related information for investors. They fully incorporate and build on the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD).

IFRS S1

IFRS S1 sets out the overall requirements for a reporting entity to disclose sustainability-related financial information about its sustainability-related risks and opportunities. This will enable reporting entities to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. 

IFRS S2

IFRS S2 sets out specific requirements for the identification, measurement and disclosure of climate-related financial information and is designed to be used in conjunction with IFRS S1.

Effective date

IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024. This means the first reporting will be seen in 2025 for reporting entities applying the Standards to their 31 December 2024 reporting cycles. Early adoption is permitted.

In order to claim compliance with IFRS Sustainability Disclosure Standards, reporting entities need to apply both Standards together. However, the ISSB has provided relief from some requirements in the first year the Standards are applied, which are detailed below.

Transitional provisions

IFRS S1 and IFRS S2 set out some transition reliefs that are applicable in the first year of application, including relief from the following requirements:

• reporting information about sustainability-related risks and opportunities beyond those relating to climate-related risks and opportunities 
• reporting sustainability-related financial disclosures, including climate-related financial disclosures, at the same time as the related financial statements. This means a reporting entity will be permitted to report its sustainability-related financial disclosures after its financial statements, allowing for more time to collate and report on sustainability.
• disclosing Scope 3 greenhouse gas (GHG) emissions information and using the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (GHG Protocol Corporate Standard) to measure Scope 1, Scope 2 and Scope 3 GHG emissions if they are using a different approach, and 
• disclosing any comparative information.

Next steps

Now that IFRS S1 and IFRS S2 have been issued, the ISSB has indicated it will work closely with jurisdictions and reporting entities throughout the adoption process. One of its first steps will be creating a Transition Implementation Group to support reporting entities that apply the Standards. In addition, the ISSB will be launching capacity-building initiatives to support the effective adoption and implementation of these two Standards.

The ISSB has indicated it will work closely with jurisdictions wanting incremental disclosures beyond the global baseline it has created to achieve greater interoperability of the Standards.

Our thoughts

We welcome the release of these Standards because they are the beginning of a new era in sustainability reporting. They provide a comprehensive global baseline of sustainability disclosures that should meet many of the information needs of investors. 

We are pleased the ISSB will continue to work with jurisdictions and other international organisations to achieve a greater interoperability of the Standards, as we believe this is key to the success of sustainability reporting around the world.

Given that reporting on sustainability will either be new to many reporting entities, or potentially different from what they have previously reported, we encourage all entities that may be affected by these Standards, to start to consider the impact of them now.