Keith Nuthall in Montréal

Emmanuel Faber, chair of the International Sustainability Standards Board (ISSB), has announced approval of the final versions of the board’s first two standards: IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2, Climate-related Disclosures, will now be released by the end of Q2 2023, with a 1 January 2024 effective date.

He was speaking at an inaugural IFRS Sustainability Symposium in Montréal, Québec, Canada, where the ISSB has one of its key offices – with final agreements on this accommodation also announced on Friday by Eric Girard, Québec’s finance minister.

‘This is S1 and S2, and there will be S3 and S4 and on. There are so many topics on sustainability’

Welcoming the swift approval of S1 and S2 following the November 2021 announcement of the ISSB’s creation, Faber said the standards would help accountants and business cope with climate change: ‘There’s a need to address the fact that business cannot be as usual and, therefore, accounting cannot be as usual. We need to change.’

Reforming standards

He said the standards would help deliver this through new reporting language reforming company cultures, organisation and processes. Investors would now receive reliable reporting data that will enable them to assess which companies and jurisdictions are better prepared for climate change, stressed Faber.

Speaking to AB, Fouad Mounla, senior manager for financial accounting advisory services at EY, said: ‘This is the start. This is S1 and S2, and there will be S3 and S4 and on. There are so many topics on sustainability, like human resources. This will encourage companies to disclose sustainability and look for what business value we can get out of it.

‘We’re looking at information for different stakeholders, from investors and government to consumers and employees. Younger generations are looking for ESG [environmental, social, governance] information.’

‘Many companies are currently aligning rather than aligned with international climate policy goals’

Mark Carney, UN special envoy for climate action and finance, told the symposium how the ISSB’s work had emerged from a realisation that progress being made towards sustainability reporting on a voluntary basis was slowing down. What was needed was a united, universal reporting baseline that could be made mandatory by supporting jurisdictions, integrating the multiple 400-plus sustainability initiatives created in the past.

Decision useful

He told the symposium that ‘we need a common standard’, creating data that is ‘decision useful’, an approach created ‘by the market for the market’. A good example of such utility within S1 and S2 is the need for companies to undertake ‘scenario analysis’, promoting resilience within companies to climate change, which Carney said can be as important as efficiency. ‘How do you respond when things go wrong? This is asking that question,’ he said.

Looking ahead, Carney said that an additional element of ISSB guidance would be transition disclosure guidance, telling companies how to report moves towards becoming climate change resilient. He noted that many companies were currently aligning rather than aligned with international climate policy goals.

A key ISSB strength is that it has not started work from scratch. Carney and Sue Lloyd, ISSB vice chair acknowledged, for instance, that the new standards draw strength from utilising architecture developed by the Task Force on Climate-related Financial Disclosures (TCFD), set up in 2015 by the International Financial Stability Board (FSB).

Also, ISSB thematic and industry-based sustainability reporting requirements (integrated into S2’s annexes) have been aided by the August 2022 merger with the Value Reporting Foundation (VRF), which administered Sustainability Accounting Standards Board (SASB) sectoral standards.

Risks and opportunities

The SASB had been developing detailed sustainability disclosure standards since 2011, providing data that highlights risks and opportunities that affect enterprise value in 77 industries. These include those in the consumer goods, extractive industries, financial services, telecoms, food and drink, and other sectors, whose requirements are selected in S2 annexes.

The ISSB, when subsuming the VRF, also took over responsibility for the International Integrated Reporting Framework, which has given guidance since 2013 on how best to produce holistic integrated financial and sustainability-based reports.

The merger has seen VRF staff join the ISSB, and some VRF directors becoming advisers observing IFRS Foundation Trustee meetings and participating in a newly formed IFRS Foundation Transitional Advisory Group.

The ISSB also integrated the Climate Disclosure Standards Board (CDSB), another non-profit body, whose guidance has helped organisations prepare and present environmental and social information for investors, work also reflected in IFRS S1 and IFRS S2. CDSB resources and some staff have also been folded into the ISSB.

Liaison structures

The board has also been developing liaison structures. It has created an ISSB Partnership Framework to liaise with 20 partner bodies, including ACCA, the Global Reporting Initiative (GRI), the Big Four accounting networks (Deloitte, EY, KPMG and PwC) and the International Federation of Accountants (IFAC).

It is also working closely with the International Accounting Standards Board (IASB) to ensure ‘connectivity and compatibility’ between the IASB’s IFRS and the ISSB’s standards.

Faber welcomed the support of the ISSB as a ‘sister board’, with both operating under the IFRS Foundation.

While the foundation will not interfere in the technical work of the ISSB, it does lay down detailed requirements for the IASB’s work and its associated IFRS Interpretations Committee in a ‘Due Process Handbook’, which will be revised to take account of the sustainability board. These rules, said an IFRS Foundation note, embody ‘three principles of transparency, full and fair consultation, and accountability’.

‘Now we will work with regulators around the world as they play their part’

The ISSB has tried to integrate these considerations as it builds its own decision-making systems. A revised IFRS Foundation constitution was issued in November 2021, taking account of the ISSB.

Looking ahead to the implementation of S1 and S2, global disclosure institution CDP is incorporating the ISSB climate-related standard into its global environmental disclosure platform. An ISSB note welcomed this, noting: ‘With 18,700 companies, worth half of global market capitalisation, disclosing environmental information through CDP in 2022, this integration means rapid accelerated early adoption of ISSB climate data disclosure across the global economy.’

And with the ISSB looking to create a regulatory global baseline, Faber said the focus will turn to how governments incorporate the standards into law: ‘Now we will work with regulators around the world as they play their part, creating the conditions within their markets for adoption, so that investors can use comparable information about sustainability-related risks and opportunities in their investment decisions without delay.’