Last month, the launch of the International Sustainability Standards Board (ISSB) S1 and S2 sustainability reporting standards was called a “landmark day for the global economy and the financial sector” first two IFRS Sustainability Disclosure Standards developed by the ISSB, and serve as a comprehensive global baseline of sustainability disclosures for the capital markets.
The first two IFRS Sustainability Disclosure Standards developed by the ISSB serve as a comprehensive global baseline of sustainability disclosures for the capital markets and it is hoped it will create a common language to express the risks and opportunities of a company’s sustainability credentials.
Here, Ding Li, associate director and head of strategy at sustainability consultancy Longevity Partners, explains what the ISSB means for corporates and the net-zero transition, and what needs to happen next.
Are you pleased with the standards? Did they go far enough?
The ISSB standards mark a step in the right direction. Once increasing numbers of businesses start implementing the framework, we will gain a better understanding of any challenges or roadblocks. The main obstacle as it stands is that the standards are not mandatory, which inevitably places limitations on their impact.
First announced at COP26 in November 2021, the ISSB standards have been much anticipated by the industry. Launching the framework is an important milestone in our journey towards a sustainable and transparent future, and with this unified effort, we are fostering a culture of accountability and driving real change.
See also: – ISSB standards to be rolled out January 2024
Will the ISSB help tackle greenwashing? If so, how?
One of the key objectives of the ISSB framework is to standardise disclosure around climate-related financial risks and opportunities. Therefore, if organisations adhere to the same global baseline of sustainability disclosures when conducting their annual reports, ESG information will be more transparent, which in turn streamlines benchmarking and makes greenwashing easier to identify.
What do you think take-up will be like by corporates?
It is currently up to the discretion of individual countries as to whether listed companies are required to apply the ISSB framework. It’s encouraging to see interest from multiple countries – including Britain, Canada, Japan, and Brazil – but the industry will have a clearer gauge on uptake from January 2024 when the standards can officially be used in reporting.
Why is alignment needed between the ISSB, Corporate Sustainability Reporting Directive (CSRD) and European Financial Reporting Advisory Group (EFRAG)?
Alignment is essential for the two future ‘gold standards’ of reporting; the ISSB and the CSRD.
The two standards both advocate the integration of ESG performance into financial decision-making and reporting, and will be incorporated as legally-binding reporting requirements. Therefore, the ISSB must work with EFRAG, the organisation that is drafting the EU CSRD requirement, and ensure they sufficiently align to prevent any contradiction or further confusion.
For example, one of the key objectives of the ISSB is to standardise disclosure around climate-related financial risks and opportunities and companies that align with ISSB are required to report on climate-related information; for CSRD, however, the climate-related disclosures in ESRS (European Sustainability Reporting Standards) E1 are non-mandatory if they are not deemed material.
The purpose of these frameworks is to help eliminate complexities for businesses and to make reporting and benchmarking more straightforward – for investors, stakeholders, and the wider industry. A lack of synergy between the various frameworks therefore contradicts the fundamental reason for their existence.
Why should companies start reviewing their ESG strategy and disclosure framework to align with ISSB and CSRD?
The UK government has already signalled its intention to incorporate the ISSB standards into new economy-wide sustainability disclosure requirements.
If they haven’t already, companies should start reviewing their ESG strategy and disclosure framework to align with ISSB and CSRD. This means thoroughly understanding the two reporting frameworks and their implications on the organisation’s reporting strategy, as well as performing impact and financial materiality assessments to identify the relevant ESG topics for performance improvement and monitoring and reporting progress.
What’s next for reporting frameworks? Do you think the ISSB will became mandatory?
It can feel difficult keeping track of the ESG reporting landscape and introduction of new standards and regulations. However, as reporting frameworks continue to evolve, a clear-sighted strategy enables businesses to anticipate and efficiently handle change.
While the ISSB guidelines are not currently mandatory, the industry is anticipating regulation to become more stringent with time, in line with the urgency of the climate crisis. It is therefore in the interest of businesses to take an active interest in sustainability and get ahead of the curve, as lacking on progress could lead to financial sanctions and reputational damage down the line.
Companies need to establish a robust ESG strategy and understand their priorities in improving their ESG performance from an impact and financial implication perspective. In doing so, they can develop targets, KPIs, an implementation roadmap, as well as the necessary infrastructure around it such as data management systems, ESG governance structures, and a stakeholder engagement plan. The future of frameworks is that they will be unavoidable.