Environmental, Social, and Governance (ESG) factors have become essential elements for businesses striving to meet stakeholder expectations and regulatory requirements. One of the most significant developments in the ESG reporting space is the establishment of the International Sustainability Standards Board (ISSB). This article will explore what the ISSB is, how it functions, and how it impacts businesses across different sectors. We’ll also cover how companies can leverage tools like Ikano Insight’s ESG Optimiser to navigate these changes.
What is the International Sustainability Standards Board (ISSB)?
The ISSB is a global standard-setting body created to develop a comprehensive set of sustainability-related disclosure standards. It was established by the International Financial Reporting Standards (IFRS) Foundation in 2021 to address the fragmented nature of sustainability reporting, which has long been criticised for its lack of consistency, comparability, and transparency. The ISSB aims to harmonise global sustainability standards, much like the IFRS Foundation’s role in financial reporting.
Unlike individual ESG frameworks, the ISSB is not a reporting framework or a standard in itself. Instead, it serves as the authority that creates and governs sustainability standards, much like how the IFRS Foundation governs financial reporting standards globally. The ISSB’s objective is to ensure that investors and stakeholders have access to comparable, reliable, and decision-useful information on companies’ sustainability performance.
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What are the ISSB Standards?
The ISSB has developed a series of standards known as the IFRS Sustainability Disclosure Standards. These standards are designed to provide a global baseline for sustainability-related disclosures, focusing primarily on ESG factors that affect enterprise value. The core purpose of these standards is to ensure that companies report on sustainability risks and opportunities that have financial implications, making the information relevant for investors and other stakeholders.
The first two major standards issued by the ISSB are IFRS S1 (General requirements for disclosure of sustainability-related financial information) and IFRS S2 (Climate-related disclosures). These standards build on pre-existing frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and other internationally recognised sustainability reporting initiatives. IFRS S2, in particular, aligns with TCFD recommendations, integrating climate-related risks into financial disclosure requirements.
Key areas covered by ISSB standards include:
- Governance: how sustainability is governed at board and management levels.
- Strategy: how sustainability factors impact business strategy and operations.
- Risk management: how sustainability risks are identified, assessed, and managed.
- Metrics and targets: the quantitative measures used to monitor sustainability performance.
These standards are designed to provide clarity and transparency, ensuring that sustainability information is comparable across industries and geographies.
Are ISSB Standards mandatory?
Currently, ISSB standards are not mandatory at a global level. Adoption depends on whether individual jurisdictions choose to implement these standards within their own regulatory frameworks. However, the ISSB has been working closely with regulators worldwide, and it is anticipated that many countries will eventually incorporate these standards into their mandatory reporting requirements.
Several jurisdictions have already indicated their intent to adopt the ISSB standards. For example, the European Union (EU) is actively considering how the ISSB standards can align with the existing Corporate Sustainability Reporting Directive (CSRD). In the UK, the Financial Reporting Council (FRC) is also exploring the incorporation of ISSB standards into its reporting guidelines. Additionally, financial regulators in countries like Japan and Canada have expressed interest in adopting the standards.
In the interim, companies may voluntarily adopt ISSB standards as part of their broader ESG reporting efforts, particularly those aiming to meet investor expectations for comprehensive, comparable sustainability disclosures.
Which companies have to comply with the ISSB?
The ISSB’s standards are primarily targeted at large, publicly listed companies, particularly those that operate across international markets. However, the standards are also applicable to any company that wants to provide transparent and credible sustainability information to investors, stakeholders, or regulators.
Key factors influencing whether a company should consider adopting ISSB standards include:
- Industry: Companies in sectors that are heavily scrutinised for their environmental or social impact—such as energy, manufacturing, mining, and finance—are more likely to adopt ISSB standards. These industries face significant climate-related risks, and the transparency provided by ISSB disclosures can help mitigate reputational risks and investor concerns.
- Turnover: Large companies with significant global operations and high turnover are more likely to adopt ISSB standards. Their size and market presence often make them subject to regulatory pressures, particularly in jurisdictions moving toward mandatory sustainability disclosures.
- Investor Base: Companies with institutional investors or those listed on global stock exchanges may also adopt ISSB standards to meet investor demand for detailed sustainability information.
The standards are relevant for any organisation aiming to demonstrate leadership in sustainability reporting, particularly companies that already engage with other ESG frameworks such as TCFD or the Global Reporting Initiative (GRI).
The ISSB’s relationship to IFRS and TCFD
The ISSB operates under the umbrella of the IFRS Foundation, leveraging its experience in creating globally recognised financial reporting standards. This ensures that sustainability disclosures are integrated with financial reporting, providing a holistic view of a company’s performance.
The ISSB’s connection with the TCFD is particularly significant. The TCFD framework was widely endorsed for its approach to climate-related financial disclosures and, as of October 2023, the TCFD was disbanded and merged with the International Sustainability Standards Board (ISSB), marking a new phase for Environmental, Social, and Governance (ESG) reporting. By building on the TCFD’s recommendations, the ISSB ensures that its standards align with investor expectations and regulatory developments around climate risk.
How Ikano Insight ESG software solutions can help
Navigating the evolving world of ESG reporting, including ISSB standards, can be complex. Companies looking to streamline their ESG reporting processes can benefit from Ikano Insight’s ESG Optimiser solutions. Powered by the IBM Envizi ESG Suite, they provide comprehensive tools and services for automating and managing sustainability data collection, reporting, and compliance.
With the capability to track, monitor, and report on a wide range of ESG frameworks, including the ISSB standards, Envizi platform modules ensure your company is prepared for both current and future reporting requirements. Whether you are in an industry heavily impacted by climate-related risks or simply seeking to enhance your sustainability disclosures or compliance, Ikano Insight’s solution helps you apply best practices and stay ahead of the curve.
If you want to enhance and streamline your business’s ESG reporting capabilities, IBM Envizi from Ikano Insight offers a robust, user-friendly solution that integrates seamlessly with the latest sustainability standards – book your free demo today.
