The International Sustainability Standards Board (ISSB) – A Recap from 2021
The International Sustainability Standards Board (ISSB) was established in November 2021 at the 26th United Nations Climate Change Conference of the Parties (COP26). The Board was set up in order to build a global baseline set of sustainability standards and aimed at dealing with the ‘alphabet soup’ of ESG standards. Companies reporting on their sustainability performance, as well as stakeholders such as analysts, rating agencies, and investors, were being inconvenienced by the availability of a diverse group of sustainability reporting frameworks. There was a need for a single framework that would form the basis for all sustainability reporting worldwide.
In this article, we will examine some key developments that have taken place since the International Sustainability Standards Board (ISSB) was set up.
Consolidation of Sustainability Standards Setters
When the ISSB was set up, the initial announcement said that the body would consolidate various sustainability standards-setting efforts into itself. The Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) were specifically mentioned as being consolidated into the ISSB by June 2022.
Accordingly, the Climate Disclosure Standards Board (CDSB) was consolidated into the International Sustainability Standards Board (ISSB) in February 2022. As for the Value Reporting Foundation (VRF), its consolidation into the ISSB will be complete by August 1, 2022.
Incidentally, the Value Reporting Foundation (VRF) was formed in June 2021 with the merger of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC). The Climate Disclosure Standards Board (CDSB) is a part of the CDP – formerly the Climate Disclosure Project.
Consultation on Two IFRS Sustainability Disclosure Standards
In March 2022, the International Sustainability Standards Board (ISSB) launched a consultation on its first two proposed sustainability standards, which are called the IFRS Sustainability Disclosure Standards. One of those standards deals with general sustainability-related disclosure requirements, while the other deals with climate-related disclosure requirements.
The ISSB said the proposals build upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and also include industry-specific disclosure requirements from the SASB Standards.
The 120-day consultation on the IFRS Sustainability Disclosure Standards ends on July 29, 2022.
Request for Feedback on IFRS Sustainability Disclosure Taxonomy
On May 25, 2022, the ISSB sought feedback on staff recommendations for a digital sustainability reporting taxonomy. The taxonomy would facilitate digital or machine-readable disclosure of sustainability metrics and assist with a more detailed analysis and comparison of ESG reports. The staff recommendations form the fundamental considerations that would enable ISSB to release the IFRS Sustainability Disclosure Taxonomy well in time.
The ISSB’s plan for an IFRS Sustainability Disclosure Taxonomy is in keeping with stakeholder recommendations on the importance of making provision for digital sustainability disclosures right at the outset – parallel to efforts to build the IFRS Sustainability Disclosure Standards.
United Nations Statement on IFRS Sustainability Disclosure Standards
The United Nations, while endorsing the ISSB’s efforts with respect to the IFRS Sustainability Disclosure Standards, laid out a few guidelines on what the standards should achieve. The UN warned of the risk of key benefits from the common sustainability standards not being delivered if:
- A narrow interpretation of enterprise value and the factors affecting it leave out important sustainability risks and opportunities
- The ISSB standards result in selective disclosure by reporting companies
To combat this, the UN statement said a holistic and forward-looking approach to assessing enterprise value was necessary, as also the need to avoid selective disclosure by reporting companies.
The UN further suggested some elements to improve the standards, namely:
- Including clear guidance on what constitutes appropriate sustainability analysis and management.
- Encouraging entities to set sustainability targets.
- Requiring geographically contextualized disclosures.
- Adopting an explicit long-term time horizon.
International Sustainability Standards Board (ISSB) Inaugural Meeting
The International Sustainability Standards Board (ISSB) held its inaugural meeting in Frankfurt on July 20-21, 2022. The agenda of the meeting was published beforehand as the Overview of exposure drafts (the two proposed IFRS Sustainability Disclosure Standards) and considering the feedback received from various stakeholders until July 7, 2022. The consultation on the two proposed standards ends on July 29, 2022.
IFRS Foundation Launches ISSB Centre in Montreal
The IFRS Foundation is setting up an ISSB center in Montreal in Québec, Canada, in keeping with its multilocation approach. This announcement in June followed the signing of a “new Memorandum of Understanding (MoU) with Montréal International to obtain the financial support of the Government of Canada and the Government of Quebec” and coincided with the meeting of IFRS Foundation Trustees in Montreal on 28-30 June 2022.