ISSB update: standards effective from January 2024

The International Sustainability Standards Board (ISSB) announced in February that the initial IFRS Sustainability Disclosure Standards, S1 and S2 will be finalised this year and become effective from January 2024. The first corporate reports aligned with the standards are expected in 2025.

Speaking at the International Financial Reporting Standards (IFRS) Sustainability Symposium in Montreal last week (16-17 February 2023), the ISSB’s Chair Emmanuel Faber noted:

“We responded to capital market and G20 demand for a common language of investor focused sustainability-related disclosure, working diligently to deliver standards that fulfil the global baseline. Setting a 2024 effective date is consistent with this demand.”

The new standards – S1 general requirements, and S2 climate requirements – are based on existing frameworks including TCFD and SASB, and will provide companies and investors with a standardised framework for disclosing sustainability-related information. Read more about the standards in our earlier article here.

Interoperability

ISSB aims to provide a globally applicable framework, but jurisdictions are expected to adopt the standards in slightly different ways. To ensure interoperability with existing and emerging sustainability standards and frameworks IFRS has been working with regulators and standard-setting bodies in a range of jurisdictions (e.g. European Commission, SEC, FCA) with the aim of aligning objectives and processes. CDP will also incorporate IFRS S2 data into its platform for the 2024 disclosure cycle.

Materiality

Despite these efforts, there remains some discrepancy between approaches to materiality. ISSB has now removed references to the “enterprise value” approach (also used in TCFD) which chiefly asks companies to consider the impact of sustainability issues on their financial valuation, and replaced it with the IFRS Accounting Standards definition: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence investor decisions”. However, it has not gone so far as to adopt the EU approach to “double materiality” which further requires companies to consider their impact on the world. It remains to be seen if the IFRS definition will be taken to include this approach or if companies will continue down the enterprise value route.

February 2023 updates

The table describes the core elements of the most recent updates to the S1 and S2 standards.

Source: IFRS

Transition reliefs

Certain “transition reliefs” aimed at helping companies with fewer resources to prepare for the new approach have also been provided as part of the update, under “proportionality”. These include temporary exemption from disclosing Scope 3 GHG emissions when first applying IFRS S2, allowing companies with limited resources or expertise to use qualitative rather than quantitative scenario analysis, and initially allowing the use of “information that is reasonable and supportable and is available without undue cost or effort” with a view to scaling up efforts over time. Though there is an obligation for companies to report at the same time as their financial statements, there will also be an exemption allowing companies additional time for sustainability reporting, at least in the first year. Educational materials and guidance are to be provided by IFRS to support companies.

What next?

IFRS has advised that organisations already using frameworks such as SASB and TCFD should continue to do so. While firms that are yet to engage in sustainability disclosure should prepare by assessing their processes for collecting and analysing sustainability-related information, considering the sustainability risks and opportunities they may face, and reviewing ISSB’s proposed standards.

IFRS also recently promised to provide a suite of guidance materials and illustrative examples covering the topics shown in the table, plus some additional elements (e.g. potential disaggregation of GHG emissions by greenhouse gas (e.g. methane), and potential disaggregation of financed emissions by entities in the Asset Management & Custody Activities industry). We’ll keep an eye on these and any other updates as they are released, and report on any changes and useful examples and developments.