The ISSB issues inaugural sustainability reporting standards IFRS S1 and IFRS S2

On 26 June 2023 the ISSB issued its two inaugural sustainability reporting standards IFRS S1: General Requirements for Disclosure of Sustainability related Financial Information and IFRS S2: Climate related Disclosures with the aim of helping to improve trust and confidence in company disclosures about sustainability to inform investor decisions.

These are the first two sustainability reporting standards to be issued by the ISSB to date and the standards are effective for reporting periods beginning on or after 1 January 2024. Undertakings adopting these standards will disclose sustainability related information alongside its financial statements in the same reporting package.

These new standards issued by the ISSB incorporate requirements as set out in other existing reporting frameworks including TCFD (Task Force for Climate Related Disclosures) and SASB (Sustainability Accounting Standards Board) In addition there is some alignment on a number of disclosures and topics with the draft European Sustainability Reporting Standards (ESRS) namely ESRS 2 General Disclosures and ESRS E1 Climate. Entities adopting the new ISSB standards can also supplement their disclosures through reference to other voluntary and impact reporting frameworks such as GRI (Global Reporting Initiative) which contain a broader range of disclosures on qualitative and impact measures across people and the environment.

IFRS S1 and IFRS S2 have a greater financial and investor focus that ESRS which is broader and incorporates fully the double materiality principle. IFRS S1 for example offers a number of disclosure requirements that are intended to enable companies to inform their investors about sustainability related risks and opportunities they are exposed to in the short, medium and longer term.  IFRS S2 has a specified climate related disclosure focus and at this time does not incorporate broader Environmental, Social and Governance topics as ESRS will do for EU entities reporting under this framework.

Over time, the ISSB will work towards meeting other information needs of investors across other E, S, and G topics, which potentially will include biodiversity, human capital and human rights similar to additional topics included in the first set of ESRSs, which are at final stage approval with the EU Commission.

The ISSB standards are intended to be the global baseline for sustainability reporting and undertakings currently reporting under IFRS. Local jurisdictions such as the EU will have additional standards and requirements against which undertakings will report including ESRS. As standards develop over time comparability and interoperability across frameworks should develop allowing undertakings to gain efficiencies across reporting requirements and frameworks.

For now and similar to implementation of ESRS undertakings looking to adopt the ISSB standards should begin by evaluating their internal structures, process and governance around sustainability and data availability for disclosures in order to be ready to comply with the requirements set out both under both IFRS S1: General Requirements and IFRS S2: Climate.