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July 5, 2023

ISSB standards: Market hails “monumental step” forward

ISSB's IFRS S1 and S2 are a major contribution to standardising sustainability reporting, which is a mishmash of voluntary frameworks.

By Elizabeth Meager

ISSB, Sustainability reporting
One small step… You know the rest. The ISSB has attempted to tie sustainability disclosure standards together. (Image by Merlin74 via Shutterstock)


  • The International Sustainability Standards Board (ISSB) published its new global baseline for corporate sustainability reporting on 26 June
  • This has been widely hailed as a major step forward for standardisation in a decidedly crowded arena
  • It is now up to governments and regulators to integrate the standards into their own frameworks by 2025 to ensure consistent global adoption

Companies, regulators, investors, banks and service providers from across the globe have together welcomed the launch of a new global baseline for corporate sustainability reporting.

The International Sustainability Standards Board (ISSB) was created in November 2021 at Cop26 in Glasgow, with the express purpose of consolidating the myriad sustainability standards and reporting frameworks around the world. It has worked quickly to bring its proposal to market, with considerable industry input: more than 600 institutions, individuals and government entities responded to its 2022 consultation.

“[26 June] represents the outcome of more than 18 months of intense work to deliver an inaugural set of sustainability disclosure standards for the global capital markets,” says Emmanuel Faber, chair of the ISSB and former Danone CEO.

“The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner. We have consulted closely with the market to ensure the standards are proportionate and will result in disclosures that are relevant for investment decision-making.”

A common tongue

This is a major development because corporate sustainability reporting today is a mishmash of dozens of voluntary standards, combined with a small but growing number of compulsory regulatory frameworks. Consolidation has been underway since the ISSB’s creation with some voluntary organisations merging, but the market is still far from where most agree it needs to be: speaking a common language for sustainability standards.

Many large cap companies report against multiple frameworks, which creates additional costs for both them and their investors. Indeed, the patchwork of approaches “impedes those investors wishing to allocate capital based on sustainable investment objectives”, says Jane Goodland, group head of sustainability at the London Stock Exchange Group, which hosted the ISSB for the launch.

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The ISSB has put forward two standards: IFRS S1 and S2. S1 is defined as “general requirements for disclosure of sustainability-related financial information” and is intended to apply globally across all sectors. It provides a core baseline that will also direct companies on how to integrate sustainability and financial information.

S2, defined as “climate-related disclosures”, requires companies to disclose information about their governance, strategy and risk management, as well as its approach to climate-related risks and opportunities.

“Investors globally are bringing climate and sustainability into their core investment strategies and need high quality, consistent data,” says David Atkin, CEO of the UN Principles for Responsible Investment (PRI). “The absence of this in many markets has proven a barrier that has impeded the effective flow of capital. The ISSB’s S1 and S2 standards can now provide this critical common language on sustainability disclosure which establish a common baseline for issuers regardless of size, sector or location.”

ISSB: The key takeaways

The ISSB also aims to bring standardisation to the wild west of climate transition planning. Transition plans are the 'how’ of net-zero goal setting and are increasingly important to investors. While an estimated third of all companies disclosing via CDP have created them, there is little to no uniformity, making it difficult for investors to analyse and compare. Major supra-nationals including the Financial Stability Board, IMF, OECD and World Bank have also been criticised in the past for lacking credible transition plans.

Another major step is that the ISSB will require companies to disclose their Scope 3 emissions: those of their supply chains, customers and other third parties. Scope 3 is a major sticking point in corporate reporting: in 2021 around 17% of the 18,700 companies reporting via CDP included scope 3 data.

In fact, just 58% of large and mid-cap companies listed on the FTSE All-World index report basic scope 1 and 2 carbon emissions, let alone scope 3. On the FTSE China A Share Index, which tracks companies listed in Shanghai and Shenzhen, it is just 11%. The EU will mandate scope 3 emissions reporting from 2025 under its Corporate Sustainability Reporting Directive; in the US it will be required for publicly traded companies only if they are “material” or the company has a specific target to reduce them.

Not just another sustainability standard

The ISSB was keen to build on the considerable work already done in this space. S2 is built on Taskforce on Climate-related Financial Disclosures (TCFD) and Greenhouse Gas Protocol Corporate Standard, which will ease adoption.

The ISSB’s proposal also incorporates work previously done by the Climate Disclosure Standards Board (which was integrated into the ISSB in 2022), the Value Reporting Foundation and the Sustainability Accounting Standards Board.

CDP, whose 2022 reporting companies comprise half of global market capitalisation, has already confirmed it will incorporate ISSB S2 into its disclosure system.

Even so, the new standards represent just one step on a long road. The ISSB has done the technical work; it is effectively now passing the baton to governments to integrate the standards into their own regulatory frameworks, with a target of 2025. Regional regulators will be free to tailor them to their own jurisdictions, with some – like the EU – going further. It is not yet clear how this might impact cross-jurisdictional comparability.

Adoption is also more likely in some jurisdictions than others. The US does not even use the International Financial Reporting Standards’ (IFRS; the parent organisation of the ISSB) conventional accounting standards, and its Securities and Exchange Commission tabled its own climate disclosure framework last year. But large US companies doing international business are likely to adopt S1 and S2 on a voluntary basis.

Attempting to get ahead of both its critics and certain concerns raised in the consultation phase, the ISSB stresses that interoperability with established frameworks and local legislation was central to its work.

The board has also aimed to keep it proportional for smaller and emerging market companies, with some requirements scaled down. For example, S2 requires scenario analysis, but takes into consideration a company’s skills, capabilities and resources in determining the required approach.

The ISSB’s work represents one step on the road to global standardisation – but it is a significant one.

[Read more: On the development of the ISSB]

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