Around the world, sustainability factors are becoming – if they are not already – a mainstream part of investment decision-making. These factors are also increasingly central to how companies develop their strategies, manage their businesses and report.
Countless examples and evidence demonstrate why this change has happened. From companies attracting capital by explaining their low-carbon strategies, to those providing comfort to investors by disclosing how their plans to transition their business models help them mitigate risks and unlock opportunities.
Companies and investors alike have been confused by the range of sustainability reporting initiatives in the market
Sue Lloyd
But while sustainability reporting has been around for a while, there have been challenges. Companies and investors alike have been confused by the range of sustainability reporting initiatives in the market. This has meant investors have not been receiving comparable or complete information that they can be confident to rely on.
Ultimately, this means capital markets have not been working as efficiently as they could. It led to calls from the G20 and the International Organization of Securities Commission (IOSCO), as well as leaders in the businesses and investor communities, for a globally applicable, assurable and cost-effective approach.
In response, following significant market consultation, the International Sustainability Standards Board (ISSB) was established and has issued its first two standards in June 2023. The ISSB’s focus is on achieving a global baseline of sustainability information to meet the needs of capital markets.
Key to this achievement was consolidating the resources of market-leading, investor-focused initiatives including the Sustainability Accounting Standards Board (SASB), Integrated Reporting and the Climate Disclosures Standards Board (CDSB).
The ISSB Standards, which are suitable for application around the world, have been developed to provide information alongside the financial statements and can be used in conjunction with any accounting requirements. The ISSB Standards, however, build on the concepts that underpin the IFRS Accounting Standards, which are required for use by more than 140 jurisdictions around the world.
Since the ISSB Standards have been issued three major announcements have demonstrated the continued strong support and momentum for their use. Firstly, the Financial Stability Board announced the work of the Task Force on Climate-related Financial Disclosures (TCFD) has concluded, citing the ISSB Standards which fully incorporate the TCFD recommendations as the culmination of its work.
Secondly, IOSCO endorsed the ISSB Standards following a comprehensive review and is now calling upon its 130 member jurisdictions, regulating over 95% of the world's securities markets, to consider how they can incorporate the ISSB Standards into their regulatory frameworks.
Already we know that jurisdictions such as Australia, Japan, Singapore and the UK are looking at routes to introduce the ISSB Standards into their regulatory frameworks
Sue Lloyd
The endorsement from IOSCO confirms that the ISSB Standards are fit for capital market use. Already we know that jurisdictions such as Australia, Japan, Singapore and the UK are looking at routes to introduce the ISSB Standards into their regulatory frameworks, and that jurisdictions such as Nigeria have publicly announced their intention to adopt the ISSB Standards early.
Thirdly, the ISSB has welcomed the commitment from the European Commission and the European Financial Reporting Advisory Group (EFRAG) to support international consistency in sustainability disclosures. The European Union had already embarked on sustainability disclosure standards before the ISSB was established, so it has been necessary to focus on ensuring that the ISSB and European standards work well together, are interoperable, rather than begin with the ISSB Standards as the foundation.
Together, the ISSB, European Commission and EFRAG have worked to improve the interoperability of the respective climate-related disclosure requirements leading to a high-degree of alignment that designed to reduce and the risk of duplication in reporting for preparers and complexity for both preparers and users of the information.
We know from our public consultation that key to achieving the global baseline is supporting preparers and market participants around the world as they begin to implement the Standards. To support this the ISSB is committed to supporting the market through capacity building initiatives and through the development of a jurisdictional adoption guide. As part of this, the ISSB will launch a knowledge hub to bring together guidance, research publications and learning materials to support its stakeholders.
The ISSB Standards mark a crucial milestone. By providing a common language for sustainability disclosures, these Standards can empower investors to make informed decisions, build trust in companies and allow markets to price in sustainability-related risks and opportunities. The ISSB continues to work closely with partners from around the world to ensure this becomes a reality.
