ISSB Launches Inaugural Global Sustainability Disclosure Standards

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    Stockholm (NordSIP) – The lack of common international standards is one of the issues most often raised as a hurdle for the expansion and adoption of sustainable investments.  While some national and regional frameworks attempt to address this issue to some extent, there has not been a global approach to deal with this problem until now.

    To address this issue, the International Sustainability Standards Board (ISSB), a part of the International Financial Reporting Standards (IFRS), published its inaugural global sustainability disclosure standards — IFRS S1 and IFRS S2 — on June 27th.

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    ”Today 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. 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. We know that better information leads to better economic decisions. Today’s publication is just the starting point as we consult on our future priorities, beyond climate,” Emmanuel Faber, ISSB Chair.

    The ISSB was set up at the end of 2021 to do for sustainable disclosures what IFRS has already done for accounting: create a common international framework to facilitate transparency and accountability. The ISSB developed IFRS S1 and IFRS S2 in partnership with market participants and in response to calls from the G20, the Financial Stability Board and the International Organization of Securities Commissions (IOSCO), as well as leaders in the business and investor community.

    The new standards aim to improve trust and confidence in company disclosures about sustainability to inform investment decisions. The ISSB heralded the launch of IFRS S1 and IFRS S2 as ”ushering in a new era of sustainability-related disclosures in capital markets worldwide.”

    The New Standards

    IFRS S1, titled “General Requirements for Disclosure of Sustainability-related Financial Information”, provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2, titled “Climate-related Disclosures”, sets out specific climate-related disclosures and is designed to be used in parallel with IFRS S1. According to ISSB, both standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

    IFRS S1 and IFRS S2 require an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (collectively referred to as ‘sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’).

    IFRS S1 prescribes how an entity prepares and reports its sustainability-related financial disclosures. It sets out general requirements for the content and presentation of those disclosures so that the information disclosed is useful to users in making decisions relating to providing resources to the entity.

    IFRS S2 requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (collectively referred to as ‘climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’). IFRS S2 sets out the requirements for disclosing information about an entity’s climate-related risks and opportunities. IFRS S2 applies to climate-related physical and transition risks the entity is exposed to and to climate-related opportunities available to the entity.

    The new standards require entities to disclose information on the governance processes, controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities. They will also have to disclose information about their strategy for managing sustainability-related risks and opportunities, and the processes they use to identify, assess, prioritise and monitor sustainability-related risks and opportunities. Last but not least, IFRS S1 and S2 require entities to disclose their performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.

    Adoption of the ISSB Standards

    ”The global baseline approach, supported by the G20 and others, will provide investors with globally comparable sustainability-related disclosures that have the potential to move market prices, without constraining jurisdictions from requiring additional disclosures. This will help companies and investors by tackling duplicative reporting,” Erkki Liikanen, Chair of the IFRS Foundation Trustees, adds.

    Following the publication of the two disclosure standards, the ISSB will work with jurisdictions and companies to support adoption, starting with the creation of a Transition Implementation Group to support companies that apply the Standards and launching capacity-building initiatives to support effective implementation.

    IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024 with earlier application permitted as long as they are both applied concomittantly.

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