International Sustainability Standards Board

Written by esg.tech

A new type of global ESG reporting initiative has been launched to consolidate financial and environmental sustainability metrics at a whole new level. This will eliminate the fragmentation of existing global reporting metrics, reducing costs and complexity for investors, companies and regulators. Find out more about it here.

What is the International Sustainability Standards Board?

The International Sustainability Standards Board (ISSB) is a standard-setting body that will set the global benchmark for high-quality sustainability disclosure standards focused on enterprise value. While the ISSB will not completely reinvent the wheel, it is expected to be the game changer for ESG reporting.

The ISSB itself is a consolidation of several leading sustainability bodies, such as the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF). The latter is a merger of the two separate bodies: the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC).

The following are two boards that have been merged under the IASB:

CDSB – is an international consortium of companies and environmental NGOs that has successfully incorporated climate change and natural resources into the global corporate reporting model.
VRF – is a global non-profit organization that provides comprehensive reporting tools and resources that enable companies and investors to develop a common understanding of the concept of enterprise value. Guiding tools include:
SASB Standards – a standard developed by SASB to help companies and investors develop a common language about the financial implications of sustainability.
Integrated Reporting (IR) Framework – includes a number of metrics developed by the IIRC that link a company’s strategy, governance and financial performance to the social, environmental and economic context in which it operates.

Who created the ISSB?

The ISSB was established in November 2021 under the International Financial Reporting Standards (IFRS) Foundation at COP 26 in Glasgow, Scotland. The ISSB was given an equal footing with its sister body the International Accounting Standards Board (IASB) primarily to develop the IFRS Sustainability Disclosure Standards (IFRS SDS). The said standards aim to consolidate and harmonize various sustainability metrics with global financial reporting requirements.

Through the IASB, the IFRS have standardized the reporting of the financial performance and position of various entities in a way that is internationally comparable and acceptable. The ISSB’s IFRS SDS will follow the same path.

What is the purpose of the ISSB?

The main objective of the ISSB is to bridge the gap between investor demand and the ability of companies to produce high quality, enterprise value-focused, and comparable financial reports. The latter in relation to climate change and other environmental, social and governance (ESG) issues affecting their business.

To achieve this, the ISSB will develop standards that enable companies to disclose sustainability and financial metrics that are country-specific, yet comparable across countries. The result of this standardization will be a comprehensive sustainability profile that will help investors and other capital market participants assess the sustainability-related risks and opportunities of different companies.

It is expected that this new global ISSB reporting standard will encourage companies to monitor their response and take appropriate action in line with IFRS SDS.

What will be the ISSB’s first priorities and deliverables?

The ISSB’s immediate task is to merge the CDSB and VRF by June 2022. To assist the ISSB in fulfilling its mandate, a Technical Readiness Working Group (TRWG) has been established.

Members of the TRWG include experts in sustainability and integrated reporting standard setting from prominent organizations:

CDSB;
VRF;
International Accounting Standards Board (IASB)
Task Force for Climate-related Disclosures (TCFD), and
World Economic Forum (WEF).

. The ISSB will also develop specific technical guidance that it intends to publish. Some of the areas that the ISSB is currently working on are:

General Requirements for Disclosure of Sustainability-related Financial Information;
Climate-related Disclosures Prototype;
Conceptual guidelines for standard setting;
Architecture of standards;
Other items to inform a standard-setting agenda;
Due process characteristics;
Digitization strategy; and
Connectivity between the IASB and the ISSB.

How will the IASB collaborate with the ISSB?

The IASB is known to have developed the IFRS Accounting Standards which are used by more than 140 jurisdictions around the world. The ISSB will then work closely with the IASB to harmonize the IFRS Accounting Standards with the new IFRS Sustainability Disclosure Standards.

Although the two entities are independent, they will provide complementarity, connectivity, and compatibility between the two documents. This is expected to provide investors and other capital market participants with a simplified but comprehensive metric that meets their needs.

The Foundation also intends to use the IIRC Council to provide advice on establishing the link between the IASB’s and ISSB’s work on the fundamental concepts and guiding principles of integrated reporting.