New International Sustainability Standards Board is a ‘game-changer’. So what are IFRS and ISSB?
The International Financial Reporting Standards (IFRS) Foundation, a not-for-profit international organisation responsible for developing a single set of high-quality global accounting standards, announced the formation of a new International Sustainability Standards Board (ISSB) on day three of the COP26. This announcement is a pivotal moment that has the potential to change the way boards and investors make financial investment decisions in the coming years.
Through this new Board, the IFRS Foundation aims to put sustainability reporting on the same footing as financial reporting by establishing a sister body to the International Accounting Standards Board (the IASB Board). It is driven by global investors and is being introduced to give sustainability information the same rigor and comparability that the capital markets expect of financial information.
What gets measured gets managed
The intention behind the formation of the ISSB is to develop IFRS Sustainability Disclosure Standards, a comprehensive baseline that provides a common global reporting framework and transparent information for investors and other stakeholders to determine how sustainability impacts an organisations’ financial value.
The ISSB framework will enable this by changing:
- how actions around sustainability are reported to the market;
- how climate and broader sustainability issues impact value in the short, medium, and long term; and
- the way companies view and manage their strategic risks;
The ISSB will sit alongside and work in close cooperation with the IASB, ensuring connectivity and compatibility between IFRS Accounting Standards and the IFRS Sustainability Disclosure Standards.
The ISSB and the IASB will be independent and overseen by the IFRS Foundation Trustees, who are accountable to a Monitoring Board of capital market authorities.
Comprehensive global baseline
The standards will be developed to ensure compatibility with requirements that are jurisdiction specific as well as standards which are aimed at a wider group of stakeholders. G20 Leaders and the Financial Stability Board have welcomed the IFRS Foundation’s work programme to develop global baseline standards for sustainability disclosures.
The IFRS Foundation will be taking a “climate first” approach leveraging the Taskforce on Climate related Financial Disclosures (TCFD) Guidelines for its first standard. The TCFD, in its role as a strategic risk framework, has acted as a catalyst to challenge Boards on the way they think about risks, stretched their planning horizons, and ultimately driven better strategic decisions. Taking the structure and thinking of the TCFD as a starting point for the first ISSB standard is a very smart move and will allow them to hit the ground running.
The IFRS Foundation Trustees are currently appointing a Chair and Vice-Chair(s) to the ISSB and will commence searching for members to fill the additional board positions.
The ISSB’s work is expected to commence as soon as the Chair and Vice-Chair(s) have been appointed and to begin with public consultations. The ISSB’s work will follow the IFRS Foundation’s rigorous due process, including discussions of feedback received to the consultations and will be overseen by the Trustees’ Due Process Oversight Committee.
What should you be thinking?
Given this announcement, you and your organisation should consider:
- Am I considering sustainability as a communications process or as a core strategic risk and opportunity for my business?
- Am I considering sustainability as a separate set of non-financial risks, or as an integrated corporate reporting thematic?
- Am I giving sustainability performance, in particular climate risks and opportunities, the attention they need in this fast-paced and changing environment?
The first IFRS Sustainability Disclosure Standard in climate will be a game-changer with the potential to fundamentally change how organisations report their risks and opportunities. Now is the time to prepare.