IFRS Sustainability Disclosure Standards

Sustainability is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainability reporting can focus on the impacts a company has on people, the planet and the economy, or on the impacts that those topics have on the company’s enterprise value.

Sustainability reporting is of growing importance to investors and other stakeholders. Investors specifically use sustainability reporting to inform their decisions and are driving the pressure for more consistent and comparable reporting in this area.

Standards are needed to support the direction of capital to sustainable enterprise and to help make global capital markets resilient and efficient.

Standards enable consistent and comparable information essential to efficient capital markets.

Standards based on principles of legitimacy, independence, transparency, public accountability, independent oversight and thorough due process are essential to obtain buy-in and trust from all stakeholders.

The creation of the International Sustainability Standards Board (ISSB) was announced by the IFRS Foundation at the COP26 conference in November 2021. Its remit is to develop and maintain IFRS Sustainability Disclosure Standards which provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.

The ISSB sits alongside the existing International Accounting Standards Board (IASB). Although they are separate and independent boards, they intend to work alongside each other to enhance interconnectedness between financial reporting and sustainability reporting.

The ISSB has initially focused its efforts on general disclosure requirements and specifically climate-related reporting. Over time, it will work towards meeting the information needs of investors on other specific environmental, social and governance (ESG) matters.

In March 2022, the ISSB issued two Exposure Drafts, based on the prototype documents created by its Technical Readiness Working Group (TRWG). The TRWG undertook the preparatory work to give the ISSB a running start.

The two draft standards are:

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; and
• IFRS S2 Climate-related Disclosures.

Proposals set out in IFRS S1 require an entity to disclose material information about all the significant sustainability-related risks and opportunities to which it is exposed. IFRS S2 focuses on the specific requirements for the identification, measurement and disclosure of climate-related financial information.

The requirements of the two proposed standards build upon the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and are designed to help investors assess the entity’s enterprise value.

The consultation period closed in July 2022 and the ISSB is currently reviewing the feedback received. The Board’s aim is to finalise the standards before the end of 2022.

• Read ICAEW’s views on the draft standards here.

It will be for individual jurisdictions to decide if and how they would like to adopt IFRS Sustainability Disclosure Standards. While it is too early to say which jurisdictions will make the decision to adopt the new standards, there has been widespread international support of the IFRS Foundation’s project, including from the UK Government and lead regulators. The G7 and G20 finance ministers and central bank governors have issued statements of support for the proposals of the IFRS Foundation.

The future agenda and priorities of the ISSB will be determined based on a further public consultation, expected in Q4 of 2022, which will seek feedback on the sustainability-related information needs of investors.

The ISSB has built upon the established work of existing sustainability reporting standard frameworks. The recommendations of the TCFD form the bedrock of the two Exposure Drafts, which also incorporate industry-based disclosure requirements from Sustainability Accounting Standards Board (SASB) Standards (see below).

The formation of the ISSB has led to consolidation of the following pre-existing sustainability frameworks:

Climate Disclosure Standards Board

The Climate Disclosure Standards Board (CDSB) was consolidated into the ISSB in February 2022. The CDSB originated from an international consortium of businesses and environmental groups committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital.

Value Reporting Foundation

The Value Reporting Foundation (VRF) was consolidated into the ISSB on 1 August 2022. The VRF was initially formed from the merging of the IIRC (International Integrated Reporting Council) and SASB to form an organisation offering a comprehensive suite of resources designed to help businesses and investors develop a shared understanding of enterprise value. SASB have developed a set of 77 industry-based standards, which identify industry specific sustainability topics and associated metrics.

The following organisations remain key players in the field of sustainability reporting. While they share many characteristics with the ISSB, the stakeholders that they serve vary and as a result their approaches and products differ.

Other existing sustainability reporting frameworks outside of the ISSB

Global Reporting Initiative

The Global Reporting Initiative (GRI) exists to help organisations be transparent and take responsibility for their impacts in order to create a sustainable future. The GRI has their own set of sustainability standards but is working with the ISSB to seek greater compatibility with IFRS Sustainability Disclosure Standards.

• Find out more

Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD was convened by the Financial Stability Board to produce a common global framework for companies wishing to report how climate change will affect their business. The TCFD has significant global support and has formed the basis of the ISSB’s proposed standards.

• Find out more

Global alignment with sustainability reporting initiatives from other jurisdictions is a priority for the ISSB. In April 2022, the ISSB established a working group of jurisdictional representatives to open a dialogue for enhanced compatibility between the work of the ISSB and other standard-setters.

Meeting summaries for the Jurisdictional Working Group are available on the IFRS Foundation’s website.

The UK Government has introduced mandatory climate-related financial disclosure requirements, which are aligned with the TCFD recommendations, for certain entities from April 2022. They have also stated their support for the development of international sustainability related reporting standards and have indicated an intention to subsequently align with international standards.

If the UK Government chooses to adopt the ISSB’s standards in the future, it is hoped that the common foundations between the TCFD framework and the ISSB’s standards will help enable a smooth transition for companies.

For more information on TCFD reporting visit ICAEW's TCFD page.

The European Commission’s (EC) proposal for a Corporate Sustainability Reporting Directive (CSRD) envisages the adoption of EU sustainability reporting standards developed by the European Financial Reporting Advisory Group (EFRAG). EFRAG issued the first set of draft European Sustainability Reporting Standards (ESRSs) for public consultation in April 2022. The comment period closed in August 2022 and EFRAG is currently reviewing the feedback received.

The EC have stated that the IFRS Foundation’s plans are relevant and their proposal for EU sustainability reporting standards would take account of global initiatives. The EC and EFRAG are members of the Jurisdictional Working Group (see above) established to facilitate global alignment in sustainability reporting.

ICAEW has responded to EFRAG’s suite of draft ESRSs in a high-level comment letter.

In March 2022, the Securities and Exchange Commission (SEC) issued a proposed rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, for reporting entities under its authority. The SEC’s proposal are based on the TCFD framework.

The SEC is currently reviewing feedback received on their proposals with the aim of final guidance being enacted in late 2022 or early 2023.

• Read ICAEW’s response letter to the SEC

Related By All Accounts articles:

• A global baseline
• Global sustainability standards
• Connecting financial and sustainability reporting
• Visit ICAEW's Non-financial reporting hub

Other resources:

• For an overview of the TCFD recommendations visit ICAEW's TCFD page
• Access a range of resources on climate change at ICAEW’s climate hub

• Take a look at ISSB’s Exposure Drafts: General Sustainability-related Disclosures and Climate-related Disclosures
• Visit the International Sustainability Standards Board’s page