27 Jun ISSB introduces new standards to unify corporate climate disclosures
The International Sustainability Standards Board (ISSB) has released its final frameworks, with the plan that the first business reports aligned with the measures will launch in 2025. As promised earlier this year, the Board announced two new standards as it continues to develop a structured international standard for sustainability disclosures.
The plan is to terminate the differentiation of disclosure reports and report overall quality between various nations and regions. The two standards, IFRS S1 and S1 are predominantly climate-focused, but the first includes other environmental risks and opportunities. IFRS S1 refers o the core baseline of sustainability reporting, designed for all large corporations, regardless of industry or location. The plan incorporates impacts, including all scope emissions and waste management. It includes plans on how to report these factors with associated financial details.
The other measure, IFRS S2, is more comprehensive than other fields, especially climate mitigation and adaptation. It’s intended to incorporate existing disclosure frameworks, particularly the Taskforce on Climate-Related Financial Disclosures (TCFD). The standard explores how companies can assess future climate risks and opportunities and how this impacts their valuation.
A big discussion of these plans is that both standards incorporate Scope 3 (indirect) carbon emissions. Most large businesses will see Scope 3 consisting for the majority of their carbon footprint, making reducing Scope 3 emissions a top priority for any credible climate plan. There are, however, some challenges with Scope 3 emission reporting. The main concern is that data is difficult to collect and verify.
With the recent launch of IFRS S1 and IFRS S2, the ISSB will collaborate with relevant groups and businesses to support uptake. The initial steps will be developing a Transition Implementation Group to support companies introducing the standards and launching initiatives to enable implementation. The plan is for the first aligned corporate reports to release in 2025.
The ISSB is committed to ensuring all standards build on existing frameworks rather than creating further challenges. They created the measures based on the core concepts within the IFRS Accounting Standards, which are mandatory for over 140 jurisdictions. The G20 and G7 groups have shown their support of the new measures, and finance leaders from multiple countries and regions, including the coalition of African Finance Ministers. The G7 have confirmed they have agreed to mandate TCFD-aligned reporting, with the UK leading the way with the domestic mandate in 2022. The UK is now introducing mandatory net-zero transition planning.
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