As jurisdictions around the world announce plans to adopt the ISSB’s standards on general sustainability reporting and climate disclosures, the ISSB is beginning to develop standards for specific sectors and researching new projects on topics such as biodiversity, which is gaining more attention from companies, investors and policymakers. Investors are increasingly seeking consistent and comparable disclosures on companies’ exposure to biodiversity and nature-related risks.  These will be central topics of discussion at COP16, the UN Biodiversity Conference to be held in Colombia from Oct. 21 to Nov. 1, 2024.

Since the ISSB issued its first two standards in June 2023, jurisdictions around the world have stated their intention to adopt the standards or align reporting frameworks with them. Adoption of the standards is gaining traction: As of Sept. 30, 2024, six jurisdictions have adopted the standards on a voluntary or mandatory basis with reporting starting Jan. 1, 2024, and 19 other jurisdictions are planning to adopt them in the future. Some of those jurisdictions in the process of adoption, such as Australia, have finalized the creation of ISSB-aligned standards but have set a reporting start date in 2025.

How does the ISSB intend to develop its standards?

The ISSB has embarked on a two-year work plan between 2024 and 2026 following a public consultation, with its main priority being implementation of its IFRS S1 and IFRS S2 standards.

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information: Companies are required to disclose sustainability-related risks and opportunities.
• IFRS S2 Climate-related Disclosures: Companies are required to disclose specific metrics such as greenhouse gas (GHG) emissions, climate-related physical and transition risks and scenario analysis.

The board is also planning to develop the Sustainability Accounting Standards Board (SASB) standards. SASB is now part of the ISSB, and its standards form an integral part of the ISSB’s standards for industry-specific disclosures. For example, IFRS S2 guidance on industry-specific climate-related metrics is based on the SASB standards, according to the ISSB.

The ISSB is preparing drafts of amendments to 12 of the 77 industry-specific SASB standards as one of its priorities in its 2024-2026 workplan. The amendments are designed to support implementation of the ISSB standards and ensure reporting is consistent across industries, the ISSB said in a paper published in September 2024. The board plans to work on “enhancements” to the eight SASB standards for the Extractives & Minerals Processing sector, which includes oil and gas as well as metals and mining; the standard for Electric Utilities & Power Generators in the Infrastructure sector; and three SASB standards in the Food & Beverage sector, subject to ISSB capacity.

The proposed amendments will be conducted in coordination with the ISSB’s other work projects for 2024-2026, which include a research project on risks and opportunities related to biodiversity, ecosystems and ecosystem services. The economy is reliant on the ecosystem services that nature provides in many different ways. For example, ecosystem services provide wood for timber harvest; ground water or fresh water for drinking, cooling power plants or irrigation; and animal or plant fibers for fabrics or fertilizer. Nature also provides ecosystem services by modulating the climate and hydrological, ecological and soil processes. Examples of these ecosystem services include pollination, carbon sequestration, erosion control, flood and storm protection, disease control and soil quality.

The board is also working on a project related to human capital, looking not just at risks and opportunities related to a company’s workforce but also the workers throughout its supply chain.

In an August 2024 webinar on the ISSB’s two-year workplan, ISSB member Michael Jantzi said many of the SASB standards include nature-related topics and associated metrics covering water and wastewater management, ecological impacts, material sourcing, product design and life cycle management, among others. SASB standards also include metrics like employee health and safety, employee engagement, diversity and labor practices, among others. The standards will help inform the ISSB’s research projects on biodiversity, ecosystems and ecosystem services, and human capital “because they provide an avenue for the ISSB to consider how it might build on the requirements in IFRS S1,” the ISSB said in its September paper.

The ISSB will also lean on the Climate Disclosure Standards Boards framework and the Taskforce on Nature-Related Financial Disclosures, which has developed disclosure recommendations for companies to report on nature-related risks, to inform the research project on biodiversity, ecosystems and ecosystem services, Jantzi and ISSB Vice-Chair Sue Lloyd told the webinar. The research projects “are the first step” before proposing and developing new ISSB standards, Lloyd said.

What guidance is the IFRS giving on ISSB adoption?

The IFRS published a guide on Sept. 25, 2024, to support companies in implementing the standards, particularly in jurisdictions without regulatory requirements. The guide also aims to help companies explain to investors and other stakeholders what sustainability-related financial information they are able to provide throughout their path to compliance with IFRS S1 and IFRS S2, according to the guide.

Companies can take a transitional approach to reporting and phase in the requirements over time, using temporary exemptions offered in the standards. Some of the exemptions include:

• Focusing on climate only when a company starts reporting under IFRS S1. In the first annual reporting period of applying IFRS S1, companies can disclose climate-related risks and opportunities only. Companies are required to disclose non-climate related sustainability reports from the second year they apply IFRS S1.
• Delay the timing of reporting under IFRS S1. Companies are required to report their sustainability-related financial disclosures at the same time as their financial reports under IFRS S1. However, in their first year of reporting according to IFRS S1, companies can publish their sustainability-related information after publishing their financial results.
• Reporting on emissions throughout a company’s value chain. Companies are not required to report on Scope 3 emissions, which are the emissions that occur up and down a company's value chain, in the first year that they apply IFRS S2.

IFRS S1 requires companies to say whether they comply with the standards under an “unreserved statement of compliance,” the IFRS said in its guidance. A company that only partially applies the standards needs to describe in what ways its disclosures reflect those of the standards and can explain why it requires more time than the relief periods to apply the standards, the guide said. For companies only partially applying the standards, having third-party assurance could help give investors a better understanding of the reported information, it added.

The IFRS also said the standards have “proportionality mechanisms” built into them that take into account a company’s capacity and resources for providing sustainability-related information with their financial reports. Companies are required to consider information that is “reasonably available,” do not need to undertake “an exhaustive search” for information and must consider “information that is historical, current and forward-looking" but only when the information is available at the time that the company reports, according to the IFRS.

For example, certain sectors may find it challenging to use climate-related scenario analysis. Sectors such as oil, gas or mining may have developed climate-related scenario analysis over many years, while other sectors such as consumer goods or technology may be only beginning to use the tool in measuring climate risks, the IFRS said in a 2023 paper on the ISSB standards. Some companies may not yet have the resources to quantify the anticipated financial impacts of sustainability-related risks and may need to build capacity, it said in the same paper. In its September 2024 guide for companies, the IFRS wrote that companies can take “qualitative instead of quantitative approaches in several instances” in their sustainability-related reporting. Quantitative climate scenario analysis, for example, uses analytical models to determine a wide range of climate-related risk outcomes, while qualitative scenario analysis is based on descriptive narratives and is often the first step for organizations to explore potential future climate outcomes.

How are regulators adopting the standards?

In May 2024, the IFRS published a guide for jurisdictions seeking to adopt or use its sustainability-related disclosure standards. It explains the various ways jurisdictions can use the standards, such as full adoption of the standards, partial adoption and permitting companies to use them.

Ultimately, the standards will only take effect for corporate reporting if jurisdictions adopt them. The International Organization of Securities Commissions (IOSCO) endorsed the ISSB standards a month after their initial publication, signaling support for adoption in the 130 jurisdictions it represents. Those jurisdictions regulate more than 95% of the world's financial markets. Lloyd told the World Standard Setters Conference on Sept. 23, 2024, that jurisdictions accounting for more than 40% of global market capitalization had adopted or were in the process of adopting the standards.

Some jurisdictions have been taking different approaches to adopting and applying the standards. However, investors, regulators, companies and other stakeholders are pushing for “a global approach” to sustainability-related reporting based on the ISSB standards, Lloyd told the conference.

“We have seen this in action during several recent jurisdictional consultations on ISSB standards, where market feedback encouraged greater alignment with our global baseline, which led to those jurisdictions deciding to align more closely with our requirements,” Lloyd said.

She pointed to the case of Australia, where she said stakeholder feedback had led the country to bring its sustainability disclosure standards more in line with those of the ISSB. Draft Australian standards based on IFRS S1 had given more prominence to climate disclosures as opposed to overall sustainability disclosures, leading to calls within the financial community for closer alignment with the ISSB standards. The Australian Accounting Standards Board approved the standards on Sept. 20, 2024. AASB S1 now reflects IFRS S1 more closely and is a voluntary standard requiring entities to disclose information about all sustainability-related risks. AASB S2 is mandatory and requires companies to report on climate-related risks and opportunities. The standards will apply as of Jan. 1, 2025, to Australian companies with annual revenue above A$500 million.

Investors have also been asking other jurisdictions planning to adopt the standards to ensure their proposals are in line with the ISSB standards. For example, Japan launched a consultation on its proposed standards that ended July 31, 2024. In a letter to the Sustainability Standards Board of Japan (SSBJ), Norges Bank Investment Management, one of the world’s largest asset managers, pointed to several differences between the Japanese proposals and the ISSB standards, such as the SSBJ standard making disclosure of the amount and percentage of assets and business activities vulnerable to climate-related risks optional instead of mandatory. Japan is expected to issue its final standards no later than March 31, 2025.

How do the EU’s Corporate Sustainability Reporting Directive (CSRD) and the US Securities and Exchange Commission (SEC) climate disclosure standards compare to the ISSB standards?

The EU has widened the reach of its sustainability reporting regulations for companies through the reform of its Non-Financial Reporting Directive to create the CSRD, which is being phased in from Jan. 1, 2024. Companies in the scope of CSRD are subject to a set of sustainability standards called the European Sustainability Reporting Standards (ESRS). The ISSB published on May 2 interoperability guidance with the European Financial Reporting Advisory Group, a technical advisor to the European Commission, to show to what extent the ISSB standards and the ESRS align and how a company can apply both sets of standards. The guide includes information on how the ISSB standards and the ESRS align on general sustainability disclosures as well as climate disclosures. 

Under the ESRS, companies are required to disclose material environmental, social and governance impacts and risks within their upstream and downstream value chains — for example, Scope 1, 2 and 3 emissions as well as total GHG emissions.

In the US, the SEC said in its rule that its reporting framework has elements in common with the TCFD recommendations. The rule requires companies registered under its mandate to disclose at least some material climate-related information, such as risk management practices and risks to their strategy or financial performance. Some larger companies will be required to disclose Scope 1 and Scope 2 GHG emissions — or the emissions associated with their operations and with their purchased energy — but only if the companies deem those emissions to be material.

The SEC acknowledged there were “similarities” between the ISSB standards and its final rule but said it would not recognize the ISSB standards as an alternative reporting regime for the time being. The SEC issued a stay on April 4, halting the implementation of the rule as legal challenges against it proceed, and hearings on the case are not expected until 2025.

Predating the SEC rule, California approved a law in October 2023 that would require large companies doing business in the state to begin reporting Scope 1 and Scope 2 emissions in an annual report starting in 2026, with Scope 3 reporting beginning in 2027. An amendment to the law signed in September 2024 gave the California Air Resources Board more flexibility in developing the reporting rules companies will follow to comply with the law but did not change the compliance dates for emissions reporting.