ISSB’s first sustainability standards

A new chapter in sustainability reporting began with the launch of the International Sustainability Standards Board’s (ISSB) first sustainability standards. I congratulate the ISSB team, who moved quickly and delivered the urgently-needed standards – general principles and climate – building on the best available content already used by companies.

We now have a clear and unambiguous requirement for companies to disclose material information about all sustainability-related risks and opportunities that could reasonably be expected to affect their prospects over the short, medium, or long term. IFRS S1 provides guidance to help a company identify relevant sustainability issues in the absence of an IFRS standard, referencing the Sustainability Accounting Standards Board (SASB) Standards that are already used by many. This is important while the ISSB develops content on other sustainability themes.

The ISSB’s focus is on sustainability information that could reasonably be expected to influence decisions that investors and other providers of financial capital make on the basis of that information – a definition of materiality that is consistent with the International Accounting Standards Board’s (IASB). Of course, when assessing materiality of sustainability matters, companies will need to consider broad time horizons, including the long term, and look across their value chains, recognising that many of their impacts on people, planet and prosperity can affect prospects over time and will be directly relevant to their investors.

The standards will necessitate an integrated approach to disclosing how sustainability matters are addressed through a company’s governance, strategy, risk management, and metrics and targets – which will be important to the many companies who have adopted the principles of integrated reporting.

In recognition of the differing levels of maturity in sustainability reporting around the world, the ISSB has given extensive consideration to a proportionate approach. For example, to support effective identification of relevant matters for disclosure, companies should use reasonable and supportable information that is available without undue cost or effort: they are not expected to turn over every stone. The emphasis is on decision-useful information.

Similarly, the ‘undue cost and effort’ consideration applies when reporting on Scope 3 greenhouse gas (GHG) emissions in recognition of the estimation uncertainty involved and the quality of data sources available to companies from third parties in their value chain. Furthermore, companies will not be required to report Scope 3 GHG emissions in the first year of adoption.

There are some further important reliefs that should facilitate adoption. For some of the more complicated areas of sustainability reporting, such as on quantifying financial effects or undertaking scenario analysis, the ISSB allows for circumstances when companies may not be able to meet requirements – for example, in respect of a company’s reporting capacity, ability to determine financial effects or in proportion to its relative exposure to climate risks.

The ISSB’s standards should enable companies to report comprehensively on the sustainability risks and opportunities that could affect their prospects over time. Adopting these standards globally should allow us to build the global baseline that should, in turn, help us build a more sustainable world.