Imagine a world where sustainability reporting is as straightforward and standardised as financial accounting. This vision is edging closer to reality with the rise of the International Sustainability Standards Board (ISSB), an independent body established under the International Financial Reporting Standards (IFRS) Foundation. Launched to develop a global baseline for sustainability disclosures, the ISSB seeks to bring much-needed coherence to a previously fragmented landscape dominated by frameworks like the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Carbon Disclosure Project (CDP). By unifying these approaches, the ISSB helps businesses navigate sustainability reporting with greater clarity and consistency. Its standards are designed to complement financial disclosures by focusing on investor-relevant information—enabling better assessment of sustainability-related risks and opportunities. As pressure mounts on companies to demonstrate environmental and social accountability, the ISSB’s work is reshaping global sustainability reporting as we know it.
The Why and When
In response to the escalating demand from investors, regulators and civil society for consistent and comparable sustainability information, the ISSB was established in November 2021 during the COP26 conference in Glasgow. This initiative aimed to address the confusion stemming from multiple environmental, social and governance (ESG) frameworks, the risks associated with greenwashing, and the lack of comparability in sustainability reporting. Recognising the need for a unified approach, the IFRS Foundation, a reputable global authority in financial reporting, took the lead in creating alignment by building upon existing frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the SASB. A strategic move towards harmonisation involved the consolidation of the Value Reporting Foundation (which encompassed SASB and the International Integrated Reporting Council) and the Climate Disclosure Standards Board into the ISSB, streamlining sustainability reporting standards for enhanced clarity and effectiveness.
The Main Goals of the ISSB
1. Establish a Global Baseline
The ISSB aims to provide a globally consistent foundation for sustainability disclosures, focusing on decision-useful information for capital markets. Its standards are designed to be interoperable with local regulatory frameworks, such as the EU’s Corporate Sustainability Reporting Directive (CSRD), allowing jurisdictions to build upon the baseline while maintaining global consistency
2. Promote Consistency and Comparability
By introducing IFRS S1 and S2—the first global sustainability disclosure standards—the ISSB enables businesses to report on sustainability-related risks in a comparable manner across borders. This ensures that stakeholders can evaluate corporate performance on a level playing field, regardless of geography.
3. Support Investment Decision-Making
The ISSB’s standards are designed to help investors assess sustainability-related risks and opportunities, thereby encouraging the integration of ESG factors into mainstream financial analysis. This alignment improves transparency and enhances long-term value creation.
4. Drive Practical Adoption
Recognising the diverse capabilities of reporting entities, the ISSB promotes phased implementation and encourages the use of digital reporting technologies such as XBRL. This ensures the standards are not only ambitious but also achievable and accessible in practice.
Who Does it Affect?
The ISSB primarily impacts publicly listed companies, as its standards are designed to enhance transparency and comparability in sustainability reporting for investors. However, the influence of the ISSB extends beyond these entities. Private companies seeking investor capital or operating across borders may find adherence to ISSB standards advantageous, as it aligns their sustainability disclosures with international expectations. Regulatory bodies in a diverse range of countries have initiated consultations or announced intentions to incorporate ISSB standards into their reporting frameworks. Early adoption is evident among companies proactively integrating ISSB-aligned disclosures to stay ahead of regulatory trends. Furthermore, private equity firms and banks are increasingly utilising ISSB-aligned data to assess risks and sustainability factors within their investment portfolios, recognising the value of standardised, comparable information in decision-making processes.
Impact So Far and What’s Next?
Since its establishment, the ISSB has made significant strides in standardising sustainability reporting. In June 2023, the ISSB introduced IFRS S1 and IFRS S2, setting comprehensive guidelines for sustainability and climate-related disclosures, effective from January 2024, with early adoption encouraged. Regulatory bodies worldwide are evaluating how to integrate these standards into their national frameworks. Notably, at least 20 jurisdictions are now in the process of incorporating the standards.
The ISSB is emerging as a harmonising force between the European Union’s detailed CSRD and the United States’ investor-focused Securities and Exchange Commission (SEC) climate rules. By providing a global baseline, the ISSB facilitates alignment among various reporting frameworks, reducing the reporting burden for multinational companies.
Looking ahead, the ISSB plans to expand its scope to include standards on biodiversity, ecosystems and human capital. Research projects have been initiated to assess disclosure requirements in these areas, reflecting growing investor interest in the broader spectrum of sustainability issues.
The concept of a global baseline for ESG reporting is gaining momentum. The ISSB’s efforts could lead to a convergence of ESG reporting standards within the next three to five years, significantly promoting consistency and comparability in sustainability disclosures worldwide.
Criticisms and Challenges
While the International Sustainability Standards Board (ISSB) has been lauded for its efforts to standardise sustainability reporting, it has also faced notable criticisms and challenges:
1. Investor-Centric Focus
Critics contend that the ISSB’s emphasis on financial materiality overlooks the broader societal and environmental impacts of corporate activities. Unlike the European Union’s double materiality approach, which considers both financial implications and a company’s effects on society and the environment, the ISSB’s framework is perceived as narrower. This focus may not fully address the needs of stakeholders interested in comprehensive sustainability impacts.
2. Voluntary Adoption and Uneven Uptake
The ISSB’s standards are designed for voluntary adoption, leading to concerns about inconsistent implementation across jurisdictions. While some countries are integrating these standards into their regulatory frameworks, others may lag, resulting in a fragmented global reporting landscape.
3. Resource Pressure on SMEs
Small and medium-sized enterprises (SMEs) may find the complexity and cost of implementing ISSB standards overwhelming. The detailed reporting requirements could strain their limited resources, potentially hindering compliance and placing them at a competitive disadvantage.
4. Greenwashing Concerns
Although standardised data aims to enhance transparency, it doesn’t entirely eliminate the risk of greenwashing—where companies present misleading claims about their environmental practices. Without robust enforcement mechanisms, there’s a danger that entities might exploit the standards to appear more sustainable than they are in reality.
Emmanuel Faber, Chair of the ISSB, has acknowledged these challenges, particularly the tension between different materiality perspectives, emphasising the need for a balanced approach that serves both investor interests and broader societal concerns.
Why It Matters Now
We are clearly entering a new era of data-driven sustainability, where transparent and consistent reporting is paramount. While the ISSB may not be flawless, it marks a significant advancement towards clarity, consistency and accountability in sustainability disclosures. Early adoption of these standards can certainly provide businesses with a strategic advantage, enhancing investor confidence, facilitating compliance and bolstering reputations.
And what about you…?
- What steps could you take now to ensure your organisation is ready for the shift towards globally standardised sustainability reporting?
- What challenges or barriers would your business face in adopting ISSB-aligned disclosures, particularly in terms of resources or expertise?
