The creation of the ISSB is a move which aims to provide global financial markets with good quality and comparable disclosures on climate and other sustainability matters, marking a new chapter for sustainability reporting globally.
We welcome the announcement from the IFRSF to develop a unified set of sustainability reporting standards to replace the large number of competing standards currently in operation.
Financial markets have a critical part to play in decarbonising society and transitioning to net zero. One of the key challenges faced by many investors and other stakeholders is they have not had access to good quality and globally comparable sustainability information, a stark difference to financial data. The announcement from the IFRSF is therefore game changing for sustainability reporting globally.
The IFRSF also announced a commitment that the new ISSB will bring together the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF), the name behind the Integrated Reporting Framework and the SASB Standards, into the ISSB by June 2022.
The ISSB's purpose
The ISSB is intended to develop a comprehensive global baseline of sustainability disclosures for the financial markets – IFRS Sustainability Disclosure Standards. It's expected the ISSB will issue its first set of disclosure standards next year.
Erkki Liikanen, chair of the IFRSF Trustees said: “The ISSB will focus on meeting the sustainability information needs of investors for assessing enterprise value and making investment decisions. Its standards will help investors understand how companies are responding to ESG issues, like climate, to inform capital allocation decisions.”
Who will the new standards apply to?
While it will be down to individual jurisdictions to decide if and how they would like to adopt the IFRS sustainability disclosure standards, given the widespread international support to date, it's expected the UK will adopt them at some point in the future once the standards are developed. The scope of businesses which may be required to report on them is not yet known.
The UK government has however recently published a roadmap towards mandatory climate-related disclosures across the UK economy which suggests the focus will likely be on the largest UK-registered companies and financial institutions initially. This includes many of the UK’s largest traded companies, banks, and insurers, as well as private companies with over 500 employees and £500 million in turnover.
Although businesses falling outside of these categories may not be required to report on these standards in the short term, it's likely there will be a significant increase in sustainability reporting required, both within supply chains and as part of investment portfolios to enable the largest of companies to produce sustainability disclosures.
As set out in the results from our latest UK Business Outlook Tracker, though ESG is almost universally considered to be a high priority, many of the mid-market businesses surveyed are not currently delivering on fundamental measurement and reporting, with over one third having not calculated their carbon emissions for the last year (36%). Only half of the businesses surveyed were found to have set a net zero strategy (51%) or reported their carbon emissions externally (52%).
The announcements yesterday are likely to have a significant impact on the requirements to report on sustainability matters in the near future. Business leaders should start preparing now for the step change in sustainability reporting which is just around the corner.
We can help you prepare for these new requirements and understand the accounting and disclosure impact of climate-related matters on the annual report. Our rigorous approach can also bring challenge and independent assurance over your sustainability reporting.
To find out how we can help, please contact Laura Tibbetts, Paul Holland or Mark Hucklesby.
