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Introduction:
The increasing urgency of addressing climate change and sustainability has driven global efforts to standardize reporting and disclosure practices. In response, the International Financial Reporting Standards (IFRS) Foundation established the International Sustainability Standards Board (ISSB) in 2021 to develop IFRS Sustainability Disclosure Standards. In June 2023, After a period of planning and negotiations, ISSB has published their global standards, providing a framework for companies worldwide to transparently communicate the effects of ESG matters on their business and their efforts to manage those effects. These standards provide a consistent framework for companies to transparently communicate the impact of environmental, social, and governance (ESG) matters on their business. This blog explores IFRS S1 and IFRS S2, two integral components of this groundbreaking initiative.

About the International Sustainability Standards Board (ISSB):
In response to the call for standardized sustainability reporting, the IFRS Foundation established the ISSB as a sister board to the International Accounting Standards Board (IASB). The ISSB is tasked with developing IFRS Sustainability Disclosure Standards to create a global baseline for sustainability disclosures, benefiting investors and enabling companies to provide comprehensive information to global capital markets. The ISSB builds on existing initiatives like the Climate Disclosure Standards Board (CDSB) and the Task Force on Climate-related Financial Disclosures (TCFD) to ensure consistent and comprehensive reporting.

ISSB has set out four objectives:

• developing standards for a global baseline of sustainability disclosures.
• meeting the information needs of investors.
• enabling companies to provide comprehensive sustainability information to global capital markets.
• facilitating interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.

IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
IFRS S1 is a cornerstone of the ISSB’s initiative, requiring companies to disclose sustainability-related risks and opportunities that could impact their cash flows, access to finance, or cost of capital over short, medium, and long terms. This standard aims to inform investors’ decisions by providing insight into an entity’s governance processes, strategy for managing risks and opportunities, identification and assessment processes, and performance in relation to sustainability-related targets. IFRS S1 is effective for annual reporting periods beginning on or after January 1, 2024.

IFRS S2: Climate-related Disclosures
IFRS S2 focuses specifically on climate-related risks and opportunities. It requires companies to disclose information that aids users of financial reports in understanding governance processes, strategies, identification processes, and performance in relation to climate-related matters. Climate-related risks include both physical and transition risks, while opportunities refer to those that arise due to climate-related changes. Like IFRS S1, IFRS S2 is effective for annual reporting periods beginning on or after January 1, 2024.

Per ISSB, IFRS S2 requires an entity to disclose information that enables users of general purpose financial reports to understand:

• the governance processes, controls and procedures the entity uses to monitor, manage and oversee climate-related risks and opportunities;
• the entity’s strategy for managing climate-related risks and opportunities;
• the processes the entity uses to identify, assess, prioritize and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the entity’s overall risk management process; and
• the entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by law or regulation.

Benefits of the ISSB Standards:
The ISSB Standards represent a significant advancement in the realm of ESG reporting. By providing a comprehensive framework for sustainability disclosures, they address the problem of inconsistent standards across regions and regulatory bodies. The ISSB standards are designed to be used alongside any accounting requirements, ensuring a cohesive approach to financial and sustainability reporting. Additionally, the ISSB Standards are based on the same concepts that underpin IFRS Accounting Standards, creating a harmonious reporting environment.

Global Adoption and Future Prospects:
The ISSB’s standards are gaining traction globally, with the EU already adopting them and the U.S. SEC expected to base its climate reporting rules on these standards. The International Organization of Securities Commissions (IOSCO) has encouraged its member jurisdictions to consider integrating ISSB Standards within their regulatory frameworks to ensure consistent global reporting. This collective support underscores the demand for standardized sustainability-related disclosures and comparisons on an international scale.

Conclusion:
The introduction of IFRS S1 and IFRS S2 by the ISSB signifies a monumental shift towards standardized sustainability reporting. These standards provide companies with a clear framework to disclose the effects of ESG matters on their business, benefiting investors, capital markets, and the global effort to address climate change. As the adoption of ISSB Standards gains momentum worldwide, they stand as a beacon for consistent, comprehensive, and meaningful sustainability disclosures.

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