ISSB sets new IFRS sustainability disclosure standards: Jurisdictions must act This blog post was authored by Ellen Holder - Director, Sustainability and ESG Lead Europe, Protiviti Germany and Steve Wang - Managing Director, U.S. ESG Engagement Leader on The Protiviti View.At a Glance:The ISSB has released the first sustainability disclosure standards. They’re voluntary, but wide adoption is expected among IFRS reporters around the globe.The standards focus on climate disclosures, targets and metrics, initially through ISSB S2.IFRS reporters will benefit from complying with any applicable European Sustainability Reporting Standards first because of their more comprehensive scope. Topics Internal Audit and Corporate Governance Business Performance ESG/Sustainability What’s New?On June 26, the International Sustainability Standards Board (ISSB) released its first two standards, IFRS S1 and IFRS S2, “ushering in a new era of sustainability-related disclosures in capital markets worldwide,” according to a press release from the International Financial Reporting Standards (IFRS) Foundation. The standards, which are voluntary, were welcomed by investors worldwide seeking sustainability information in a comparable format and by organisations that have been struggling with a multitude of reporting frameworks. Now it is up to individual jurisdictions to adopt the standards, and many are likely to do so.The ISSB standards are designed to be used in conjunction with any financial disclosures a company is subject to, making it easy for companies accustomed to the IFRS Accounting Principles to adopt the new standards. The standards incorporate recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), which are also at the base of other active or pending reporting regulations such as the Corporate Sustainability Reporting Directive (CSRD) or the proposed Securities and Exchange Commission rule in the United States. The IFRS Foundation is also going to be monitoring the progress of companies with regard to their disclosures, taking over that responsibility from the TCFD.Who Is Affected?The ISSB refers to the new standards as a “global baseline,” and encourages universal adoption. The only more stringent sustainability disclosure requirement is CSRD — see our commentary below. Especially for companies not operating in the EU, these sustainability standards represent perhaps the most useful and comprehensive set of climate disclosures to date.Which companies will be subject to the standards will be determined by each jurisdiction that decides to formally adopt the ISSB standards, similar to the individual jurisdictional adoption of the IFRS accounting and financial reporting standards.A Closer LookIFRS S1 is the broader standard, providing a set of disclosure requirement designed to provide to investors information about a listed company’s material sustainability-related risks and opportunities over the short, medium and long term. The disclosures focus on the four areas of governance, strategy, risk management, and metrics and targets. In determining materiality, both S1 and S2 require consideration of the industry and industry-specific standards from the Sustainability Accounting Standards Board (SASB).IFRS S2 focuses on specific climate-related disclosures. Metrics required include Scope 1, 2 and 3 emissions, climate-related physical risks, and capital expenditures directed to address climate risks and opportunities, among others.The standards are expected to be used together — for example, if a company reports on S1, it also must report on S2 and use materiality as a guide. The ISSB information is to be reported at the same time as the organisation’s management report.Application of the standards is to begin for reporting periods starting on or after 1 January, 2024. Early application is permitted and must be noted as such.There is some transition relief in the first annual reporting period in which the standard is applied: Disclosures can be filed after the financial disclosures, and comparative information is not required. The entity can choose to disclose only climate-related risks and opportunities in this first reporting period (apply S2 only).The ISSB encourages but does not require third-party assurance. Whether to require assurance will be the responsibility of each adopting jurisdiction.Our ThoughtsThe release of the two standards is a major milestone— but they are not the end game in ESG/sustainability reporting. As we mentioned earlier, there is some overlap between IFRS S1 and S2 and the CSRD; however, unlike the CSRD, jurisdictional adoption of the ISSB standards is voluntary; the standards focus on climate-related disclosures (but not social or governance), and they require only financial materiality determination, not impact materiality.The ISSB standards do have the benefit of requiring sector-specific information, but the sector-specific requirements are also part of the CSRD and will be specified in the ESRS in the short to medium term.We recommend that EU organisations and those headquartered outside of the EU but with EU operations exceeding certain size thresholds start with the CSRD and ESRS and check for additional requirements from ISSB instead of starting with ISSB, since the ESRS will have the bigger, more challenging scope, with clearly defined data points (depending on the materiality assessment).Aside from this, the ISSB standards are a great step in the direction of unifying the global sustainability reporting picture, and companies can gain a number of advantages by using them:The standards fit into the established financial accounting processes and thus will require the least amount of effort to adopt compared to other reporting frameworks.They reduce the overall level of effort and related costs currently required in reporting multiple voluntary standards.Using the standards in jurisdictions where regulation is less stringent could afford a company a better opportunity at attracting global investment capital if investors are able to easily compare its environmental performance to that of its peers.Please reach out to the authors with any questions or for implementation assistance. Find out more about our solutions: Sustainability Consulting We enable organisations to effectively minimise sustainability risks while maximising ESG opportunities and financial value. Sustainability Governance and Reporting Gain transparency and accountability by controlling the programme and its implementation. We enable better decision-making and focus on regulatory requirements, including the timeliness and accuracy of reporting and external communication with regulators. Sustainable Operations, Performance, and Improvement Adapt and improve processes and the organisational structure. We help implement sustainability solutions throughout the value chain, driving compliance to global standards and improving management of materials, energy and water. Leadership Lauren Brown Lauren is the country lead for Australia. With over 14 years' experience in governance, risk, and internal control, she specialises across multiple industries including health, higher education, government, consumer products, and energy. She is an active member and ... Learn More Rich Turley Rich is a managing director with over 20 years’ experience in assurance, audit, risk, and compliance management. He leads major internal audit, risk and compliance management engagements for various ASX-listed companies and major government agencies. He is a leader in ... Learn More Hellen Thomas Hellen is a managing director with extensive experience leading professional risk and assurance services to various clients, including government, financial services, universities, and the private sector.Major projects and accomplishmentsMajor projects Hellen leads ... 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