The International Sustainability Standards Board was established by the International Financial Reporting Standards Foundation (the IFRS) in November 2021 to create a new consolidated sustainability reporting framework. The IFRS plans to build its new standards on five existing frameworks – including: (1) the CDSB Framework (2) the IIRC’s Integrated Reporting Framework, (3) the SASB Standards, (4) the TCFD Recommendations, and (5) the WEF Stakeholder Capitalism Metrics. (Indeed, organizations responsible for the first three of these standards have merged into the IFRS). Until the new ISSB standards are completed, the IFRS has recommended that companies continue using these voluntary frameworks and guidance as appropriate.

As of June 2023, the ISSB has established its first two standards: (1) IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and (2) IFRS S2 Climate-Related Disclosures. Each of these standards are discussed in more detail below. It is expected that the ISSB standards will eventually cover topics that go well-beyond climate. As discussed, the ISSB plans to build upon the SASB standards, which cover numerous issues – including the environment, social capital, human capital, business model and innovation, and leadership and governance. The IFRS has asked for comments on several additional potential projects, including biodiversity, ecosystems and ecosystem services; human capital; and human rights. It is also in the process of working on a taxonomy for use in connection with the ISSB standards.

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information

IFRS S1 generally requires disclosure of sustainability-related risks and opportunities that could reasonably be expected to impact an organizations’s prospects – including its cash flows and access to finance/cost of capital. Thus, the ISSB standards incorporate the concept of “single materiality” – focusing on how sustainability risks and opportunities impact the company – as opposed to “double materiality,” which considers the impact the company has on the sustainability issue being considered.

IFRS S1 then sets forth what issues should be disclosed when reporting on sustainability-related risks and opportunities. These include a company’s: (1) governance process and controls, (2) strategies for managing these risks and opportunities, (3) processes for identifying, assessing, and monitoring such risks and opportunities, and (4) performance in connection with these risks and opportunities. The ISSB does not itself contain assurance requirements; rather it defers to what is required by the reporting entity’s jurisdiction.

IFRS S2 Climate-Related Disclosures

Building on the first standard, IFRS S2 addresses reporting on governance, strategy and risk management, and metrics and targets as they relate specifically to climate-related risks (including physical and transition) and opportunities. Required disclosures include Scope 1, 2, and 3 GHG emissions in accordance with the greenhouse gas protocol. The standard (which includes industry-based guidance) also calls for reporting on other risks and opportunities, including carbon pricing, capital deployment, and how climate-related factors are incorporated into executive compensation.

The ISSB provides several temporary measures to provide relief to new reporters, including: (1) relief from using the Greenhouse Gas Protocol standard during the first year if it has previously used a different GHG measurement method; (2) relief allowing an entity to report using an alternative GHG measurement method if required by its jurisdiction; and (3) relief from disclosing Scope 3 emissions in its first reporting period.