ISSB has released its first-ever disclosure regulations related to climate to lay down global sustainability standards. These regulations are meant to revolutionize how corporations and companies convey their risks and opportunities related to sustainability.
The International Sustainability Standards Board was established in 2021 with an initial focus on climate-related documents. That’s obvious because the climate is changing for the worse and it’s high time businesses take action. The goal of ISSB is to channelize all the participants of the global market and equip them with the right and relevant information for informed investment decision-making. It involves a thorough and transparent due process for developing market-informed regulations so that businesses and corporations can disclose comprehensive and comparable information.
This year also the ISSB continues improving these regulations for smooth integration and widespread adoption globally. The ISSB sustainability standards have been designed to improve interoperability with a host of international sustainability-related standards. That’s definitely a positive aspect for corporations habituated to the existing structure. Now they can seamlessly align with the current ISSB standards.
ISSB or International Sustainability Standards Board is launched under the IFRS Foundation to address the disintegrated way that sustainability reporting works. It establishes a global baseline for reporting and disclosing sustainability so that there’s improved transparency, reliability, and comparability. This is extremely crucial for catering to the growing demand from stakeholders as well as investors to have access to comprehensible and uniform information.
The core components of ISSB standards are IFRS S1 which deals with the general requisites for sustainability-related mandates and the other is IFRS S2 which is about climate-related matters.
IFRS S1 offers a comprehensive outline for disclosures related to sustainability. Businesses can find the general requirements about risks and opportunities that impact their overall performance and financial position. IFRS S1 talks about the importance of clarity, comparability, and most importantly, consistency in sustainability reporting. Coming to IFRS S2, it can be said that the focus of this document is how companies have to disclose information about their exposure to risks and opportunities related to climate. It must also come with various strategies about how the company chooses to manage these risks.
The ISSB standards have managed to bridge the long-standing gap in the market by providing a framework that companies can follow. Today, businesses find no difficulty in managing their data to create robust and globally comparable reporting that both investors and customers can easily accessible.
The standards boards have unified the diversified outlines followed by companies worldwide. Needless to say, the fragmented and diverse nature of the reporting previously followed adds to the costing, complexities and possibilities of variations for small and medium-scale businesses.
The ISSB has opened up avenues of opportunities for all businesses to share reliable, comprehensive, and comparable information that can help in informed decision-making. Capital flow is the greatest driver towards positive and desired change in the global economy.
As a result, the governing bodies across the nations are making it more accountable to enable a smooth transition to a low-carbon and highly equitable economy in the coming days. In simpler words, sustainability is the need of the hour and must be achieved in all its forms. That’s the reason it has also become a point of focus for capital market investors.
The need and demand for sustainable investment, or more appropriately, impact investment has been on the rise for the last few years. It’s a verified fact that most investors are now considering the ESG factors to be extremely significant. An investor or any other stakeholder would be eager to know where they should invest their money. To make an informed decision, it’s crucial to understand which corporations or organizations are a match for their value and missions. The ISSB standards which are a different set from sustainability frameworks offer this much desired clarity to the investors. These standards have set specific and detailed requirements of what business entities have to report to achieve a level of uniformity with the global players.
Most importantly, ISSB standards have crafted a global baseline for companies to embrace sustainability. Previously, companies had sustainability standards that measured their risks and opportunities in their way. But it wasn’t possible to compare these data to other businesses, especially on a global level. With ISSB, the role of ESG Consultants has also improved as the companies can focus on enterprise value. That means, these standards have capacitated the businesses to realise the connection between performance and the valuation of their companies. Some nations have even developed their sustainability standards to become more adaptive to the ISSB.
With all being said about the advantages and long-term benefits of ISSB standard implementation, it is unrealistic to think of achieving complete homogeneity across the globe.
Although the standards have set a baseline for the companies to follow, jurisdictional reporting is required on the local scale. It is a positive sign that thirty countries have already vowed to introduce ISSB standards to their jurisdictional needs and many of them have opined that they will align with the ISSB standards to a point that’s suited for them. Moreover, there are various challenges to implementing International sustainability standards board regulations right away and some of them are discussed below:
The ISSB focuses on the needs and requirements of the investors and therefore, it follows a single materiality perspective. As a result, it mandates a corporation to disclose how sustainability impacts the entity and the stakeholders dealing with it. The European Sustainability Reporting Standards has set out a double-materiality standard where a business has to outline how the sustainability issues impact the business and in turn, how the entity impacts the environment. Drawing a line between these two approaches becomes challenging for a business especially because these two concerns are interrelated.
While there is an expected increase in the globalised standardisation of sustainability reporting, the final disclosures need to be highly tailored to the changing circumstances as well as materiality assessment which are varied according to the governing jurisdiction and reporting entity.
With ISSB overtaking the monitoring and future course of standards for the global business sector, the change is welcome with mixed reactions. While some businesses consider it to be a positive change for monitoring sustainability reporting standards, some opine that it might lead to the weakening of the disclosure standards. However, at present, it is understandable that the ISSB is aiming at pioneering the changing dimension of sustainability reporting on a global level.
Why should businesses adopt ISSB standards?
It’s the prime responsibility of organizations to produce integrated reports showcasing how the regulators, trendsetters and stakeholders are important for the ESG metrics. Businesses are looking for ways in which they can make the framework comprehensive and simple and that is where the role of the ISSB standards comes in. Businesses are expected to build trust and confidence through the data they share while leading wit transparency. All of these can be achieved when they meet ISSB requirements in a thorough yet gradual manner.
How do ISSB standards enhance investor confidence?
ISSB standards establish a global baseline for all kinds of sustainability disclosures. With this, they ensure comparability, transparency, and reliability when it comes to sustainability reporting. The IFRS S1 and S2 are the two core components of the ISSB that deal with sustainability-related reports and climate-related reports respectively. With these two areas in place, a business can achieve enhanced transparency, increased compatibility, and better risk management and all these in turn, help improve investor confidence.