The International Sustainability Standards Board (ISSB) has agreed on the final content of its IFRS 1 and 2 and will publish these by the end of Q2, the chair of the board Emmanuel Faber has confirmed.
Speaking at the IFRS Sustainability Symposium in Montreal at the end of last week, Faber said the new standards will become effective January 2024 after the board unanimously agreed on the standards and consented to the formal balloting process.
“Less than 10 months after we formed the delegation, we have completed a review of S1 and S2 standards after lots of redeliberation and after incorporating thousands of comments we received in feedback,” he said.
“The substance of our standards is now final. We are really moving forward.”
In March last year, the ISSB launched a consultation on the two proposed standards; specifically, S1 sets out the core content for a complete set of sustainability-related financial disclosures, while S2 focuses on material information about significant climate-related risks and opportunities.
Commenting at the symposium, Faber said: “There is a need to address the fact business and accounting cannot be as ‘business as usual’. We need to change as civil society consensus is changing fast, world is changing, and the planet is changing. We have built our business models very focused on efficiency, but we have a blind spot on resilience.
“That blind spot is the tragedy of horizons Mark Carney has spoken about – the time horizon and the spectrum of horizons – it is beyond the firm and beyond the remit in its value chains. It is where opportunities and risks but also impacts are.”
These, he added, “need to be illustrated and illuminated in a language by investors and lenders that allows an appropriate capital allocation to more resilient business models”, something which the 14 board members have created with the standards.
He said this “language” will be ready to be used by companies, lenders and investors in a few months’ time and “will change the competitive advantage of companies over the next 10 years”.
Firms will not be left to their own devices in adopting the standards, he added, with the ISSB announcing a package of reliefs and guidance to support use of the standards, enabling companies to scale up their approach to using them over time.
“We do not believe our role stops at standard setting. The adoption strategy, the support to adopt, the scalability, the capacity building, the proportionality… this is fully a part of what we need to deliver.”
Additionally, at COP27 the ISSB announced 20 organisations, including CDP, Principles for Responsible Investment and the ‘big four’ accountants, had signed up as partners to help firms implement the disclosure standards.
“This is a call for action,” Faber added at the conference. “If you believe it is important to use that language it will be in your hands in a few months and we will provide the support to use that language.”
‘Exceptionally costly’ to ignore ISSB
Also speaking at the event, Mark Carney, UN special envoy for climate action and finance and co-chair for the Glasgow Finance Alliance for Net Zero, commented he expected disclosing against the ISSB standards to become mandatory in the future.
“One of the many reasons I am thrilled for prospects for ISSB is this is another example of a voluntary approach.
“The providers of capital are saying this is what we need to get the capital where it needs to go. We have been working with UK government who is mandating transition plans.
“Our expectation is this is the next part of the architecture.”
Carney added that while it is “absolutely critical we get this global baseline of comparable information” it is likely that different jurisdictions will adopt the standards to varying degrees to start with.
“There will be some tailoring but it would be exceptionally costly to a jurisdiction to not apply the core elements of S1 and S2.”
Carney also reflected on the build-up to creating the ISSB at COP26 and the progress made since then.
“If we go back seven years, sustainability reporting looked very different from today. We realised we needed to move towards a common standard from a patchwork of over 400 different approaches that existed at the time. They were well meaning but not comprehensive or comparable.
“We needed a decision-useful principle, that was by the market for the market so investors can make decisions about allocations of capital.”
He added the expected phased implementation of Scope 3 emissions disclosure will be helpful as “my Scope 1 will be someone else’s Scope 3”.
This story first appeared on our sister publication, ESG Clarity.