A new sheriff in town – The International Sustainability Standards Board (ISSB)

Erich Molz


9 minutes



A merger almost unprecedented in scale in the jungle of ESG reporting standards took place at COP26 in November 2021. And while it might have gone unnoticed by politicians and activists, businesses and investors cannot afford such luxury. That’s why we’ve summarized the most important information on the ISSB for you.

February 9, 2022
Jaime Reimer

What is the ISSB?

As we’ve previously mentioned in another blogpost, one of the biggest trends in corporate impact tracking and reporting is the increasing consolidation of standards and initiatives. Most notably, during COP26 in Glasgow, it was announced that the Value Reporting Foundation (VRF) and the Climate Disclosure Standards Board (CDSB) will merge into the International Sustainability Standards Board (ISSB) by summer 2022, which will then work under the authority of the International Financial Reporting Standards (IFRS) Foundation – the international authority that develops the accounting standards for annual reports of companies worldwide through its flagship International Accounting Standards Board (IASB; see Figure 1).

Figure 1. Green box: Consolidation of sustainability reporting initiatives, for now culminating in the ISSB. Grey box: Intended connectivity and integration between IASB and ISSB under the IFRS Foundation.

As the name suggests, the ISSB will be the standard-setting body that

  1. will build on the consolidated experience and expertise of existing standard setters
  2. to meet the global financial markets’ growing demand for high-quality, streamlined and formalized corporate disclosures on climate and other sustainability issues (including “double materiality”)
  3. through developing comprehensive ESG disclosure standards (“IFRS Sustainability Disclosure Standards”)
  4. which will serve as a globally applicable baseline for national reporting frameworks.

Why does the ISSB matter?

As noted in point (4), the standards are meant to be adaptable to any legal context in order to allow uptake by jurisdictions globally, all the while ensuring a basic minimum of quality and comparability of sustainability disclosure.

That legislators around the world will indeed take up the standards appears likely: The G20 Leaders, the Financial Stability Board, and the International Organization of Securities Commissions have all welcomed their development under the IFRS Foundation. Moreover, the EU Commission has pledged to work closely with other international sustainability reporting initiatives, including the ISSB, in developing the standards for its own Corporate Sustainability Reporting Directive (CSRD; see our blogpost on this) to ensure consistency and harmonization.

Should the EU indeed decide to make use of the IFRS baseline standards and apply them to the European context, many of the decisions that the ISSB takes would have indirect repercussions for the ca. 50,000 companies all over the EU that will be obliged to report under the CSRD from 2023 onwards.

However, this is not yet certain. Some argue that the different understanding of the role of “double materiality” between the CSRD and the ISSB will impede integration, as does the slight difference in target groups. 2022 will thus be a very interesting year for the world of sustainability reporting.

What do we know so far?

The IFRS has tasked a “Technical Readiness Working Group” (TRWG) with undertaking the necessary preparatory work to ensure a smooth transition to the ISSB. The TRWG consists of experts from the VRF, the CDSB, the International Accounting Standards Board (IASB), the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), and the World Economic Forum.

On 3 November 2021, coinciding with the announcement about the formation of the ISSB, the TRWG published, inter alia:

  1. A General Requirements Prototype, setting out the overall requirements for disclosing sustainability-related financial information relevant to the sustainability-related risks and opportunities faced by a company; and
  2. A Climate-related Disclosures Prototype (called “IFRS SX”), setting out the requirements for the identification, measurement and disclosure of a company’s climate-related financial information, especially on the effects of climate-related risks and opportunities, on its activities and strategy for managing them, and on its ability to adapt its planning, business model and operations in response to these risks and opportunities.

Both Prototypes suggest governance, strategy, risk management, and metrics and targets as the four key reporting areas. Specifically, the Climate Prototype proposes that companies report on:

  • Governance—the governance processes, controls and procedures the entity uses to monitor and manage climate-related risks and opportunities;
  • Strategy—the climate-related risks and opportunities that could enhance, threaten or change the entity’s business model and strategy over the short, medium and long term, including:
    (a) whether and how information about climate-related risks and opportunities informs management’s strategy and decision making;
    (b) the current and the anticipated effects of climate-related risks and opportunities on its business model, financial position, performance and cash flows; and
    (c) the resilience of the entity’s strategy to climate-related risks;
  • Risk management—how climate-related risks are identified, assessed, managed and mitigated by the entity;
  • Metrics and targets—the metrics and targets used to manage and monitor the entity’s performance in relation to climate-related risks and opportunities over time:
    (a) cross-industry metrics;
    (b) industry-based metrics;
    (c) targets set by management to mitigate or adapt to climate-related risks or maximize climate-related opportunities (incl. timeframe, base year, milestones, whether science-based, etc.);
    (d) other key performance indicators used by the board or management to measure progress towards the targets.

An important part of the latter is disclosing greenhouse gas emissions in scope 1, 2 and 3 (GHG-protocol): absolute and intensity. Especially measuring scope 3 emissions will be challenging for many companies (see our blogpost on Scope 3).

Climate change is only the first ESG issue that the ISSB addresses – others will follow in the future. The TRWG currently envisions that in the eventual IFRS Sustainability Disclosure Standards, there will be several thematic and industry-specific disclosure requirements which complement the general requirements (see Figure 2).

Figure 2. Architecture of ISSB standards as proposed by the TRWG. Source: IFRS Foundation.

What comes next?

As mentioned above, the consolidation of the VRF and the CDSB into the ISSB is aimed to be completed by summer 2022.

To this end, the IFRS Foundation is currently busy with searching qualified leadership personnel to fill the ISSB. In mid-December, Emmanuel Faber, the former Chair of the Board and CEO of Danone, was pronounced to be Chair of the ISSB. Vice-Chair will be Sue Lloyd, who currently acts as Vice-Chair of the IASB. The other 12 Board members are still being recruited. The first standard proposals, based on the TRWG recommendations, and the ISSB’s draft work plan could already be published for public consultation by the end of March.

What does it mean for you?

The creation of the ISSB is not only an expression of the increasing consolidation of ESG reporting initiatives. Rather, the fact that this has happened under the IFRS Foundation, which so far has been solely focused on financial accounting, also illustrates another major trend: the deepening integration of sustainability and financial reporting. Another indication is the EU Commission’s plan to oblige companies to integrate their sustainability disclosures into their management reports. Put simply, sustainability reporting is here to stay.

We at Salacia Solutions help you stand up to the challenge. Based on your existing operational and financial data, our SaaS solution measures your progress on key environmental metrics – whether greenhouse gas emissions, energy, water or others – and provides you with the insights you need to report with confidence.

Taking you from green ambitions to green results.

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