ISSB builds upon and incorporates TCFD recommendations into its standards

The International Sustainability Standards Board (ISSB) was established in November 2021 at COP26 in Glasgow. Its primary mission is to develop high-quality, comprehensive global baseline standards for sustainability-related financial disclosures. The ISSB's main objectives are:

1. To create standards for a global baseline of sustainability disclosures

2. To meet investors' information needs regarding sustainability reporting

3. To enable companies to provide comprehensive sustainability information to global capital markets

4. To facilitate interoperability with jurisdiction-specific disclosures and those aimed at broader stakeholder groups

The ISSB aims to enhance investor-company dialogue by providing decision-useful, globally comparable sustainability-related disclosures. Its standards are designed to be cost-effective, decision-useful, and market-informed. The ISSB's work is supported by various international bodies, including the G7, G20, IOSCO, and the Financial Stability Board.

By developing these global standards, the ISSB addresses the fragmented landscape of voluntary sustainability-related standards and requirements, which has added cost, complexity, and risk to both companies and investors. The ISSB's approach allows companies to avoid double-reporting by applying its standards, while also meeting jurisdictional requirements that build on the global baseline.

The Transition from TCFD to ISSB

As of January 1, 2024, the Task Force on Climate-related Financial Disclosure (TCFD) has been officially disbanded, with its responsibilities transferred to the IFRS Foundation, which oversees the ISSB. The ISSB, as an independent standard-setter, has designed its standards to serve as a foundation for global regulations.

While the ISSB does not directly mandate requirements for any jurisdiction or company, its standards are expected to become the norm. Even without legal mandates, businesses may face increasing pressure from investors, customers, and stakeholders to adhere to these standards. The standards are already influencing voluntary disclosure practices, as evidenced by the CDP Climate Change Questionnaire for 2024, which fully incorporates the ISSB climate standard.

The ISSB standards build upon the TCFD framework, potentially easing the transition for organizations already reporting under TCFD. Moreover, as the ISSB standards are more comprehensive, companies applying them will not only meet TCFD requirements but exceed them.

This new era of reporting signifies a major step towards creating a global baseline of sustainability disclosures for capital markets, bringing sustainability reporting firmly into the realm of securities regulation.

Features of the ISSB Framework 

The new sustainability reporting standards introduced by the International Sustainability Standards Board (ISSB) represent a significant advancement over previous frameworks, offering enhanced connection, coverage, and comprehensiveness. These standards aim to guide companies in preparing comparable and assurance-ready disclosures about sustainability risks and opportunities that may impact their prospects, providing investors with more robust information.

Key improvements over the TCFD recommendations include:

1. Coverage: Unlike the TCFD's climate focus, the ISSB standards address a broader range of sustainability topics. The General Requirements Standard (IFRS S1) directs companies to use existing standards for guidance on non-climate topics. The standards incorporate SASB guidance for industry-specific material topics and allow reference to other frameworks like CDSB, ESRS, and GRI for financially material information.

2. Comprehensiveness: The ISSB framework takes a more holistic approach to understanding sustainability impacts on enterprise value. Companies must disclose material sustainability risks and opportunities across short-, medium-, and long-term horizons, considering their entire value chain. For climate-related disclosures, the standards require comprehensive reporting on GHG emissions (including Scope 3), financed emissions for certain financial sector activities, detailed board governance, transition plans, targets, and scenario analysis.

International Sustainability Standards Board (ISSB) Standards

The International Sustainability Standards Board (ISSB) has issued its inaugural global sustainability disclosure standards - IFRS S1 and IFRS S2. These standards are set to take effect for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted provided both standards are applied simultaneously.

IFRS S1, titled "General Requirements for Disclosure of Sustainability-related Financial Information," establishes a framework for entities to disclose material information about all significant sustainability-related financial risks and opportunities. The standard requires companies to provide disclosures on governance processes, strategy, risk management, and performance metrics related to sustainability issues.

IFRS S2, known as "Climate-related Disclosures," specifically focuses on climate-related risks and opportunities. This standard aims to provide investors and other stakeholders with decision-useful information regarding a company's climate-related financial impacts.

These standards are designed to create a global baseline for investor-focused sustainability reporting, which individual jurisdictions can build upon. The ISSB's goal is to enhance trust and confidence in company disclosures about sustainability to inform investment decisions.

The ISSB standards (IFRS S1 & S2) build upon the TCFD framework;

Key Questions for Businesses (ISSB Consideration)

Governance:

1. How does your organization structure responsibility for sustainability and climate-related issues at the board and management levels?

2. What processes ensure the competence of those overseeing climate-related matters?

3. How frequently are climate issues discussed at the highest levels of your organization?

Strategy:

1. What climate scenarios have you considered in your long-term planning?

2. How do you anticipate climate change affecting your products, services, and market positioning?

3. What steps are you taking to capitalize on climate-related opportunities while mitigating risks?

4. How do you incorporate climate considerations into your financial forecasting and capital allocation decisions?

Risk Management:

1. How have you integrated climate risk into your overall enterprise risk management framework?

2. What tools and methodologies do you use to assess and quantify climate-related risks?

3. How do you prioritize climate risks relative to other business risks?

Metrics and Targets:

1. What key performance indicators do you use to track progress on climate-related goals?

2. How do you calculate your Scope 1, 2, and 3 emissions, and what challenges have you encountered in this process?

3. For financial institutions: How do you measure and report on financed emissions?

4. What percentage of your assets or operations are exposed to significant climate-related risks?

5. What climate targets have you set, and how do these align with recognized frameworks or science-based methodologies?