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The ISSB sets out much anticipated international climate and sustainability reporting standards for consultation

The International Sustainability Standards Board (“ISSB”) last week released two draft sustainability standards for comment, which it is looking to finalise by the end of the year.

The draft sustainability standards represent the ISSB’s first concrete step towards fulfilling its mandate, to develop “standards that result in a high-quality, comprehensive global baseline of sustainability disclosures[1]. As expected, the draft sustainability standards draw heavily from the Taskforce on Climate-Related Financial Disclosures (“TCFD”) recommendations and look to provide a global sustainability and climate change reporting baseline. They emphasise the need to consider the whole supply chain, transition plans, carbon offsets, and how the standards apply to sustainability-related topics beyond climate change.

The first draft standard sets out general requirements for sustainability-related financial disclosures (“IFRS S1”).

The second standard is focused on climate-related disclosures (“IFRS S2”), covering a company’s direct emissions (Scope 1), indirection emissions from energy consumption (Scope 2) and indirect emissions resulting from a company’s value chain (Scope 3). It also explicitly requires banks, insurers and asset managers to report on the emissions they enable through their investments and financing.

In a press release accompanying the draft standards, ISSB Chair Emmanuel Faber recognised the need for “high-quality, globally comparable sustainability information for the capital markets” and that the ISSB’s proposals were intended to address this by “defin[ing] what information to disclose, and where and how to disclose it[2] .

It is hoped by stakeholders that, once finalised, both sets of ISSB standards will be adopted by regulators internationally and incorporated into local mandatory disclosure requirements. The ISSB has benefited from significant support with backing from the G20 nations and the International Organization of Securities Commissions (“IOSCO”). It has also achieved a degree of success in clarifying the “alphabet soup” of disclosure frameworks, through consolidation[3] and collaboration agreements[4], into something resembling a “consommé”. 

One criticism levied at the ISSB by commentators, in response to its publication of the draft sustainability standards, is that it has been comparatively unambitious. Specifically, that the ISSB has failed to embrace a “double materiality” approach as the European Commission’s proposal for a new Directive on Corporate Sustainability Reporting Directive (“CSRD”). Such that, the draft sustainability standards only encompass the risk of sustainability-related issues to business - but not the risk of business to sustainability issues. It is possible that the ISSB may however seek to address this as a result of stakeholder feedback to its consultation. 

ISSB’s position as the default global sustainability standards setter is not, however, a done deal. Whilst the UK Government signalled last year that it intends to adopt the ISSB’s standards into its proposed Sustainability Disclosure Requirements (“SDR”) framework[5], the US Securities and Exchange Commission (“SEC”) is taking a different approach. Last month, the SEC indicated that it would only require the very largest of public companies to report on Scope 3 emissions and would not require published Scope 3 emission data to be subject to third party verification, which diverges from the ISSB’s proposed approach. As mentioned above, the EU is already aiming to go above and beyond the ISSB’s current ambitions.

Businesses which are already subject to climate and sustainability disclosure requirements, or are about to be, will in practice not see much change given the ISSB is aiming to establish a floor and not a ceiling. If however ISSB is more widely adopted, as expected, the new standards could accelerate the current trend in moving away from a patchwork of voluntary reporting standards to a more unified and mandatory approach. This in turn will raise stakeholder expectations and require businesses to respond sooner rather than later.

For readers wishing to submit their views on the ISSB’s proposals, they may do so here for IFRS S1 and here for IFRS S2. All feedback should be provided before the consultation closes on 29 July 2022.


[1]What is the International Sustainability Standards Board and what is its remit?

[2]ISSB delivers proposals that create comprehensive global baseline of sustainability disclosures

[3]IFRS Foundation announces International Sustainability Standards Board, consolidation with CDSB and VRF, and publication of prototype disclosure requirements

[4]IFRS Foundation and GRI to align capital market and multi-stakeholder standards to create an interconnected approach for sustainability disclosures

[5]HM Treasury Paper, Greening Finance: A Roadmap to Sustainable Investing


reporting, sustainable finance, governance, cop26