ISSB update: growing adoption of disclosure standards, but divergence remains likely

More than 20 jurisdictions, representing nearly 55% of global GDP and more than half of global greenhouse gas emissions[1], have committed to using or introducing the ISSB’s disclosure standards (the “ISSB Standards”)[2] in their legal or regulatory regimes. This paints a clear picture that the ISSB Standards are on track to become the international baseline for sustainability and climate-related disclosures.

The ISSB is working hard to promote convergence and consistent application between jurisdictions, which would mean lower compliance costs for businesses. However, some degree of differentiation is inevitable, potentially driven by countries looking to establish a competitive advantage. 

Global commitments to take up the ISSB Standards

In a significant development, on 27 May 2024 China’s Ministry of Finance issued an Exposure Draft of its Chinese Sustainability Disclosure Standards—Basic Standards, which proposes the introduction of corporate sustainability disclosure standards and climate-related disclosure standards based on the ISSB Standards by 2027^[3].  The standards would be voluntary and aimed at listed companies first, before widening out to include non-listed companies and later becoming mandatory. 

In Europe, the European Financial Reporting Advisory Group, working with the IFRS Foundation that is behind the ISSB Standards, have also released interoperability guidance[4] to demonstrate the significant alignment between the ISSB Standards and the European Sustainability Reporting Standards, particularly in terms of materiality, presentation, and disclosures for sustainability topics other than climate. Meanwhile, the UK has recently announced its framework for endorsing and then implementing a version of the ISSB Standards domestically for large and listed companies by January 2026.

The principal outlier is the US, whose Securities and Exchange Commission (“SEC”) recently published climate-disclosure rules for the first time (but which have since been stayed pending the outcome of legal challenge). While the SEC has acknowledged similarities between its rules and the ISSB Standards, it has chosen not to recognize the use of the ISSB Standards as an alternative reporting regime.

ISSB guidance

To help support and shape national uptake, the IFRS Foundation has recently published its Inaugural Jurisdictional Guide for the adoption or other use of ISSB Standards[5].  The guide aims to explain how jurisdictions are working to deliver globally consistent and comparable sustainability-related information. It acknowledges that there will be different ways in which jurisdictions may use the ISSB Standards, describing a range of different approaches (from full adoption, through to partial adoption, to merely being permissive of their use).

Of most use to companies will be the ‘high-level jurisdictional profiles’ that the IFRS plans to develop.  These will describe the status of, and progress towards, the introduction of sustainability-related disclosure requirements (whether based on the ISSB Standards or not) in individual jurisdictions.

Managing divergence

Emmanuel Faber, chair of the ISSB, has said that “a small minority” of jurisdictions have decided to look to implement the ISSB Standards with substantive changes, and that “[t]his means there will be a cost for jurisdictions, potentially… for their companies and investors, to not joining the ‘global baseline’”[6].  For companies operating across multiple jurisdictions, it may be that a ‘highest common denominator’ approach is required, reporting at the level of whichever jurisdiction’s requirements are the most stringent.

The ISSB has also been working on producing guidance on interoperability between its standards and other market leaders, including TCFD, GRI, the SASB Standards, and ESRS, to ease adoption. It has also provided guidance on the nature and social aspects of climate‑related risks and opportunities and how to apply the Integrated Reporting Framework with IFRS S1 and IFRS S2.  Finally, the ISSB is developing guidance relating to proportionality, materiality, financial effects and scenario analysis as they relate to the ISSB Standards, which will be published in due course.

[1] IFRS - Jurisdictions representing over half the global economy by GDP take steps towards ISSB Standards.

[2] For a more detailed look at the what, when, who and why of the ISSB Standards, see our Getting Ready series here.

[3] China charts path to unified sustainability disclosure by 2030.

[4] The road to interoperability: Latest guidance on ISSB and ESRS alignment

[5] The jurisdictional journey towards globally comparable information for capital markets: Inaugural Jurisdictional Guide for the adoption or other use of ISSB Standards

[6]I SSB discussing alignment issues with Australia, Faber says as he warns of extra cost (subscription required)