Companies globally welcomed these standards because they consolidate many existing reporting frameworks in which they are already participating — both voluntarily and, increasingly, as mandated by governments and stock exchanges. Investors were also appreciative of the standards as they prioritise financial materiality instead of requiring double (i.e. social and environmental impact) materiality.
The first standard, IFRS S1, defines the requirements for companies to communicate their sustainability-related risks and opportunities. The second, the IFRS S2, sets out specific climate-related disclosure requirements covering a holistic climate strategy such as greenhouse gas (GHG) emissions, transition plans, the impacts of climate risks using scenario analysis, and mitigation/ adaptation plans.
It is anticipated that these standards will gradually be adopted by regulators. Australia, Canada, the UK, Singapore and Hong Kong have already announced intentions to align their mandatory sustainability reporting requirements with the ISSB. The standards will apply to annual reporting periods starting from January 2024, with companies issuing disclosures against the standards in 2025. However, as the ISSB is a voluntary standard, applicability depends largely on adoption timeframes in specific jurisdictions.
The standard draws heavily upon the Task Force for Climate-related Financial Disclosure (TCFD) which has to date been considered the gold standard for sustainability disclosure and has been adopted in multiple jurisdictions globally. From 2024, the ISSB will also take over the monitoring of progress on companies reporting against the TCFD.
The climate-specific standard IFRS S2 adopts an identical structure to that of the TCFD, following the same four pillars of governance, strategy, risk management, and metrics and targets. Yet in some areas, it also goes further than the TCFD.
| Risk management now integrates climate opportunities |
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| Scope 3 emissions must be disclosed |
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| Disclosed scope 2 emissions must be location-based |
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In other areas, the ISSB makes existing expectations under the TCFD framework more explicit. Examples include the following:
While this may seem overwhelming for some, the standards include a proportionality principle which clarifies that the ISSB only expects companies to use reasonable and supportable information that is available without undue cost or effort and within consideration of its skills, capabilities and resources to fulfil the disclosure requirements.
No matter where your company is on its climate disclosure and action journey, you should take the ISSB into account before you take your next steps. We recommend that you prepare ahead of potential mandatory ISSB disclosure requirements in your jurisdiction/s. Each jurisdiction will define the specific scope of companies that may need to comply with its disclosure requirements. However, it is good practice for companies to start aligning with ISSB voluntarily, especially if you're looking to be an industry leader.
For companies who are at the beginning of their climate journey or not yet reporting against the TCFD, the best way to start is to review your readiness using the ISSB standards. This can help locate your alignment gaps and the results can be used as inputs for the development of a roadmap or holistic climate strategy.
For more advanced companies who are already familiar and aligned with the TCFD, you should focus on the key areas where the ISSB requires more extensive disclosure compared to the TCFD and update your sustainability planning accordingly.
Not sure how the ISSB disclosure requirements will impact your business? It's always better to be proactive with new best practice standards and prepare ahead of possible incoming mandatory requirements. Reach out to your South Pole representative to discuss.
Learn more about the ISSB standards and how to take the next steps to align your climate disclosure.
