ISSB implications for UK businesses

June 2023 saw the finalisation of the International Sustainability Standards Board (ISSB) after 18 months of feedback and iteration. Initially formed at COP26, and operated by the International Financial Reporting Standards (IFRS), the ISSB aims to develop a comprehensive global baseline of harmonised disclosure standards covering both climate and general sustainability. It is crucial that relevant companies familiarise themselves with these standards for future alignment.

In recent years, global financial and investment institutions have displayed an increasing appetite for standardisation in reporting sustainability issues. Increasing company transparency in this area through corporate reporting has been a key aim of reporting changes.

Currently, over a hundred nations mandate that financial and accounting standards in their country adhere to IFRS guidance.

The subsequent ISSB framework seeks alignment - with varying degrees of adoption - to the multitude of standards that have appeared across multiple jurisdictions over the past 20 years. The most prominent of these standards is the Task Force for Climate-related Financial Disclosures (TCFD).

The ISSB’s goal

The ISSB aims to amalgamate the current, disparate set of reporting standards to create a single point of reference and alignment on the subject. To achieve this, the ISSB has established four primary objectives for their new reporting standard:

Developing global baseline standards for sustainability disclosures.
Providing information that satisfies the needs of investors.
Enabling companies to provide comprehensive sustainability information to global capital markets.
Facilitating alignment between jurisdictions with specific sustainability reporting frameworks.

Currently, the ISSB has launched two standards with S1 covering general requirements for disclosure of sustainability-related financial information and S2 focusing on climate-related financial disclosures. Further standards are set to follow, with future topics likely to include biodiversity, for example.

The road ahead

The UK FCA is currently considering aligning to the standard – with consultation scheduled for the first half of 2024, though no timeline beyond this has been provided. It is expected that ISSB will follow the FCA’s TCFD requirements in being mandated for listed firms. Additionally, the UK has a range of other frameworks being worked through, such as, the Transition Plan Taskforce and the UK Sustainability Disclosure Requirements (UK SDR).

Companies who are voluntarily reporting will be able to do so against accounting periods falling after 1 January 2024. Significant uptake of the ISSB standard is expected, due to the IFRS’ existing recognition and prevalence.

Countries with IFRS as the de-facto reporting body for financial disclosures are likely to see widespread ISSB adoption. However, TCFD will remain relevant as the scope of the disclosures are nuanced and TCFD will be in use in other geographies. Organisations aligning to TCFD will benefit from the complementary aspects of the disclosures and the ISSB’s S2 component when fulfilling the newer requirements.

Aligning to ISSB

Businesses potentially aligning to ISSB should review industry-specific sustainability risks and opportunities that are relevant to their organisation. They will need to understand what they are required to disclose. Data collection, sourcing, fidelity, and transparency will be key for companies in scope. Organisations should focus on these matters when planning how to report against ISSB S1 and S2. Furthermore, current financial accounting practices should be reviewed to establish how existing processes can be integrated into ISSB standards.

While many large and listed firms are familiar with TCFD, medium-sized firms that are not required to disclose against TCFD may view this as a daunting task. It would be prudent for these firms to begin exploring the TCFD framework. This may smooth the way and provide a sensible starting point for future ISSB requirements.

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ISSB implications for UK businesses