ISSB Sustainability Reporting: A Guide for Businesses to Navigate the New Global Standards

Introduction

Sustainability reporting has become essential for corporate transparency, allowing stakeholders to evaluate how companies handle environmental, social, and governance (ESG) factors. Acknowledging the need for a cohesive global framework, the International Financial Reporting Standards (IFRS) Foundation established the International Sustainability Standards Board (ISSB) in 2021. The ISSB’s goal is to create comprehensive sustainability disclosure standards that deliver consistent, comparable, and reliable information to investors and other stakeholders.

In this guide, we’ll explore ISSB sustainability reporting, its significance, and what businesses must do to stay ahead.
 

The Genesis of ISSB

Before the ISSB was established, sustainability reporting was quite disjointed, with various frameworks like the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD) in use. This variety often resulted in confusion and added reporting burdens for companies.

To tackle these issues, the IFRS Foundation introduced the ISSB at the 26th UN Climate Change Conference (COP26) in November 2021. The main goal was to develop a global baseline for sustainability disclosures, consolidating existing standards into a unified framework.
 

Core Standards: IFRS S1 and IFRS S2

In June 2023, the ISSB introduced its inaugural standards:

1. IFRS S1: General Sustainability Disclosures

This standard requires companies to disclose all relevant sustainability-related risks and opportunities that might influence their financial position, performance, and cash flows. It underscores the integration of sustainability information with financial statements to ensure a well-rounded view of the company’s overall health.

Key areas include:

• Governance: How sustainability risks are overseen by leadership.
• Strategy: How sustainability considerations influence business models.
• Risk Management: Processes for identifying and managing sustainability risks.
• Metrics & Targets: Quantifiable sustainability performance indicators.

2. IFRS S2: Climate-Related Disclosures

IFRS S2 specifically addresses climate-related risks and opportunities, expanding on the TCFD recommendations. It mandates that companies disclose comprehensive information regarding their vulnerability to climate-related effects, including:

• Greenhouse Gas (GHG) Emissions: Scope 1, 2, and 3 emissions disclosure.
• Climate Risks & Opportunities: Physical and transition risks affecting financial performance.
• Scenario Analysis: Future climate impact assessments on business strategy.
• Financial Impacts: How climate risks are reflected in financial statements.

 

Key Features of ISSB Standards

1. Global Consistency: ISSB brings together different frameworks to remove inconsistencies in sustainability reporting, making it easier to compare data across various jurisdictions and industries.
2. Investor Focus: Focuses on information that impacts enterprise value, ensuring that sustainability disclosures meet investor requirements and financial relevance.
3. Integration with Financial Reporting: Companies are encouraged to share sustainability information together with financial statements to provide a clearer picture of how ESG factors influence financial performance.
4. Scalability and Proportionality: Recognizing that small and medium-sized enterprises (SMEs) may have limited resources, the ISSB has included provisions to ensure that reporting remains manageable while still providing meaningful disclosures.

 

Who Needs to Comply with ISSB?

While ISSB reporting isn’t mandatory yet, many governments and regulatory bodies are anticipated to embrace it as the global standard for sustainability disclosures.

Industries that significantly impact the environment, like energy, manufacturing, finance, and those reliant on supply chains, are likely to be among the first to adopt these standards due to their vulnerability to climate-related financial risks.

By May 2024, over 20 jurisdictions, accounting for nearly 55% of global GDP and more than 40% of global market capitalization, have begun integrating ISSB standards into their regulatory frameworks.
 

ISSB vs. Other Sustainability Reporting Frameworks

Feature	ISSB	GRI	TCFD	SASB
Focus	Enterprise Value	Broad ESG Impact	Climate Risk	Industry-Specific ESG
Investor-Centric	Yes	No	Yes	Yes
Alignment with IFRS	Yes	No	No	Yes
Materiality	Financial	Stakeholder	Financial	Industry-Specific

 

Steps to Prepare for ISSB Sustainability Reporting

1. Assess Readiness: Assess the current sustainability disclosures and pinpoint any gaps in relation to the requirements set forth by IFRS S1 and S2.
2. Align with Existing Frameworks: If your company is already aligned with TCFD, SASB, or CDP, you might just need to tweak a few reporting elements.
3. Enhance Data Collection: Enhance internal systems to monitor and evaluate sustainability metrics such as GHG emissions, energy consumption, supply chain risks, and more.
4. Engage Key Stakeholders: Ensure that the finance, sustainability, risk management, and investor relations teams are all aligned with the expectations set by the ISSB.
5. Leverage Technology: Utilize AI-driven ESG platforms such as Lythouse to automate the gathering of data, simplify reporting processes, and maintain compliance.
6. Stay Updated: Stay updated on regulatory changes, as more regions are beginning to require disclosures that align with ISSB standards.

 

The Role of Technology in Facilitating Compliance

Leveraging technology can significantly ease the adoption of ISSB standards:

• Automated Data Collection: Real-time tracking of sustainability metrics, reducing manual effort.
• Integrated Reporting Platforms: Seamless integration with financial and ESG reporting frameworks.
• Compliance Monitoring: AI-powered checks to ensure alignment with IFRS S1 and S2.
• Benchmarking & Insights: AI-driven analytics to compare sustainability performance with industry peers.

 

The Future of ISSB Reporting

With ISSB sustainability reporting becoming the global standard, businesses must quickly adjust to meet the shifting expectations of investors and regulators. Companies that take proactive measures today will not only achieve compliance but also gain a competitive advantage in a market increasingly focused on sustainability.

By harnessing technology and aligning with ISSB frameworks, businesses can shift sustainability reporting from a compliance requirement to a strategic opportunity.

 

Ready to Simplify Your ISSB Reporting?

Lythouse helps organizations improve their sustainability disclosures through AI-driven automation and real-time compliance tracking. Schedule a demo today to see how we can facilitate your ISSB reporting journey!