On 3 November, the Trustees of the IFRS Foundation announced the formation of a new International Sustainability Standards Board (ISSB) to develop disclosure standards to enable companies to provide comprehensive sustainability information for the global financial markets. This follows a consultation launched in September 2020 to establish whether there is a need for such standards and, if so, whether the IFRS Foundation should play a role in setting them.

The IFRS Foundation is the international body that governs the setting of global accounting standards that have been adopted by hundreds of jurisdictions around the world, including the UK.

The ISSB will operate under the governance structure of the IFRS Foundation, alongside the International Accounting Standards Board (IASB). The ISSB and the IASB will cooperate to ensure that the new IFRS Sustainability Disclosure Standards are compatible with the IFRS Accounting Standards.

Why are new reporting standards needed?

Currently, a key challenge for businesses trying to adopt a suitable ESG reporting framework is the alphabet soup of different voluntary reporting codes. 

To address this issue, the IFRS Foundation has formed a Technical Readiness Working Group (TRWG) to integrate the various leading initiatives in this space, including the Climate Disclosure Standards Board (CDSB), the Value Reporting Foundation (VRF), the Task Force on Climate-Related Financial Disclosures (TCFD) and the World Economic Forum's Stakeholder Capitalism initiative. Notably, the CDSB and the VRF will consolidate into the new ISSB by June 2022.

Prototype requirements  

To provide markets with a sense of direction, the TRWG has published two draft prototype sustainability disclosure requirements: 

1. a General Requirements Prototype which sets out certain overarching reporting requirements, including a definition of materiality, general disclosure requirements, use of other standards and reporting channel(s); and
2. a Climate Prototype which, based on the TCFD Recommendations, requires an entity to provide information on Governance, Strategy, Risk Management and Metrics and Targets.

How is this relevant to UK businesses?

In the Government's recent Greening Finance paper, which (among other things) set out plans for new Sustainability Disclosure Requirements (SDR) in the UK, it is noted that the ISSB standards are expected to "form a core component of the SDR Framework, and the backbone of its corporate reporting element". Further, "the government will create a mechanism to adopt and endorse ISSB-issued standards for use in the UK."

Next steps

Once the IFRS Foundation has appointed a Chair and Vice-Chair(s) to the ISSB, the ISSB is expected to commence its work. This will initially involve consideration of the TRWG’s prototypes and recommendations, and public consultations regarding these proposals.