Transition to the ISSB’s new sustainability standards: 5 things you need to know
The International Sustainability Standards Board (ISSB) is set to take over the responsibility of the Task Force on Climate-related Financial Disclosures (TCFD) from 2024. Previously, the Financial Stability Board (FSB) created the TCFD to improve reporting of climate-related financial information, an objective shared by both organisations.
Currently, the TCFD framework for sustainability reporting is mandatory for larger UK companies and requirements are expected to trickle down to smaller businesses in the coming years. The framework has also held rank as the recommended format globally, with over 3,800 organisations supporting the recommendations. Looking forward, the ISSB taking over reporting responsibilities will mean adjustments to formatting requirements in the UK.
So, what are the changes? Here, we break down the top 5 things you need to know about the transition.
- Who are the TCFD and ISSB?
The FSB established the TCFD in 2015, aiming to develop consistent climate-related reporting standards with progress monitoring. Since their first recommendation launch in 2017, the TCFD have gained more than 3,800 supporting organisations.
At Glasgow’s COP26, the International Financial Reporting Standards (IFRS) Foundation announced the formation of the ISSB, whose mandate was to develop sustainability-related financial reporting standards addressing investor demands of reporting frameworks.
- How is the sustainability reporting process changing?
From 2024, the ISSB will take over all TCFD responsibilities. New research from ESG Book, a sustainability data and technology company, found ESG regulations globally have increased by 155% in the past decade. By absorbing the TCFD’s responsibilities, the ISSB hopes to standardise current reporting methods, utilising the same reporting principles while streamlining the process for businesses, globally.
Alongside the adoption of the TCFD’s responsibilities in early 2024, the ISSB will launch the ISSB Standards across the globe, a sustainability reporting format which attempts to standardise and streamline ESG regulation requirements.
- What are the new ISSB Standards?
At the end of June 2023, the ISSB officially issued its first inaugural standards – IFRS S1 and IFRS S2 – with an expectation that the first reports aligned with them will publish in 2025.
IFRS S1 is deemed the “core baseline” of sustainability Standards. The framework outlines a set of disclosure requirements, designed to apply to all large businesses. The principle, here, is to ease communications between investors and businesses regarding the short, medium, and long-term sustainability-related risks and opportunities.
IFRS S2 lays out more specified disclosures, to be used alongside IFRS S1. The standard provides detail, specifically regarding climate mitigation and climate adaption, and has been designed to build on existing frameworks, chiefly by the TCFD.
- Why are the new standards important?
These standards are climate-focused, aiming to enhance trust in sustainability disclosures and provide confidence in investment decisions. Furthermore, the standards fully incorporate the recommendations of the TCFD.
Both standards are designed to be used globally alongside financial statements, creating a comprehensive baseline for reporting methods. For the first time, the Standards will create a common language for disclosing the effect of climate-related risks and opportunities.
- How will this impact UK businesses?
For UK businesses, the G7 mandated the previous TCFD requirements in 2022. Now, the UK government, alongside other major countries, have signalled support of the transition to adopting ISSB Standards. The government is expected to establish a formal legislation, endorsing compliance with these new standardised regulations. As the new Standards fully incorporate TCFD recommendations, data gathering and reporting processes for most businesses will be only slightly altered. The transition is designed to be streamlined, improving the transparency of data while standardising sustainability requirements. To find out more about the first ISSB Standards, check out the IFRS guide here.