International Sustainability Standards Board formally announced at COP26

In his address at COP26, Erkki Liikanen emphasised the need for sustainability information to be “produced with the same rigour, assurance of quality and global comparability as financial information” if capital markets are to have a significant part to play in decarbonisation. This sentiment foreshadowed the three key announcements made by Mr Liikanen, which introduce the ISSB and the path ahead.

Firstly, the aim of the ISSB is to establish a set of comparable and extensive standards to guide and mandate sustainability disclosures. The need for comparability stems from the number of existing frameworks and initiatives that have positively started discussions and driven innovation. However, in doing so, there is increasing fragmentation that inflicts unnecessary costs and increases complexity for accountants, directors, and investors alike.

This transitions into the second announcement, which refers to the official consolidation of resources between the Value Reporting Foundation (which houses the Integrated Reporting Framework and the SASB Standards), the Climate Disclosure Standards Board and IFRS. While voluntary frameworks such as the TCFD will continue to be encouraged, the aim here is to minimise duplication and enhance comparability.

Finally, Mr Liikanen also alluded to the publication of prototype climate and general disclosure requirements produced by the Technical Readiness Working Group. While no standards are expected to be finalised until at least the third quarter of 2022, the prototypes via the working group are available here.

Although the ISSB is being designed primarily for the sustainability information needs of investors, the existence of formal guidelines will improve the quality of disclosures for organisations of all sizes, including SMEs. The ISSB should be viewed as a win for the integrity of all non-financial disclosures, helping us evolve from the view that they are more arbitrary than financial disclosures. Reporting requirements remain jurisdiction-specific, however the ISSB intends to complement and support any planned or existing disclosure requirements, such as the EU’s proposed Corporate Sustainability Reporting Directive.

There is a way to go until any sustainability standards come to fruition, as proposed standards will be subjected to the rigorous review process of the IFRS Foundation, as well as ongoing feedback and consultations from stakeholders. Nonetheless, Wednesday’s (3 November) announcements provide a clear pathway for a financial system that is supportive of the global transition to net zero.