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  • Shmulik Schwartz

Significant Progress by the IFRS Foundation Towards a Global Baseline for Corporate Sustainability Reporting

Updated: Jun 8

The IFRS Foundation has made substantial strides towards establishing a consistent global baseline for corporate sustainability reporting. This milestone was highlighted today with the announcement that jurisdictions representing more than half of the global economy are moving to use or align with the International Sustainability Standards Board’s (ISSB) disclosure standards.

The Launch of the ISSB at COP26

The IFRS Foundation’s International Sustainability Standards Board (ISSB) was inaugurated in November 2021 during the COP26 climate conference. The primary objective of the ISSB is to develop IFRS Sustainability Disclosure Standards to furnish investors with critical information about companies' sustainability risks and opportunities. This initiative underscores the urgent need for standardized sustainability disclosures to facilitate informed decision-making in capital markets.

Introduction of IFRS S1 and IFRS S2 Standards

In June 2023, the IFRS released its first set of sustainability reporting standards: IFRS S1 (general sustainability) and IFRS S2 (climate reporting). These standards are designed to provide a robust framework for companies to disclose sustainability-related information, thereby enhancing transparency and accountability.

Global Adoption and Alignment with ISSB Standards

Since the release of the IFRS S1 and IFRS S2 standards, there has been significant momentum towards global adoption. The International Organization of Securities Commissions (IOSCO), a leading policy forum and standard-setter for securities regulators, urged its members to integrate these standards into their regulatory frameworks. As of today, more than 20 jurisdictions have either decided to use the ISSB standards or are in the process of aligning their frameworks accordingly. These jurisdictions collectively represent nearly 55% of global GDP, over 40% of global market capitalization, and more than 50% of global greenhouse gas emissions.

China's Pioneering Move

Recently, China's Ministry of Finance proposed new sustainability reporting standards based primarily on the ISSB standards. This development signifies China's commitment to enhancing corporate transparency and aligning with global best practices in sustainability reporting.

U.S. SEC's Stance on ISSB Standards

The U.S. Securities and Exchange Commission (SEC) has recognized similarities between the ISSB standards and its own climate disclosure rules. However, the SEC has not yet approved the ISSB standards for use as an alternative to its regulations. This cautious approach highlights the complexities and challenges of harmonizing international and national regulatory frameworks.

Milestone in Global Sustainability Reporting

Jean-Paul Servais, the IOSCO Chair, emphasized the significance of this progress. He remarked, “Today marks an important milestone in IOSCO’s objective to establish a global framework for comparable, reliable sustainability disclosures for capital markets. It is encouraging that within a year of our endorsement and call to action, numerous jurisdictions are moving to adopt or consider the ISSB Standards.”

Launch of the Inaugural Jurisdictional Guide

Alongside the progress update, the IFRS Foundation introduced the “Inaugural Jurisdictional Guide for the Adoption or Other Use of ISSB Standards.” This guide aims to assist jurisdictions in designing and planning their adoption journey. It outlines various approaches, including full adoption, partial adoption, and permission to use, thereby providing a flexible framework for diverse regulatory environments.

Statements from IFRS and ISSB Leadership

Erkki Liikanen, Chair of the IFRS Foundation Trustees, highlighted the transformative potential of these standards: “The introduction of the Standards into regulatory frameworks will—for the first time—enable capital markets to assess and price climate and other sustainability-related risks and opportunities appropriately.”

Emmanuel Faber, Chair of the ISSB, underscored the broad international support for the standards. He stated, “From major economies to emerging markets, jurisdictions around the world such as Brazil, Costa Rica, Japan, Nigeria, and the UK are recognizing the value of the ISSB Standards. Supporting the completion of their regulatory processes, as well as engaging with other jurisdictions worldwide, is our priority in creating a global baseline of proportionate, high-quality sustainability-related financial disclosures.”

Impact of ISSB Standards on Global Capital Markets

The adoption of the ISSB standards is expected to revolutionize sustainability reporting across the globe. By providing a consistent framework, these standards will enable companies to communicate their sustainability performance more effectively. Investors will benefit from comparable and reliable data, which will enhance their ability to assess risks and opportunities associated with sustainability issues.

Challenges and Opportunities Ahead

While the progress is commendable, the path to global adoption is fraught with challenges. Differences in regulatory environments, varying levels of economic development, and the complexity of integrating new standards into existing frameworks are significant hurdles. However, the potential benefits of a unified sustainability reporting framework far outweigh these challenges.

Future Outlook

The IFRS Foundation and ISSB are committed to ongoing engagement with jurisdictions worldwide to facilitate the adoption and implementation of the standards. The focus will be on supporting regulators, businesses, and investors in understanding and applying the standards effectively. As more jurisdictions come on board, the vision of a global baseline for sustainability reporting will move closer to reality.

In conclusion, the IFRS Foundation's efforts to establish a global baseline for corporate sustainability reporting mark a pivotal moment in the evolution of financial disclosure. With broad international support and a clear roadmap for adoption, the ISSB standards are poised to become the cornerstone of sustainability reporting worldwide. This progress underscores the growing recognition of the importance of sustainability in driving long-term economic growth and stability.

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