ISSB standards shine spotlight on comparability of ESG disclosures

The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures as well as the interoperability of such disclosure standards among jurisdictions worldwide. More recently, in late July 2023, the International Sustainability Standards Board (ISSB) proposed the digital taxonomy to improve global accessibility and comparability of sustainability information. Following this, the European Commission (EC) issued the European Sustainability Reporting Standards (ESRS) and confirmed high degree of climate-disclosure alignment between ESRS and the recently finalized IFRS standards. Then, in early August 2023, the UK unveiled plans for establishing the Sustainability Disclosure Standards framework, which will be based on the IFRS standards.

So far, the International Organization of Securities Commissions (IOSCO) also endorsed the ISSB-issued IFRS sustainability standards, in addition to few national regulators committing to develop their local disclosure standards using the IFRS standards as the baseline. Below are key highlights of the most recent regulatory updates regarding sustainability disclosures:

• ISSB proposed and is seeking feedback, until September 26, 2023, on the sustainability disclosure taxonomy; these proposals reflect the disclosure requirements in the ISSB standards—IFRS S1 and IFRS S2. This common digital taxonomy is expected to facilitate structured digital reporting of sustainability-related financial information prepared under the ISSB standards. The ISSB is engaging with stakeholders to explore ways the IFRS Sustainability Disclosure Taxonomy could be used to enhance interoperability with other sustainability-related requirements. ISSB intends to release the final digital taxonomy in early 2024.
• EC adopted the first set of European Sustainability Reporting Standards (ESRS) for companies subject to the Corporate Sustainability Reporting Directive (CSRD). These standards are applicable from January 01, 2024 to the undertakings that were already subject to the non-financial reporting requirements introduced by the Non-Financial Reporting Directive. The reporting requirements will be phased-in for other categories of undertakings based on the phased approach set out in CSRD (Article 5). Going forward, EC is expected to adopt additional delegated acts for additional sets of standards, including sector-specific standards, proportionate standards for listed small and medium enterprises, and standards for non-EU companies by June 2024.
• As per a recent statement published on the IFRS website, EC, the European Financial Reporting Advisory Group (EFRAG), and ISSB have worked jointly to improve the interoperability of their respective climate-related disclosure requirements in the overlapping climate disclosure standards. As claimed, this work has successfully led to a very high degree of alignment as well as reduced complexity and duplication for entities wishing to apply both the ISSB and ESRS standards. To assist entities that will apply both ESRS and ISSB standards, EC, together with EFRAG and ISSB, will work on interoperability guidance material that could assist entities in navigating between the standards and to understand where there are incremental disclosures required by only one set of standards.
• The recently announced UK Sustainability Disclosure Standards, which will be based on the ISSB-issued IFRS sustainability standards, are at a stage where the UK government aims to make endorsement decisions on the first set of standards by July 2024. Following endorsement, these UK standards may be referenced in any legal or regulatory requirements for UK entities. The UK government aims to make an independent decision to mandate disclosures for UK registered companies and limited liability partnerships whereas the Financial Conduct Authority (FCA) will take decision for UK listed companies.
  
   

Reference links:

• EC on sustainability reporting standards
• EC and ISSB on climate disclosure alignment
• UK sustainable disclosure standards