This article was adapted from a piece by BDO Australia, ISSB launches new global sustainability standards. We’ve revised the article to provide a Canadian perspective.
On June 26, 2023, the International Sustainability Standards Board (ISSB) released its new sustainability standards, IFRS S1 – General Requirements for Disclosure of Sustainability-Related Financial Information and IFRS S2 - Climate-Related Disclosures.
Since the International Financial Reporting Standards (IFRS) Foundation announced the formation of the ISSB at COP26 in Glasgow in 2021, the organization has been addressing calls for “high-quality, globally comparable information on sustainability-related risks and opportunities.” Its new standards improve trust in sustainability disclosures so investment decisions are more informed.
Canadian regulators will likely look to the Canadian Sustainability Standards Board (CSSB) and the ISSB when determining the standards to adopt in Canada. This collaboration helps to address issues specific to Canadian organizations and ensure alignment between ISSB standards and potential future CSSB standards.
“The ISSB standards are a strong signal to the market that mandatory ESG reporting is coming. Organizations would be wise to start incorporating ESG concepts into their business operations to set their business up for long-term success,” advises Pierre Taillefer, National Sustainability and ESG Leader at BDO Canada. “While Canada won’t solely rely on the ISSB standards, they serve as a strong starting point for companies wanting to prepare for future reporting.”
In this piece, we look at the new ISSB standards and what they mean for organizations in Canada.
What are the new ISSB standards?
Today, general sustainability and climate-related issues are seen as material to an organization’s long-term value. The ISSB’s two new standards help companies assess and communicate relevant, related disclosures. According to the ISSB, IFRS S1 and S2 “set a global baseline to enable companies to provide information about sustainability-related risks and opportunities that is useful for investors’ decision-making.”
IFRS S1 requires an entity to “disclose information about its sustainability-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity,” states the ISSB in its Basis for Conclusions on IFRS S1.
This is to say that organizations should consider any and all material information relating to sustainability-related risks and opportunities that could reasonably be expected to affect cash flows, access to finance, or cost of capital over the short, medium, or long term.
IFRS S2, on the other hand, requires an entity to “disclose information about its climate-related risks and opportunities” through its general-purpose financial reporting, according to the Basis for Conclusions on IFRS S2. This will help stakeholders and decision-makers understand an organization’s exposure and resilience to climate-related physical risks and transition risks. For example, IFRS S2 requires organizations to calculate their carbon footprint in relation to Scope 1, 2, and 3 greenhouse gas (GHG) emissions.
In developing these standards, the ISSB has incorporated existing sustainability reporting initiatives, where appropriate. Both IFRS S1 and S2 fully incorporate the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). The standards and frameworks also reference the standards issued by the Climate Disclosure Standards Board (CDSB), the Value Reporting Foundation’s Integrated Reporting Framework, industry-based Sustainability Accounting Standards Board (SASB) Standards, and the World Economic Forum’s Stakeholder Capitalism Metrics.