The Creation of the ISSB

Article Highlights

• On November 3, 2021, The IFRS Foundation announced the creation of the International Sustainability Standards Board (ISSB).

• The IFRS Foundation’s two Boards (IASB Board and ISSB Board) will have similar governance and due process.

• The IRFS Foundation established a Technical Readiness Working Group (TRWG) to create prototypes to give the new board a running start in developing its first two exposure drafts.

• Montreal, Canada and Frankfurt, Germany have been selected to host ISSB offices.

Who is the IFRS Foundation?

The International Financial Reporting Standards (IFRS) Foundation oversees the International Accounting Standards Board (IASB).

The IASB sets the IFRS accounting standards.

The IFRS accounting standards are required to be used by public companies in more than 140 countries including Canada, European Union, Australia, India, Russia, Kenya, South Korea, South Africa, and Chile.

Some countries do not use the IFRS accounting standards. The USA, China, Egypt, Bolivia, Guinea-Bissau, Macao and Niger do not use the IFRS. The USA uses the Generally Accepted Accounting Principles (US GAAP). The US GAAP are a collection of account rules and standards for financial reporting.

What is the ISSB?

On November 3, 2021, The IFRS Foundation announced the creation of the International Sustainability Standards Board (ISSB) at the 2021 United Nations Climate Change Conference (COP26) in Glasgow, Scotland.

The ISSB sets the IFRS sustainability disclosure standards. It is the global setter for sustainability disclosures for financial markets.

The IASB and the ISSB will work together to ensure compatibility between IASB’s IFRS Accounting Standards and the ISSB’s IFRS Sustainability Disclosure Standards. Each Board will be independent.

Who are the organizations contributing to the ISSB?

The Climate Disclosure Standards Board (CDSB) and Value Reporting Foundation (VRF) are scheduled to be consolidated into the ISSB by June 2022. The VRF houses the Integrated Reporting Framework (IRF) and the Sustainability Accounting Standards Board (SASB).

The International Organization of Securities Commissions (IOSCO), Task Force on Climate-related Financial Disclosures (TCFD) and World Economic Forum (WEF) will support the ISSB.

What will be the ISSB’s first priorities and deliverables?

The ISSB will set high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets.

The IRFS Foundation established a Technical Readiness Working Group (TRWG) to create prototypes to give the new board a running start in developing its first two exposure drafts. They prototypes have been released and covered:

Climate-related disclosures, building on the TCFD recommendations and SASB industry-based standards; and

General sustainability disclosure requirements.

The ISSB’s standards intend to cover important sustainability topics that are of interest to investors. The standards will initially focus on climate due to the urgent need for climate-related information. The ISSB standards intend to develop thematic and industry-based requirements.

When will companies apply the ISSB and IFRS Sustainability Disclosure Standards?

It will depend on whether jurisdictions adopt these new standards.

Some jurisdictions expect to readily adopt the standards from the ISSB. For example, the United Kingdom expects the ISSB to be a core part of sustainability reporting requirements.

It is unclear what will happen in certain jurisdictions i.e. European Union and the United States. The Foundation’s focus is to be the baseline of investor focused sustainability disclosures standards for each jurisdiction.

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Tasks to help you prepare

PREPARE FOR RAPID IMPLEMENTATION

The IASB Board and ISSB Board will have similar governance and due process.

The TRWG’s prototypes have provided the IRFS Foundation with a running start to develop the ISSB standards. It is important for companies to plan now for the rapid implementation of the ISSB standards.

The TRWG’s prototypes provide an early indication of the items that organizations will need to disclose under the ISSB standards.