1,000 guests attended the IFRS sustainability symposium on 17 February in Montreal. The The International Financial Reporting Standards Foundation (IFRS) has just published a news release highlighting seven key takeaways from the event.

ISSB sustainability standards S1 and S2 are on track to be issued at the end of Q2 2023, according to the IFRS. However, the emphasis on the relationship of these with the existing SASB standards, particularly in connection with metrics and disclosures, is worth noting. The IFRS has established a group tasked with “maintenance, evolution and enhancement”, indicating that companies already using SASB standards “will have a competitive advantage.” 

ISSB support of SASB Standards “for at least four years and realistically probably longer” and on a standalone basis (in other words independent of the ISSB standards or any other standards framework) suggests that a full set of ISSB sustainability standards is likely many years away. The ISSB appears to be effectively following in the footsteps of the IASB, which itself adopted the full set of existing IASC standards when it was first established, only gradually reworking and replacing these over the subsequent two decades.

Global comparability and adoption is “paramount”

The IFRS underscores that attaining global comparability is one of the key objectives of ISSB standards and will require their widespread adoption by jurisdictions. The expectation is that this will be a “rapid” process, with Martin Moloney, IOSCO Secretary General, expecting adoption “on quite a fast pace around the world.” It is quite possible that the first two standards, one setting out the general disclosure framework and the other dealing with climate-related disclosures, will indeed be adopted swiftly. But it remains to be seen whether this optimism is well-founded in connection with future standards given current geopolitical issues and the long and challenging standard-setting road ahead.

Given the political headwinds around the SEC’s own proposed rule for climate-related disclosures, an entirely different scenario is possible, one that see a repetition of the financial reporting state of play, with the US ending up with its own set of rules.

And although the IFRS claims that China’s national standards “are substantially converged with IFRS Standards” there is no timeline for the completion of this convergence process. This means that the vast majority of Chinese companies do not produce IFRS-compliant financial statements at the present time.

With China and the US responsible for approximately 40% of the world’s total global emissions, ISSB sustainability standards adoption by these two jurisdictions seems quite important when it comes to achieving the global comparability objective that the ISSB deems to be ‘paramount’.

Industry readiness and integrated reporting

Responses to the consultation reveal a mixed level of industry preparedness for the adoption of the eventual standards. The ISSB is responding by introducing “transition reliefs to reduce the burden on companies”, which include “phase-in periods”, as well as reporting requirements proportional to specify company resources.

This is a pragmatic move by the standard setter, but is also a tacit acknowledgement of the immense challenge of moving from standard to jurisdictional adoption and then again, beyond that, into actual reporting practice. One of the big issues worrying companies, of course, is the relative paucity of experienced sustainability talent out there. This does not seem to be an issue that will sort itself out in the short term as the education and training ecosystem is only beginning to catch up to this sectoral and specialist demand.

One way of addressing the scarcity of skill and experience is to repurpose existing talent. Here the collaboration between the ISSB and IASB on integrated reporting, and potential, closer “connectivity between sustainability disclosures and financial statements”, seems particularly valuable. A closer relationship between financial and sustainability reporting would go a long way in helping professional services firms to retrain and redeploy staff to this emerging practice area more quickly and at scale.

In this context, it was refreshing to hear Emmanuel Faber, ISSB Chair, stating that the role of the ISSB as an organisation does stop “at standard setting” and emphasising the standard setter’s important role in adoption, support, and capacity building around the future sustainability standards