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The ISSB: A Game-Changer for ESG Reporting

ESG
Financial Reporting
SEC Reporting
Sustainability
Breaking News: Reactions to the announcement of the ISSB
6 min read
AUTHOR:
Andromeda Wood
Vice President of Regulatory Strategy
Published: November 6, 2021
Last Updated: November 11, 2021

The announcement of the International Sustainability Standards Board (ISSB) at COP26 earlier this week didn’t just create ripples: for those involved or interested in environmental, social, and governance (ESG) reporting, the news was a tidal wave. The impact that ISSB will have, and the shift that it represents, cannot be understated. This announcement is big, but in such ESG-driven times, maybe we shouldn’t be too surprised. 

Developing globally accepted sustainability reporting standards is in and of itself big news—but we knew that it was coming. What was less clear before COP26 were the plans to consolidate the Value Reporting Foundation (an organization recently formed through the merger of the SASB and International Integrated Reporting Council) and the Climate Disclosure Standards Board (CDSB) to form the ISSB. There have been calls to consolidate the diverse ESG standards landscape for years. The fact that it’s actually happening is truly remarkable, and it’s fantastic news for businesses, investors, and society as a whole. 

Global standards, universal simplicity 

While the ISSB won’t be a panacea for all complexity attached to ESG reporting—the scale of the task will be just as big as it has always been—it will provide consistent standards for organizations across the world, significantly reduce cross-framework mapping, and simplify the related painful elements of the reporting process. The Technical Readiness Working Group (TRWG) shared the first prototype disclosure requirements and the schedule of work, which was set up by the International Finance Reporting Standards (IFRS) Foundation. Six more deliverables from this group are already slated for handover to the ISSB, so expect more detail to emerge over the coming months. 

Knowing that the ISSB won’t start from scratch is more welcome relief for businesses. Along with the substantial body of work brought in via the consolidation, SASB standards, Integrated Reporting Framework, and the CDSB Framework, they will build on the work conducted by other leaders in the sustainability regulation field, such as the standards developed by the Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD forms part of the TRWG, and its recommendations formed the foundations of the TRWG’s initial climate prototype. 

The notable omission of the Global Reporting Initiative (GRI) from this group doesn’t need to cause alarm. After the announcement of the ISSB formation, GRI shared the following statement: "GRI stands ready to engage with the IFRS Foundation in support of this aim. We look forward to hearing more about the remit and scope of their new ventures, as well as inputting to the development of the proposed climate standard.” We are at the beginning of what is going to be an exciting and incredibly beneficial journey. As time progresses, we will learn more about their plans. 

In time, we will also have a firm picture of which countries are going to adopt the standard. A statement published by the UK government names the 38 jurisdictions across six continents that have signed a letter welcoming the announcement—among them Brazil, China, the European Commission, and the United States. 

Ultimately, all of this collaboration and consolidation means that businesses will no longer need to fumble in the dark to navigate a labyrinth of existing measurement frameworks, guidance, protocols, rankings, indices, and standards. They can clearly see the path ahead of them and have reassurance that they can move beyond their current situation.   

The ISSB will bring transparency and trust to ESG reports    

As it currently stands, the sheer volume of voluntary guidance around ESG disclosures is overwhelming, complex, and confusing. Despite having the best intentions, the guidance that’s currently in place is making ESG reporting more opaque for businesses, investors, and stakeholders alike. With one single set of global norms, it’s possible to achieve clarity. And, however heavy this particular crown may be, having finance teams play a critical role in the reporting process will mean it’s possible to deliver transparent ESG reports that investors can trust. 

Capital markets can have an essential role to play in reaching net zero. But that can only happen when sustainability information is produced with the same rigour, assurance of quality and global comparability as financial information.
Erkki Liikanen
Chair of the International Financial Reporting Standards (IFRS) Foundation, during the announcement of the ISSB at COP26 

Transparency shouldn’t be elusive. Investors need to have access to information that enables them to clearly compare one company’s sustainability performance against another. They need to clearly understand how a company’s performance relates to its value creation. Without this knowledge, it’s almost impossible to make fully informed business and investment decisions that align with globally accepted climate goals. 

However, a consistent set of standards is not the only key to trust. Financial information also usually has stronger control requirements, assurance requirements, and clear lines of sign-off and responsibilities. Regional laws and regulations will have a strong role to play here as well. 

The ISSB will relieve significant pain for businesses 

The ISSB isn’t a wholesale reinvention of the entire ESG reporting process. It also isn’t going to replace the Corporate Sustainability Reporting Directive (CSRD) and the associated EU standards that businesses across Europe are preparing for—it will complement them. And the European Commission has stated that, “The proposed EU sustainability reporting standards would build on and contribute to standardization initiatives at global level.“ Although it won’t make a major dent in the immense amount of data and compilation work that goes into creating an ESG report, it’s not going to add any additional pain to an already complex process. 

The simplicity that it promises and the reassurance that it provides will spur businesses to do the work to create ESG reports that meet investor expectations. The reality is that it will take time for businesses to transform their end-to-end ESG reporting processes. Many are already doing the work in anticipation of the CSRD being mandated. Their priority now will be to ensure that transitions are easy and smooth. To achieve this, they need to reassess their current set-ups and not be too fixed on using the existing solutions that they have hard coded in place. 

Forbes called the creation of the ISSB, “the biggest change in corporate reporting since the 1930s.” Others have referred to it as a “tectonic shift.” And it’s not clickbait. It’s not hyperbole. It’s true. Businesses, and their reporting teams in particular, will rightly be celebrating this announcement. They’ve been suffering significant pain. 

The IFRS has made sure that the ISSB will make a real impact: it’s the standard board that offers real, strong pain relief. And sure, businesses know they have a lot of work ahead of them. But, in the long run, the siren sounded from COP26 that change is imminent, that global standards are coming and that ESG reporting standards are going to be consolidated and made consistent across the globe—that’s as good a reason as any to feel a sense of relief. 

About the Author
andie wood headshot

Vice President of Regulatory Strategy

Andromeda “Andie” Wood is vice president for regulatory strategy for Workiva and will be bringing her knowledge of the technology and regulation landscape in Europe to help inform the EMEA strategy and support the region's growth. She is an expert in data modeling, taxonomy design, and the role of technology in corporate reporting.

Andie is an experienced data and semantic modeler and also contributes to the XBRL standard at the international level. She brings a wealth of knowledge and deep understanding of regulatory impacts to global firms emerging from the European Union's Transparency Directive and Corporate Sustainability Reporting Directive (CSRD). Andie also serves as a member of the XBRL International Inc. Best Practices Board and is co-chair of the XBRL Entity-Specific Disclosure Task Force.

Previously, she was a senior technical manager for the IFRS Foundation helping to develop the IFRS Taxonomy and Standards. She served as a technical expert at global audit and consulting firm, Ernst & Young.

Andie is a frequent speaker on trends in technology for corporate reporting, and publishes various articles on XBRL, ESG, ESEF and digitally transforming corporate reporting. She has also written a column for Accountancy Today on technology and COVID impacts. She has a bachelor of arts in biological sciences from St Catherine’s College at Oxford University.

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