ISSB Sustainability Standards
The International Organization of Securities Commission (IOSCO) stated that it has recognized the sustainability-related financial disclosure requirements IFRS S1 and IFRS S2 issued by the International Sustainability Standards Board (ISSB).
IOSCO believes that the ISSB sustainability standards can serve as a framework for global capital markets and play a role in sustainable financial disclosure. IFRS S1 and IFRS S2 can help participants assess sustainable risks and opportunities.
IOSCO’s Assessment of ISSB Sustainability Standards
IOSCO believes that a global framework for sustainable information disclosure should meet the following conditions:
- Serve as an effective framework for reporting information in a consistent and comparable manner.
- Consistent with existing accounting and financial reporting standards.
- Serve as a common framework for jurisdictions, increasing operability.
- Meet investor and market demand for sustainable information.
- Provide the basis for conducting independent audits.
In order to assess the performance of IFRS S1 and IFRS S2 in these aspects, IOSCO cooperates with international asset management companies to understand the needs of investors and analyze the situation of companies’ sustainable development disclosure. At the same time, IOSCO analyzed the existing sustainable information disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures (TCFD), the Global Reporting Initiative (GRI) and the International Integrated Reporting Council (IIRC).
Results of the Assessment of ISSB Sustainability Standards
In February this year, the ISSB published drafts of IFRS S1 and IFRS S2 for stakeholder to give opinions. IOSCO evaluated these drafts from February to June and came to the following conclusions.
IOSCO believes that both IFRS S1 and IFRS S2 provide market participants with the necessary information to help them accurately assess the impact of sustainable development and climate change on investees, and can facilitate risk and capital allocation between investors and the market.
IFRS S1 provides a framework for global sustainable information disclosure, covering a wide range of sustainable development topics, and can be combined with IFRS financial reporting standards to ensure audit accuracy. IFRS S2 delves into climate, the most essential of these sustainability themes. Both standards originate from TCFD and leverage existing sustainability frameworks to reduce the complexity for users.
Regarding the materiality requirements of IFRS S1 and IFRS S2, IOSCO believes that this definition has been fully expressed in the International Accounting Standard IAS 1, and companies can accurately determine which issues meet the materiality standards when disclosing sustainable information. In addition, the ISSB also plans to continue issuing guidelines to help companies identify and disclose material information.
In terms of the independent audit of IFRS S1 and IFRS S2, IOSCO believes that both standards provide an auditable framework and support auditors to consider this information when considering the overall financial statements. IOSCO also stated that the verification of forward-looking information and information disclosure standards for different industries are still being formulated, which may bring certain challenges to the audit framework. IOSCO will participate in the development of these standards, and will cooperate with ISSB closely.
IOSCO’s Follow-up Plans for ISSB Sustainability Standards
IOSCO calls on all countries to adopt the ISSB sustainability standards to establish a global disclosure framework, reduce the cost of investors to search information, and reduce the difficulty for companies to meet compliance requirements.
IOSCO also expects ISSB to continue to issue disclosure requirements for specific environmental and social-related risks and opportunities. The ISSB is currently considering developing priorities for sustainable disclosure, such as biodiversity, human capital, etc. IOSCO plans to continue engaging with the ISSB in the future to provide advice on relevant standards.