How companies worldwide must align their sustainability reporting with the ISSB Standards

The new ISSB Standards have been implemented by national jurisdictions representing half of the global economy — find out if this new legislation impacts your company, and whether you could be mandated to report carbon emissions and wider sustainability data.

What are the ISSB Standards?

Launched by the International Sustainability Standards Board (ISSB) in June 2023, the ISSB Standards are global sustainability-related financial reporting standards which were developed to better meet investor needs on sustainability reporting.

The inaugural Standards — IFRS S1 and IFRS S2 — are currently voluntary. However, they will become mandatory in certain areas, when national regulators integrate them into financial reporting frameworks. The ISSB is also in consultation to create potential future standards, including on biodiversity, human capital and human rights.

What are the ISSB Standards’ main objectives?

• Respond to growing investor demand for comparable, high-quality sustainability information from companies
• Create a global baseline allowing investors to compare disclosures across jurisdictions and markets
• Eliminate duplicate reporting for businesses operating in different markets 
• Enable companies to provide comprehensive sustainability-related information to global capital markets
• Combat greenwashing
• Align with UN sustainability goals
• Complement existing, investor-focused reporting initiatives

What is IFRS S1?

IFRS S1 relates to general disclosures, and sets out general, sustainability-related financial disclosure requirements.

IFRS S1 focuses on four areas where companies should analyze sustainability-related risks and opportunities which could affect cash flow or access to finance:

• Governance
• Strategy
• Risk management
• Metrics and targets

As IFRS S1 also requires industry-specific disclosures beyond climate, it refers companies to  the Sustainability Accounting Standards Board (SASB) Standards as a source of guidance to determine further risks and opportunities.

What is IFRS S2?

IFRS S2 requires companies to disclose climate-related information relating to risks and opportunities. It was designed to be used alongside IFRS S1.

Businesses will need to disclose information about physical risks (e.g. wildfires), transition risks (e.g. market changes) and climate-related opportunities (e.g. diversifying business activities).

IFRS S2 also includes a requirement to disclose industry-specific information, including metrics.

IFRS S2 requires greenhouse gas (GHG) emissions to be measured in accordance with the GHG Protocol Corporate Standard, including Scopes 1, 2 and 3 (a complete corporate carbon footprint).

Which companies will have to adhere to the ISSB Standards?

Whether you have to adhere to ISSB Standards depends on whether your jurisdiction decides to mandate it.

Jurisdictions representing half of the global economy are already taking steps towards aligning with them, and more will follow.

That means companies across the world can — and should —  start applying the ISSB Standards. Even if it’s not yet mandated for you, it's wise to start preparing and align with the global economy.

Jurisdictions adopting the ISSB Standards

Countries like Turkey, Brazil and Costa Rica have already adopted both standards in full, while others like Australia and Singapore have adopted the IFRS S2 climate-related disclosures. 

Consultations are taking place in many other large jurisdictions — including Canada, Japan, Korea, the UK and China — where the goal is to adopt the ISSB Standards.

More and more countries are integrating the ISSB Standards into their financial reporting frameworks, meaning companies must prepare to disclose sustainability-related financial information at a higher level of transparency than ever before.

National adoption is typically phased, usually starting with listed companies.

The impact of the ISSB standards on the metals and energy sectors

ISSB for metals and mining sectors

Metals and mining are among the world’s most carbon-intensive sectors and generate a significant environmental impact. In the EU, these industries are already the target of the EU’s Carbon Border Adjustment Mechanism (CBAM), which mandates importers to account for carbon emissions — and pay a price for them.

The ISSB draft sector standards on metals & mining and iron & steel outline the climate-related disclosures these sectors will need to report, including those relating to carbon emissions, energy, water and supply chain. Companies operating in these sectors should consult these standards and begin preparing themselves for more transparent environmental disclosures.

CarbonChain offers a carbon accounting platform tailored to the metals sector and we can help manufacturers, traders and distributors to develop a complete corporate carbon footprint to meet ISSB requirements

• Speak to an ISSB expert

ISSB for the energy sector (oil & gas)

The role that oil and gas producers and traders play in the global energy system is at a turning point — companies must choose whether they want to become part of the solution by managing the emissions across their supply chains, from production to consumption, and embracing the shift to clean energy. 

Legislation like the ISSB — as well as the EU’s Corporate Sustainability Reporting Directive — requires companies to understand and disclose climate-related information relating to risks and opportunities, including greenhouse gas (GHG) emissions across the value chain.

As environmental regulation closes in on the world’s most carbon-intensive sectors, commodity traders will need to future-proof their supply chains. The ISSB draft sector standards on Oil & Gas – Refining & Marketing outline the climate-related disclosures these sectors will need to report on. To become ISSB-ready, oil and gas companies should familiarize themselves with this document and prioritize carbon accounting.

• Find out how businesses like Mocoh and Gunvor Group are gaining visibility of their supply chain carbon data with CarbonChain

What will companies need to do to align with the ISSB Standards?

1. Calculate a full carbon footprint

Aligning ahead of time will ensure that companies are ready before the ISSB Standards — or other similar legislation — become mandatory. Calculating a full corporate carbon footprint, aligned with the GHG Protocol, will be essential for most businesses. 

Investors cannot fully understand a company’s energy transition risk without this information. Companies must report the emissions factors used and provide explanations for the information they have chosen to include — and not include.

Scope 3 emissions — which can represent over 90% of a company’s carbon footprint — must be measured and disclosed. If companies do not get ahead of carbon accounting, it could dramatically impact the way they do business, as investors and legislators are increasingly zoning in on GHG emissions.

Ramping up decarbonization and future-proofing your business relies on detailed carbon accounting.

With CarbonChain’s validated carbon accounting methodology, which is aligned with the GHG Protocol, companies can obtain accurate Scope 3 emissions data to help lower their carbon footprint at every stage along the supply chain. All relevant supporting information provided by CarbonChain can be inputted directly into an ISSB-compliant report.

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2. Define 'materiality' for accurate disclosure

The ISSB Standards require companies to report all material information. While the threshold for what can be defined as material is low — and companies will technically not need to provide specific data points or information formats to adhere to ISSB Standards — in practice, businesses will need to provide information that investors require to make an informed decision about the company. 

It is therefore likely climate-related disclosures will effectively become mandatory, due to the existential nature of the threat of climate change on all businesses. Certain data points, including those related to Scope 1, 2 and 3 emissions, will likely need to be calculated and disclosed.

Some information can be provided at a later date, e.g. highly uncertain data, data which is difficult to collect, data relating to opportunities that are commercially sensitive, or requirements superseded by local laws and regulations. 

Nevertheless, compliance with standards means addressing all other specific requirements. Any company already reporting financial data under IFRS guidelines will be required to use the ISSB Standards for sustainability reporting, as national bodies begin to codify requirements.

Ultimately, the Standards have been designed with investors in mind — and if investors could credibly need certain information to guide their decision making, companies must disclose it.

Using CarbonChain to align with ISSB