The world now has two brand new sustainability accounting standards to help in the effort to beat climate change and bolster non-financial reporting.

Issued by the International Sustainability Standards Board (ISSB), a sister body to the International Accounting Standards Board (IASB), the move is a major step towards broad international agreement on the way sustainability and climate factors should be reported by companies around the world.

The two standards issued this week, just two years after the ISSB’s creation at the COP26 Summit in Glasgow, set out guidelines, in IFRS S1, for companies to report their sustainability-related “risks and opportunities” while IFRS S2 lays out targeted climate-related disclosures.

Both standards build on the Taskforce for Climate-related Financial Disclosures (TCFD)’s advice launched in 2017 and are in the process of becoming mandatory for many companies in the UK.

Governments around the world will now have to decide whether to adopt and integrate ISSB standards into their mandatory accounting frameworks. The UK pledged to do so in the Green Finance Roadmap, issued in October 2021.

ISSB chair Emmanuel Faber says the new standards are the results of close consultation with market representatives and should result in disclosures that are “robust, comparable and verifiable” and relevant for “investment decision making”.

‘Important milestone’

The standards have the backing of investors and other senior figures from the world of finance. Klaas Knot, chair of the Financial Stability Board, a body set up by the G20 countries after the 2008 financial crisis, says the standards mark an “important milestone for achieving globally consistent disclosures”.

Richard Manley and Carine Smith Ihenacho, chair and vice chair of the investor group advising the ISSB, say: “High-quality data is necessary to support price discovery and capital formation, and facilitates efficient capital markets. ISSB Standards will equally support preparers in communicating sustainability information to their investors and other providers of capital.”

Barry Melancon, chief executive of CIMA, a body for UK management accountants, and AICPA, the association for US public accountants, says: “We’re in a new era in corporate reporting. Investors, leaders, regulators and other stakeholders are demanding broader sets of business information and capital markets are looking for the same level of rigour in reporting sustainability as for financial information.”

Helen Brand, chief executive of ACCA, another international accounting body headquartered in London, agreed the standards would provide a “global baseline”.

“The focus they provide,” says Brand, “will help drive the positive changes we need in the way businesses operate in the face of the threat from climate change.”

Elsewhere, some are already looking to future ISSB work. Michael Izza, chief executive of the ICAEW, says the ISSB will need to “reflect” on its priorities, ” including how it addresses important matters such as the interconnectivity of sustainability and financial information, the interoperability of ISSB standards with other jurisdiction-specific disclosures, and how it plans to expand its suite of standards over time.”

There are movements elsewhere in the world to introduce major frameworks for non-financial reporting. The EU is finalising work on the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.

In the US, where ESG has become highly politicised, regulators at the Securities and Exchange Commission (SEC) are working to complete its own mandatory climate risk reporting rules. There has been much pushback against SEC efforts, including from those who argue its action may be unconstitutional.

The task will now fall to politicians around the world to either adopt or ignore ISSB standards. The speed with which they were produced suggests countries could be just as speedy implementing the new guidelines.