ISSB board approves first sustainability standards, including reference to GRI and ESRS

IFRS Foundation’s global sustainability standards body approved its first two reporting standards and 2024 implementation date.

Members of the International Sustainability Standards Board (ISSB) have signed off on its first two disclosure standards for companies, including one that references the GRI and the EU sustainability reporting standards (ESRS).

At a meeting in Montreal on Thursday, the members of the standards body – which was launched in 2021 by the IFRS Foundation to develop a global baseline for corporate sustainability standards – approved exposure drafts IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures). 

The standards will be subject to routine checks before the approval becomes formal but are expected to come into effect next January for use in annual reports for 2024 and beyond.  

Thirteen of the 14 members of ISSB’s board, which is chaired by former Danone CEO Emmanuel Faber, also supported reference to the GRI and the EU’s sustainability reporting standards ESRS in the sources of guidance in IFRS S1. 

ISSB vice-chair Jingdong Hua, former World Bank vice-president, was the only board member to vote against the IFRS staff proposal to include both standards. 

“If we were to be the global baseline, it should be the case that others refer to us rather than us referring to anybody else,” he said. “It’s a building block approach where we are the foundation. Others will build on us.”  

Another ISSB member to raise concerns about the reference to GRI and the ESRS was Verity Chegar, the former BlackRock director of ESG integration who joined CalSTRS in 2021. Chegar left the Californian public pension fund in June 2022 to take up her position on the ISSB board.

She said the reference might create confusion for companies and investors, including with regard to the ISSB’s definition of materiality. Chegar added that inclusion of the ESRS might also give the impression that the ISSB “has elevated a single jurisdiction as more important than others”. 

A key difference between the approach being pursued by EU’s standards body EFRAG and the ISSB is the former’s focus on “double materiality”, which seeks to capture a company’s impact on the environment and society in addition to the sustainability impacts on the company.

The ISSB, by contrast, has adopted an enterprise value approach, which measures how sustainability impacts a company’s valuation. 

Both the ISSB and the EU have come under pressure from asset owners and regulators to make their climate-related disclosures “interoperable” in order to reduce compliance costs for companies subject to them.

The ISSB’s other vice-chair, Sue Lloyd, also spoke on the relationship between GRI, the ESRS and the ISSB. “If you use GRI and ESRS, you cannot just pick up that and say, ‘Tick the box, I’ve done IFRS 1.’ The intention is that you can refer to it but you have to filter it and think it through the IFRS 1 lens.” 

Faber also weighed in on the debate: “I certainly don’t consider that having us referencing other standards is something that is going to be forever.”

He added that inclusion was based on “how much do we believe it is useful versus confusing to our preparers and ultimately our primary users that we do”. 

EFRAG’s first batch of draft disclosure rules were officially passed to the European Commission in November for adoption. The rules cover environmental performance, social (including value chain reporting) and governance, and will form the foundation of the EU’s upcoming bloc-wide reporting regime established by the Corporate Sustainability Reporting Directive (CSRD).   

Last month Europe’s financial regulators – collectively known as the ESAs – endorsed the first set of ESRS, fulfilling a request from the commission in November.