ISSB disclosure standards: what companies need to know for 2023

The International Sustainability Standards Board (ISSB) has a new climate disclosure standard that's set to become the new global baseline for both mandatory and voluntary disclosures, starting as early as 2023. ISSB was created in the aftermath of the COP26 UN climate summit by the International Financial Reporting Standards Foundation (IFRS), a non-profit responsible for global accounting standards. Its purpose is to harmonize the world around a common set of sustainability disclosure rules that are globally consistent, complete, comparable, and verifiable.

While ISSB will eventually develop detailed standards across multiple sustainability topics, most of their initial work—and our focus here—has been on climate-related disclosures.

Watershed helps leading companies like Walmart, Airbnb, Spotify, Klarna, and Twitter measure, report, and act on their emissions. This guide covers what companies need to know about ISSB’s requirements, where the program is headed, and how it fits in with other climate disclosure standards—both voluntary and government-mandated—across the US, UK, and EU.

ISSB’s relationship with other standards

Most other global standards and frameworks have one of three relationships with ISSB:

1. They’re formally consolidating with ISSB, and will no longer exist independently. Factoring in recent mergers between some of these frameworks, this now includes the Value Reporting Foundation (SASB and IIRC) and CDSB. Any companies that reported into these programs will just report into ISSB once it’s live—likely for 2023 filings in 2024.
2. They’re collaborating with ISSB to align some climate-related disclosures. This includes both GRI and CDP—along with most national regulatory programs (which we cover in more detail in the final section). The idea is that these programs, when they ask for climate-related data, should ask for similar data in a similar way.
3. They’re remaining as a foundation for ISSB, where ISSB covers similar disclosures while going further. This mainly applies to TCFD, the up-until-now global baseline for voluntary disclosures. ISSB takes TCFD’s four pillars and applies them to other areas of sustainability like water, waste, and biodiversity—while also asking for some additional data and analyses on climate items. Filing your TCFD report will thus get you part of the way in preparing for ISSB.

Crucially, there’s one aspect where ISSB will differ from a few of these other programs (particularly the EU’s CSRD): ISSB focuses on the climate’s impact on the filing organization, and not their impact on the climate. This is known as the single-materiality approach, as opposed to a double-materiality approach that considers impact both ways. Though there are aspects of ISSB—e.g. measuring and reporting carbon emissions—that serve both purposes.

What ISSB asks for

ISSB has so far produced drafts of two sets of standards:

1. General sustainability disclosures, which apply the TCFD approach to other non-climate-related sustainability issues that are outside our scope here.
2. Climate disclosure standards, which apply the TCFD approach to climate-related considerations like physical and transition risks, climate resilience, and greenhouse gas emissions—which are our focus for the rest of this guide.

Both drafts are structured around TCFD’s four pillars:

In each of these cases, the intent is to give investors meaningful insight into how climate-related risks and opportunities are being managed by leadership.

For two of these pillars—governance and risk management—ISSB’s required disclosures are roughly the same as TCFD’s. Filers must map out exactly how climate thinking has been embedded across the organization—mostly to demonstrate to investors that decarbonization isn’t the work of a single team, but is a real part of regular business processes and internal reporting structures.

For the remaining two pillars, ISSB asks for quite a bit more detail.

Strategy

This is by far the most demanding section. Filers must outline all the climate risks and opportunities that they reasonably expect might impact:

1. Their business model, overall strategy, and access to cash and capital (over the short, medium, or long term)
2. Their value chain (e.g. supplier concentration in an affected geographic area)
3. Their decision-making, including their decarbonization plans (i.e. detailing how a risk or opportunity might accelerate said plans)
4. Their financial position and planning over the short, medium, and long term, including cash flows during the period being reported
5. Their expected resilience, including capacity to adjust over time

For the last consideration, filers must also list out any “significant areas of uncertainty” and go into detail on how their scenario analyses were conducted.

Metrics

ISSB’s mandatory metrics include:

• Greenhouse gas emissions—including all Scope 3 emissions (ie. from suppliers and/or portfolio companies*)—along with all methodologies and assumptions used
• The intensity of these emissions (ie. relativizing them by dividing them by a business metric like revenue)
• The amount and proportion of business activities vulnerable to transition risks, physical risks, and climate opportunities
• The amount of overall investment being deployed towards climate action
• If an internal carbon price is used, what it is and how it was decided upon
• The percentage of executive pay that’s linked to climate considerations

*Applicable to financial institutions, whose Scope 3 emissions include their fair share of the “financed emissions” of their portfolio companies, per PCAF’s methodology.

Filers will also need to disclose against any industry-specific metrics set out by the SASB standards, which have been incorporated here via ISSB’s Appendix B.

Targets

While filers are free to set their own climate targets, ISSB requires them to disclose:

• What the targets are (including whether they represent absolute reductions of total emissions or relative reductions compared to a baseline period)
• Any relevant baseline numbers
• The time periods involved (which can be separate for interim and long-term targets)
• The metrics used to assess progress
• How each target compares with international agreements on climate change (largely the Paris Agreement)
• Whether each target uses a sectoral decarbonization approach (as is the case with any Science Based Targets)
• Whether the targets have been validated by a third party
• How they plan to factor offsets in their accounting, including commentary on the types of offsets used and how they were verified / why they should be considered credible

Timing and next steps

The consultation period for these drafts closed in July 2022, with final versions expected by the end of the year. While the new standards will be available for immediate voluntary use, regulators around the world will then get to work integrating ISSB into their own mandatory reporting programs:

• The UK will be using ISSB in their final development of their Sustainable Disclosure Requirements (SDR) regime. We also expect them to update their various TCFD-based programs to align with ISSB as they integrate each into their master SDR framework.
• The EU’s upcoming Corporate Sustainability Reporting Directive (CSRD) will be closely aligned with ISSB—though it will also go beyond and consider double materiality (ie. the climate’s impact on the filing organization and the organization’s impact on the climate).
• The US has released disclosure proposals, via the SEC, that line up neatly with ISSB, being also focused on the needs of investors and capital markets. Though the SEC’s proposals don’t go as far on metrics or targets, and allow Scope 3 emissions to only be reported when “material” in volume.
• Globally, ISSB has been endorsed by both the G20 and G7, giving deep credibility to their mission of becoming the new global baseline. Countries including Singapore, Canada, and China have all announced plans to integrate these new standards.

Watershed encourages all organizations already required to file TCFD-based reports in these jurisdictions to begin preparing for ISSB now—both to get a head start on data collection and to ensure real climate action is being taken across all the covered categories.

If we can help with any of this, please reach out. To receive more guides like this in your inbox, subscribe to The Shed, Watershed’s free round-up newsletter. All Watershed customers also receive a bi-weekly policy briefing covering updates to programs like ISSB.