As with other nonfinancial measures, sustainability reporting is quite time-consuming, especially for smaller organizations. To help ease this burden, the IFRS Foundation has taken on the responsibility to create guidance by forming the International Sustainability Standards Board (ISSB) in November 2021, which recently issued its first two pronouncements.
This month’s column looks at the ISSB and some helpful related resources from the Task Force on Climate-Related Financial Disclosures (TCFD) and the AICPA.
International Sustainability Standards Board
The ISSB is currently housed on the IFRS website (https://www.ifrs.org/groups/international-sustainability-standards-board/). In order to view the ISSB Standards, users must sign up for a free basic registration, which provides access to issued standards in HTML or PDF. Before proceeding to the new standards, the website FAQs (https://bit.ly/3ONRT8m) provide some informative background, such as what the ISSB is and what its objectives are, how the IASB and the ISSB work together, and how the ISSB fits in with other organizations, such as the Climate Disclosure Standards Board (CDSB) and the Global Reporting Initiative (GRI).
The ISSB Standards are available through multiple locations on the IFRS website; however, the IFRS Sustainability Standards Navigator (https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/) provides access to the collection of related materials, including accompanying guidance, industry-related guidance, and bases for conclusions. Although there are currently only two standards, the navigator webpage will help as more documents are added. The navigator presents a 53-page “Proposed IFRS Taxonomy,” which is new and separate from the original IFRS taxonomy, and is designed to assist users to tag information about sustainability-related issues in their financial statements (https://www.ifrs.org/projects/work-plan/ifrs-sustainability-disclosure-taxonomy/).
The taxonomy resources includes a 47-minute webinar, “Proposed IFRS Sustainability Disclosure Taxonomy,” which also makes the slides available as a separate download. The video covers the importance of digital reporting of sustainability-related disclosures, an introduction to the ISSB taxonomy, and an illustration of tagging. The presentation further addresses the relationship between ISSB Standards S1 and S2, sustainability risks and opportunities, and how users can submit feedback on the proposed taxonomy (https://bit.ly/3QDWY5A).
A 23-page “Project Summary” is available from the General Sustainability-related Disclosures webpage (https://bit.ly/3qKiE5j) that describes the first two standards, the ISSB resources available to adopting companies, and how the sustainability disclosures are useful for reporting entities. The summary also covers the core content of governance, risk management, metrics and targets, and strategy, as well as conceptual foundations and general requirements. In addition, it includes the relationship between the organizations that are consolidated into the IFRS Foundation: Integrated Reporting, SASB Standards, plus the Climate Disclosures Standards Board (CDSB), as well as the Task Force on Climate-Related Financial Disclosures (TCFD), which makes up the fourth foundational source for ISSB Standards (https://bit.ly/45RVSaT).
IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, was issued in June 2023 for annual reporting periods beginning in January 2024. It covers disclosure of information about sustainability-related risks and opportunities that are expected to be of interest to users of general-purpose financial statements. S1 includes five appendices with specific application guidance and qualitative characteristics of useful sustainability-related financial information (https://bit.ly/3OAsRJA).
IFRS S2, Climate-related Disclosures, addresses the disclosure of information about climate-related risks that can be expected to affect an entity’s cash flows, access to capital, and the cost of capital over short-, medium-, and long-term timelines. S2 defines climate-related risks, as well as specific disclosures. Appendix A provides very helpful definitions of climate-related terms; Appendix B presents detailed application guidance that carries the same weight as the body of the standard (https://bit.ly/3qscruY).
Task Force on Climate-Related Financial Disclosures
As mentioned above, the TCFD (https://www.fsb-tcfd.org/) is one of the sources for the new ISSB Standards. In 2017, it released its first climate-related financial disclosure recommendations, which are structured around four core elements: governance, strategy, risk management, and metrics and targets—all of which were adapted for the ISSB releases. The TCFD recommendations are available in a downloadable 74-page pdf, “Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures,” which provides a detailed discussion of climate-related risks and opportunities, specific recommendations and guidance, and a discussion of scenario analysis as a useful tool for presenting climate-related information. Appendix 4 presents a comprehensive table of select disclosure frameworks of six major countries, including the United States (https://bit.ly/3YD2JSZ).
The TCFD has some excellent resources that are too numerous to cover in detail here. In addition to many publications, the TCFD presents “Workshops in a Box” of downloadable pdf introductory self-study materials (https://bit.ly/3KMQTjg), and a searchable example disclosures database from real companies that align with one or more of the TCFD’s 11 recommended disclosures (https://bit.ly/3qCBr2w). A 60-minute webinar, “Climate Disclosure Convergence: TCFD, SEC, and ISSB” addresses recent SEC and ISSB publications that incorporate TCFD recommendations (https://bit.ly/45tOPES).
The TCFD also offers an excellent Knowledge Hub (https://www.tcfdhub.org/) that includes a large number of articles, educational materials, and a searchable database of actual company reports.
AICPA Sustainability Reporting and Assurance
The AICPA provides a specialized webpage (https://bit.ly/3OYtrjg) with several resources that tie into the new ISSB standards and includes some materials available to the general public. For example, “ISSB Sustainability Standards Launch Summit,” is a 75-minute video that discusses the importance of the new ISSB standards in creating a global baseline of high-quality information for investors (https://bit.ly/44nJTkc). One of the real gems in the AICPA’s collection is another video, “Sustainability Disclosure Priorities for 2023” (https://bit.ly/3QS2amehttps://bit.ly/3QS2ame), which covers the potential impact on corporate reporting and U.S. accounting professionals of the SEC’s proposed disclosure rule, as well as the IFRS Foundation’s sustainability standards.
In the Sustainability Toolkit section, the AICPA offers two resources of particular interest to CPAs who provide assurance services. “Frequently Asked Questions on External Assurance of Sustainability Reporting” is a 13-page PDF that addresses assurance engagements in accordance with Global Reporting Initiative (GRI) and performed under AICPA Standards (https://bit.ly/3yMPTGj). The FAQs discuss what assurance on sustainability information is, what allows the GRI standards to serve as a suitable basis for an assurance engagement, and how an organization can decide on the appropriate level of assurance. For CPAs who would like to promote their sustainability reporting assurance services, a 12-page brochure “CPAs: The Preferred Choice for Assurance on Sustainability Information” covers sustainability assurance options and features; the importance of assurance on environmental, social, and governance (ESG) reporting; and why CPAs are front runners in the sustainability movement (https://bit.ly/3qvbguL).