Companies and the carbon emissions that they generate are one of the key drivers of anthropogenic climate change. Because of this, however, they also hold precious potential of curbing its severity. The 2021 Glasgow Pact stated that rigorous sustainability reporting standards that will push companies to disclose information about their impact on the environment as well as climate change’s impact on their operations are essential. For this reason, it supported the creation of the International Sustainability Standards Board (ISSB), a new branch of the International Financial Reporting Standards (IFRS) Foundation, which aims to develop a robust set of financial-related sustainability-reporting criteria.
In June 2023, the ISSB issued its first two standards, IFRS S1, General Requirements for Disclosure of Sustainability-Related Financial Information and IFRS S2, Climate-Related Disclosures. The second focuses solely on climate change-related issues, requiring companies to disclose information around four aspects of their activities: governance, strategy, risk management, and metrics and targets. The standard requires information about the company’s governance body responsible for oversight of climate-related risks and opportunities, as well as quantitative disclosures (in particular, greenhouse-gas emissions).
The standards have gained support from many global bodies, including the G7, the G20, the International Organization of Securities Commissions, and the Financial Stability Board. Although no country has yet adopted them, many are expected to endorse or require them in the near future. Countries such as the UK and Brazil are moving toward this direction. Also, the European Commission confirmed that climate-related disclosures of the European Sustainability Reporting Standards exhibit a high degree of alignment with second IFRS standard, and EU-based companies will have to adopt them in 2024.
