The new ISSB standards – what are they and what do they mean for New Zealand businesses?

In the ever-evolving landscape of sustainability reporting, the introduction of the International Sustainability Standards Board (ISSB) standards marks a significant milestone. These standards are set to reshape how businesses across the world, including those in New Zealand, disclose their environmental, social, and governance (ESG) practices. As New Zealand continues to be a frontrunner in sustainable business practices, the adoption of the ISSB standards presents both opportunities and challenges for businesses focused on climate action.

Below, we delve into the intricacies of the new ISSB standards, exploring what they entail and what they mean for New Zealand businesses striving to align their sustainability reporting with global best practices.

What is the International Sustainability Standards Board (ISSB)?

The ISSB is part of the International Financial Reporting Standards (IFRS) Foundation which, through its independent standard-setting board, the International Accounting Standards Board (IASB), have been producing the IFRS Accounting Standards for about 20 years.

In 2021, the IFRS Foundation established the ISSB as a sister board to the IASB. ISSB has been set up to create sustainability disclosures for economic and investment decisions.

What are the new ISSB standards?

In June 2023, International Sustainability Standards Board (ISSB) released its first two standards:

1. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; and,
2. IFRS S2 Climate-related Disclosures.

According to the ISSB, these standards are designed to “allow companies and investors to standardise on a single, global baseline of sustainability disclosures for the capital markets, with any additional jurisdictional requirements being built on top of this global baseline”. (Source)

• IFRS S1, the first of the new standards, stipulates that companies must communicate the sustainability risks and opportunities that they face over the short-, medium- and long-term.
• IFRS S2, meanwhile, sets out specific climate-related disclosures and is designed to be used alongside IFRS S1.

ISSB expects that this standard is applied to each material sustainability topic identified by the reporting entity. If there is a topic-specific standard (such as IFRS S2) and that topic is material for the entity, then that should be applied.

If this sounds familiar to the recent rules around mandatory climate related disclosures recently released in Aotearoa New Zealand, there’s a reason for that. Both the External Reporting Board’s rules and the ISSB’s standards are built on the recommendations of the same third party: the Task Force on Climate-related Financial Disclosures (TCFD). They are, if not siblings, then at least cousins.

What’s the difference between ISSB S1 and ISSB S2?

IFRS S1 contains conceptual foundations such as fair presentation and materiality, which must be applied when making disclosures about any material sustainability-related topics even when using a topic specific standard.

After this, the standard follows a similar theme to the TCFD disclosures, where an entity is required to provide disclosures about governance, strategy, risk management and metrics for sustainability-related topics.

The objective of IFRS S2 is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the entity.

IFRS/ISSB vs TCFD vs CSRD vs GRI vs SASB

As is a recurring theme in sustainability reporting, there are many acronyms and initialisms to keep up with, many of which have overlapping interests and requirements. The addition of the ISSB has further expanded the glossary required to effectively manage sustainability.

• ISSB. The International Sustainability Standards Board aims to develop and maintain a comprehensive global baseline of sustainability reporting standards. It builds upon existing frameworks and standards, including those of SASB and TCFD, to provide a unified approach to sustainability reporting.
• TCFD. The Task Force on Climate-related Financial Disclosures provides recommendations for consistent climate-related financial risk disclosures for use by companies in providing information to stakeholders. They emphasize the financial impact of climate change on businesses and how they can disclose these risks to investors and other stakeholders. Notably, the baton for TCFD has now been passed to ISSB.
• CSRD. The Corporate Sustainability Reporting Directive is an EU directive that aims to improve the consistency and comparability of sustainability information disclosed by companies. This directive Broadens the scope of sustainability reporting, covering environmental, social, and governance (ESG) topics.
• GRI. The Global Reporting Initiative provides a comprehensive sustainability reporting framework used worldwide. It covers a wide range of sustainability topics, from environmental impact to social and governance issues. GRI’s standards are designed to be universally applicable, ensuring that organizations, regardless of size or sector, can report their sustainability impact in a consistent manner
• SASB. The Sustainability Accounting Standards Board develops and disseminates sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. Their guidance emphasises materiality, ensuring that businesses report on sustainability issues that are most relevant to their operations and stakeholders.

In terms of comparison between the IFRS standards and established standards, there are a few notable points:

1. In contrast to the GRI, IFRS S1 is not focussed on impact of the entity on the economy, environment and people, but on the impact of the environment and people on the entity.
2. IFRS S1 follows a similar theme to the TCFD disclosures, where an entity is required to provide disclosures about governance, strategy, risk management and metrics for sustainability-related topics.
3. IFRS S2 follows the TCFD requirements for disclosures on governance, strategy, risk management, and metrics and targets. However, it provides entities with considerably more detail and specificity on what must be disclosed.

In New Zealand, mandatory climate disclosure laws don’t specify which standard you use for measuring GHG emissions – but you must disclose which standard is being used.

Is ISSB reporting mandatory?

It is voluntary for New Zealand companies to use the ISSB standards. NZ CREs must report to the Aotearoa New Zealand Climate Standards for climate-related disclosures. ISSB Standards are an optional extra.

This said, it is a fact that sustainability standards are constantly evolving. Voluntarily reporting under IFRS S1 and IFRS S2 could provide useful insights and preparation for future changes, even if they fall under a different name or legal framework.

For businesses with an Australian footprint, the Australian Treasury has signalled that the ISSB standards could become mandatory for Australian large-listed companies and financial institutions, starting from FY2024.

Which countries are adopting the ISSB?

So far, the following countries have adopted or are considering adopting the ISSB standards:

• Australia
• Canada
• Japan
• Hong Kong
• Malaysia
• Nigeria
• Singapore
• The UK

What do I need to do for the ISSB standards?

The ISSB Standards are a significant departure from previous standards, including those it was built upon (e.g. the TCFD). It requires significantly higher levels of detail that may challenge even the most mature reporting entities in New Zealand.

As such, it is crucial for both new and experienced climate reporting entities to review and take stock before the beginning of the next reporting cycle if they are deciding to report to ISSB Standards.

1. Impact assessment. Understand if the ISSB standards apply to you, or choose to report voluntarily. Identify the differences between IFRS S1 and S2 and other standard/regulations you report against.
2. Materiality assessment. Review your business’ value chain to better understand your sustainability-related risks and opportunities, as well as how you will source your data (particularly in terms of Scope 3 supplier engagement). Identify what information is considered material under the SASB standards and prepare to gather this data.
3. Maturity assessment. Assess the maturity, capability and efficiency of the tools, talent, technology and processes required by the ISSB Standards. Engage with process owners to understand how data is currently managed and analysed, review the capabilities of your carbon accounting software in line with the new standards, and develop a roadmap that best embeds governance, data, processes, people and change management into your organisation.
4. Reporting transformation. Consider how and if the way that you report your GHG emissions will need to change because of reporting to the ISSB standards. In turn, this will flow into a consideration of resource requirements and how best to integrate the data collection methodology into existing systems and processes to create efficiencies.
5. Assurance readiness. While the ISSB does not require assurance as part of their standards, local legislation may do so. Engaging with internal audit teams to design effective procedures and controls before engaging with an external auditor can identify possible gaps and ensure that you are able to produce adequate documentation and audit trails.

Source: Sustainability reporting – General and climate-related requirements, KPMG.

Does ISSB reporting require assurance?

The ISSB and the IFRS standards don’t explicitly mandate assurance. New Zealand regulators, however, have made external assurance a requirement for mandatory climate reporting entities, for GHG emissions reporting for periods that end after October 2024.

What counts as ‘materiality’ in the ISSB standards?

According to IFRS S1, materiality for the ISSB standards can be considered under the same definition as the SASB standard for its sector. That is:

“Information is financially material if omitting, misstating, or obscuring it could reasonably be expected to influence investment or lending decisions that users make on the basis of their assessments of short-, medium0, and long-term financial performance and enterprise value.” (Source)

As of August 2022, the ISSB has assumed responsibility of the SASB standards, and as such the SASB Materiality Finder tool can be used to evaluate materiality at a glance.

In addition, according to IFRS S1, an entity may also choose to refer to the CDSB Framework Application Guidance, other standard setting bodies, and risks and opportunities identified by other entities in the same industry or geography.

When do the new standards come into effect?

Entities can apply this standard for annual reporting periods beginning on or after 1 January 2024. This means that you could start using it now if you wanted to. The first time you apply this standard you may disclose information on climate-related risks and opportunities (in accordance with IFRS S2) only.

Summary and key takeaways

1. The ISSB Standards, IFRS S1 and IFRS S2, are a new standard recently released that are designed to provide a harmonious, global baseline for previously disparate sustainability reporting frameworks.
2. The ISSB Standards are built on the TCFD framework and incorporate the SASB standards. As such, there is significant overlap in its requirements.
3. Climate reporting entities must report according to the Aotearoa New Zealand Climate Reporting Standards, not IFRS S2. However, voluntarily reporting against the ISSB standards provide an excellent opportunity to de-risk against future potential legislative changes, as it represents a distillation of recent thinking on reporting requirements.
4. Preparing to report against the ISSB Standards is best done through a thorough review of current processes, including tools, talent & technology. Reporting entities must ensure they are able to manage the significant amount of data – including Scope 3 emissions – that the ISSB Standards demand.
5. These new standards can officially be reported against from 1 January 2024.

Any business attempting to report against IFRS S1 and IFRS S2 must ensure they have invested in a carbon accounting solution that can handle the significant amount of data collection, management and analysis required not just by ISSB, but also by practically every other sustainability reporting framework currently used.

ESP’s CSR enterprise carbon accounting software can help you and your team master carbon reporting, with features including:

• Flexible data analysis. Use the user-friendly dashboards and tables to get both a birds-eye view on your carbon footprint as well as a deep dig into the detail. Rapidly identify those areas that are most material and use the insights to formulate a meaningful carbon reduction plan.
• Easy data collection. Quickly gather Scope 1, 2 and 3 data using a wide range of different inputs, including Smart Forms designed to make it easy to collect value chain emissions data. Rapidly categorise emissions sources, including GHG and ISO, then use tagging to further segment for in-depth data analysis.
• Report with confidence. Data validation, audit trails and built-in carbon report templates allows you to quickly create carbon reports that tick every requirement, record everything required for assurance, and can be customised to fit your business’ unique needs.

Book a demo with our team today to learn more about how CSR can help with your carbon reporting needs.