Arashiyama bamboo forest in Kyoto Japan

What to watch as global ESG reporting standards take shape

The launch of the International Sustainability Standards Board is a significant development in the transition toward a green economy.

In brief

  •  The lack of comparable, relevant ESG information is a barrier in the transition to a more sustainable economy.
  • The ISSB is expected to bring organization and clarity to the complex world of ESG reporting and disclosure.
  • It will be important for the IFRS Foundation to move quickly on a broad set of sustainability standards, recognize the dynamic nature of materiality and need for local adaptation and supplementary standards.

In one of the most significant developments in accounting and reporting in decades, the International Financial Reporting Standards (IFRS) Foundation formally announced the establishment of the International Sustainability Standards Board (ISSB) at the 2021 United Nations Climate Change Conference (COP26) in Glasgow.

With an estimated 600 environment, social and corporate governance (ESG) reporting standards globally1, the ISSB is poised to bring much needed consistency and comparability to ESG reporting standards. The ISSB will develop a global baseline of sustainability disclosure standards and help consolidate what has long been described as an “alphabet soup” of standard-setters.

Calling the climate crisis, “the defining issue of our time,” Erkki Liikanen, Chair of the IFRS Foundation Trustees, said, “sustainability information [must be] produced with the same rigour, assurance of quality and global comparability as financial information.”

The new board will run parallel to the IFRS Foundation’s International Accounting Standards Board (IASB), the body that sets accounting standards that are mandatory for most listed entities in over 140 jurisdictions.

Importantly, two prototype disclosure standards – developed by Technical Readiness Working Group, formed by the IFRS Foundation– provides a running start for the ISSB in its initial work.

  • Climate-related disclosures prototype – The climate prototype (pdf), built on the Task Force for Climate-related Financial Disclosures (TCFD) recommendations, would require entities to provide information that allows users to assess climate-related risks and opportunities with respect to a company’s governance, strategy and risk management as well as provide metrics and targets in relation to climate-related risks and opportunities that allow for consistency and comparability throughout global markets.
  • General requirements prototype– The general requirements prototype (pdf) provides guidance on disclosing other material ESG matters that affect enterprise value, consolidating key aspects of content from existing standard setters.

The growing harmonization of climate and broader ESG reporting standards comes at a critical time given the lack of relevant, decision-useful climate information – information that allows market participants to assess climate risk and encourages investment in adaptation and mitigation efforts –increasingly seen as a barrier in the transition to a green economy. In a recent International Monetary Fund (IMF) survey of asset managers, climate data gaps, particularly forward-looking data, were considered the most pressing issues that need to be addressed to facilitate transition-related investing.2

The launch of the ISSB and these forthcoming standards come at a critical time with the lack of relevant, decision-useful climate information is increasingly seen as a barrier in the transition to a green economy.

The IMF, in its October 2021 Global Financial Stability Report, called on policymakers to, “urgently strengthen the climate information architecture both for firms and investment funds,” to align investment flows with climate goals.3 The ISSB has the potential to become a key pillar of this architecture and in the provision of relevant, decision-useful ESG information. As the global sustainability standard-setting process kicks into gear, three issues are key to keep on the policy agenda:

1. The need for specific social and corporate governance standards

We believe the ISSB is right to prioritize climate in its initial development of sustainability reporting standards and are pleased that its general requirements prototype will provide companies with disclosure guidance related to other ESG matters on an interim basis. 

In the medium-term, however, the same urgency with which the board is approaching a specific climate standard is needed on a broader set of sustainability issues, including employee-related matters and human rights.

The need for action on these issues has become painstakingly clear amid the COVID-19 pandemic with research from the United Nations Conference on Trade and Development (UNCTAD) illustrating how the pandemic has reversed years of progress toward achieving the Sustainable Development Goals (SDGs).4

At the same time, disclosure mandates related to social and governance factors have emerged around the world. Examples include:

  • The Corporate Sustainability Reporting Directive (CSRD) will require EU (and some non-EU headquartered companies) to report on human rights, among other workforce data.
  • In the US, the Securities and Exchange Commission (SEC) recently approved new listing rules regarding board diversity and disclosure for NASDAQ-listed companies and is drafting a set of mandatory human capital-related disclosure rules that could include a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety.
  • India’s largest 1,000 listed companies will soon be mandated to file a Business Responsibility and Sustainability Report (BRSR) with information covering a broad range of ESG factors including welfare benefits and median wages, gender diversity, and resource usage.

While this movement demonstrates the stakeholder demand for more information on ESG risks, it also raises the risk of fragmentation and the need for greater comparability and consistency.

2. The distinction between the enterprise- and societal-value approaches will blur over time

The ISSB has announced it will develop sustainability disclosure standards that address companies’ impacts on sustainability matters relevant to assessing enterprise value (as determined by market participants) and making investment decisions. This approach is closely aligned with the IFRS Foundation Constitution and is aligned with the “traditional” understanding of materiality.

The concept of materiality has been at the heart of varying approaches to ESG reporting – while many jurisdictions have taken an enterprise-value approach, others – most notably the European Union – have taken a broader, societal-value approach (i.e., including the impact companies have on people and the environment). What is often lost in the debate over materiality, however, is that the distinction between the enterprise-value approach and the societal-value approach is dynamic, having evolved in the past and will inevitably evolve over time, blurring as the links between externalities and direct or indirect effects on the future cash flows become clearer.

Investors recognize that as societal and financial values converge – amid broader shifts around the role of business in society – the effect of an entity on its environment (and vice versa) may not have direct cash flow consequences today, but may have material consequences that affect the entity’s long-term value and viability. Making a distinction between what is relevant only to investors and what is relevant only to other decision makers is going to be increasingly difficult.

Companies should monitor ongoing developments – at both the ISSB- and jurisdictional-levels – as the standards start to take shape.

3. The importance of balancing a global baseline with the need for localization

G20 Leaders, in their declaration following their recent Summit in Rome, welcomed the work of the IFRS Foundation to develop a global baseline of sustainability disclosure standards. At the same time, many G20 nations have moved to enact sustainability disclosure mandates – some which will align to the ISSB process and others which are jurisdiction-specific.

In the EU, for example, a jurisdiction that has expressed a commitment to build on and contribute to global efforts in the field of sustainability reporting standards including the work of the IFRS Foundation, policymakers view disclosure as a mechanism for behavioral change. The CSRD is a key element of the European Green Deal, the European Commission’s set of policy initiatives designed to make Europe climate-neutral by 2050.

Like the IFRS Foundation, we recognize the need to instill regional flexibility alongside a global standard. In the months and years ahead, it will be important to achieve an appropriate level of balance, ensuring that inefficiencies and inconsistencies are minimized.

The launch of the ISSB is the most promising development in the move toward harmonization of ESG reporting standards. Through common and consistent measurement, we will have the opportunity to benchmark progress, improve decision-making and accountability and increase trust. The coming months are an opportunity for multiple stakeholder groups to come together with collaboration and urgency, while generating the broad buy-in required for meaningful advancement.

With additional contributions from Janice Freeman (Policy Analyst, EY Global Public Policy) and Julie Croglio (Secondee – ESG Initiatives, EY Office of the Global Chairman and CEO).


The IFRS Foundation’s establishment of the ISSB is a major step toward achieving relevant, decision-useful sustainability information for market participants that is comparable across industries and jurisdictions.

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