The International Sustainability Standards Board (ISSB) has published inaugural standards that aim to promote consistency and comparability in sustainability reporting and disclosure. These standards will have knock-on effects for South African companies.
A major challenge that has stifled the flow of capital to sustainable activities has been inconsistencies in global sustainability reporting and disclosure standards. This is set to change with the introduction of the
ISSB's inaugural standards – IFRS S1 and IFRS S2 (ISSB Standards), issued on 26 June 2023. They will usher in a new era of sustainability-related disclosures in capital markets worldwide.
IFRS S1 provides a set of disclosure requirements which are designed to allow companies to communicate to investors the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures. Their aim is to create a global framework for corporate reporting that incorporates sustainability measures, metrics, and disclosures. This framework aims to ensure consistency and comparability across different sectors, industries and continents.
Both IFRS S1 and IFRS S2 broadly incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). From next year, the ISSB will take over responsibility for monitoring progress of companies' climate-related disclosures from the Financial Stability Board's TCFD.
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recent survey conducted by the International Bar Association suggests that a number of countries already have mandatory sustainability and/or climate disclosures in place. However, existing disclosure standards are likely to be revised to align with the ISSB Standards. For example, the Canadian Sustainability Standards Board, which became operational on 26 June 2023, will align existing disclosure standards with those of the ISSB. One day after the ISSB's standards were published, the Australian Treasury released a further consultation paper on the introduction of a mandatory climate disclosure framework in Australia, which will be aligned with the ISSB climate standards.
The widespread adoption of the ISSB Standards will have major implications for a range of companies, especially for South African companies with parent or holding companies, or who supply goods and services to companies in other jurisdictions, who have mandatory sustainability or Environmental, Social and Governance (ESG) disclosures modelled on the ISSB Standards. The Johannesburg Stock Exchange's (JSE) Sustainability Disclosure Guidance and Climate Change Disclosure Guidance, which were published in June 2022, drew upon the draft ISSB standards, and are likely to be updated to reflect any changes in the final ISSB Standards. It will also be interesting to see whether South Africa moves away from voluntary to mandatory ESG disclosures.
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