How ISSB Plans to Standardize ESG Globally: Impacts Across Value Chains

Sustainability reporting has grown in importance over the past decade which created a demand for consistent global standards, leading to the creation of the International Sustainability Standards Board (ISSB) in 2021 to address this need.

Conflicting sustainability reporting standards predated the ISSB, centered around financial materiality versus broader impacts. The Value Reporting Foundation’s Sustainability Accounting Standards Board (SASB) focuses on financial materiality of sustainability. The Global Reporting Initiative (GRI) takes a more holistic stance independent of financial impacts. These differing philosophies have carried forward under the ISSB.

With increasing investor and regulatory pressure, there were calls for convergence around a single set of global sustainability reporting standards. The financial community turned to the International Financial Reporting Standards (IFRS) Foundation, which oversees the trusted International Accounting Standards Board (IASB), to establish equivalency. This led to the formation of the ISSB at COP26 as a sustainability reporting analogue to financial reporting standards.

Interoperability Instead of True Convergence

The ISSB favors financial materiality in line with SASB, causing concerns for supporters of more holistic GRI-based standards. With fundamentally different outlooks at play, global convergence is challenging. The ISSB now focuses on establishing interoperability between reporting frameworks rather than complete convergence. This maintains distinct views while enabling connectivity.

Building Momentum: The ISSB’s Rapid Sprint from Launch to Ratified Standards

Hitting the ground running after its Glasgow COP26 launch, the ISSB moved quickly, merging with the Value Reporting Foundation to gain personnel and climate risk framework foundations. The ISSB’s inaugural exposure drafts focused on overall sustainability (S1) and detailed climate standards (S2), receiving constructive feedback toward producing finalized inaugural releases.

Materiality debates persisted around sustainability materiality—whether to assess just financial impacts on companies or broader societal/environmental consequences. Refined ISSB guidance still focuses on financial materiality but provides direction on assessing what constitutes a reportable business impact.

Finalized ISSB standards are now available for voluntary adoption by companies and investors globally. Individual jurisdictions also start local policy rollouts on mandatory timelines. Early movers like the UK’s FCA embrace ISSB integration faster while US SEC alignment may take time

• Materiality Through the Investor Lens

The ISSB applies the investor-focused concept of materiality from financial reporting – deeming ESG information as material if its omission or misstatement could influence investment decisions. This lens anchored in financial value aims to drive sustainability accounting rigor on par with financial statements.

• Sustainability Spans Enterprise Resilience

The ISSB defines sustainability as maintaining essential resources, relationships and dependencies across a company’s whole business ecosystem. Rather than an add-on, embedding sustainability protects the capacity to endure and thrive long-term by properly managing social, environmental and economic dimensions holistically.

With authoritative global standards, ISSB disclosure frameworks promise to inject discipline, consistency and clarity into communicating enterprise sustainability progress.

Unlocking Sustainability’s Latent Strategic Value Through Disclosure

Inconsistent sustainability disclosures have frustrated investors and regulators seeking ESG data integration into capital allocation decisions. Wide variability in reporting methodologies also impedes internal utilization within enterprise risk management and long-term strategic planning.

Enter the International Sustainability Standards Board (ISSB) – architect of unified global reporting systems promising to elevate sustainability to financial reporting rigors underpinning financial market functionality.

By developing consistent frameworks, ISSB empowers organizations and investors to extract previously stranded strategic value from sustainability measurement, management and disclosure:

• Streamlined Architectures

ISSB frameworks promise to replace disjointed approaches optimizing disclosure processes to serve established information needs rather than drive internal complexity. Tight integration with financial accounting reduces duplication.

• Data Credibility and Utility

Injected rigor around qualitative contextualization and quantitative climate risk metrics offers investors and regulators coherent insights for incorporating sustainability across capital allocation modeling.

• Performance Benchmarking

With standardized methodologies, ISSB disclosures allow robust internal and industry sustainability benchmarking guiding strategy.

• Risk Analysis and Target Setting

Consistent data structures strengthen contextual risk quantification capabilities improving strategies targeting emissions, energy, water and broader ESG dimensions.

In short, ISSB equips proactive adopters to fully embed sustainability within enterprise risk appetite evaluations, strategic planning routines and overall long-range organizational resilience efforts.

Steep Slopes on the Route to Resilience: ISSB Magnifies Maturity Disparities

Adopting the ISSB disclosure framework poses multifaceted challenges spanning governance, strategy, risk, metrics, and more. Mature sustainability programs navigate easier paths while companies new to formal ESG planning and reporting have steep learning curves. But standardized roadmaps guide all toward more resilient futures.

• Governance Gaps

Many boards lack dedicated sustainability oversight despite its rising strategic importance. ISSB spotlights governance gaps – relevant expertise absence, sustainability disconnected from committees like audit/risk/nomination, and immature processes to validate reporting. Comprehensive governance mechanisms matching financial diligence take time.

• Strategy Baselines

Sound sustainability planning requires understanding current state through baselining carbon, water usage, waste, biodiversity impacts and more. Then comes setting targets addressing stakeholder expectations, especially from investors, customers, employees aligned with net zero policy headwinds. ISSB requirements make robust strategic planning inescapable.

• Risk and Opportunity

With strategy mapped, risk management injects reality through identifying execution barriers and market shifts that could derail sustainability or harm competitiveness. But obstacles also illuminate options – new services, resilience offerings, and revenue streams from purpose-led positioning. ISSB adds texture to risk.

• Metrics and Data Chains

Reliably measuring sustainability progress is challenging, especially since companies historically haven’t focused data collection on these areas. When gathering data from many sources, inconsistencies can undermine credibility. However, sustainability metrics are crucial for developing effective strategies by revealing priorities and gaps.

While data issues persist, the ISSB sustainability reporting frameworks help companies systematically build critical strategic capabilities for the increasing importance of environmental and social performance. In developing these new competencies amidst uncertain terrain, organizations evolve new capacities, rather than passively adopting prescribed rules. This process of grappling with emerging practices unlocks potential for meaningful action.

The Road Ahead: Advancing Together Through Continued Collaboration

While some divisions around materiality scopes and implementation timelines persist, ISSB represents monumental collective progress in instilling sustainability governance with financial accounting’s institutionalized diligence.

Achieving complete global standards congruence remains an ambitious long-term aim. Still, the path ahead promises meaningful convergence as regulatory mandates broaden. Constructive dialogue between standard-setters sharing best practices will further optimize interoperability.

With so much acceleration already achieved since its 2021 Glasgow inception, ISSB debuts during a pivotal window of opportunity to upgrade sustainability’s strategic status before intensifying climate shocks and nature losses crossed irreversible ecological boundaries.

United commitment to enable markets and societies to reciprocally reward sustainable corporate behaviors will be key. Within rapid response windows, progress often prevails over perfection. Consistent, material and actionable disclosures can empower stakeholders managing intertwined financial and earth systems stability.

Integration With Emergent Frameworks

As issue-specific sustainability frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) emerge, the ISSB plans alignment. TNFD-compliant nature disclosures already integrate with ISSB’s broad sustainability standard as official supplemental guidance until formal biodiversity standards develop. This plug-and-play interoperability ensures forward compatibility.

Driving Consistency not Conformity ISSB provides consistent sustainability reporting architecture for global markets. But standardized structure allows customized content highlighting unique strategies, performances, and opportunities. Frameworks drive disclosure rigor but leave room for differentiation—the best of both worlds for efficient yet insightful reporting.