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Integrated reporting concepts are embedded in the ISSB’s inaugural global Standards

Posted 30 June, 2023

The International Sustainability Standards Board (ISSB)’s inaugural standards—IFRS S1 and IFRS S2—mark the beginning of a new era of sustainability-related disclosures in capital markets worldwide. The ISSB Standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions.

And for the first time, these Standards – issued on 26 June – create a common language for disclosing sustainability-related risks and opportunities on a company’s prospects.

About the ISSB Standards

IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term.

IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.

Launch of the Standards and embedding integrated reporting concepts

ISSB Chair, Emmanuel Faber, launched the Standards at the IFRS Foundation Conference in London. Through the address, he explored how concepts of the Integrated Reporting Framework have been embedded in the heart of IFRS S1 saying:

“We are connecting the dots with economics and with financial statements in two ways.

The first is very early in IFRS S1, just after the first paragraph about its objective, where you will find a description of what we see as sustainability.

It affirms that the value that a company creates for itself, or its shareholders, is inextricably linked to its business ecosystem, the civil society in which it operates, the human capital that it employs, the natural resources that it has to use and deploy.

Therefore, to be able to manage the company in the long term and reach its objective over time it’s useful for companies to consider, when engaging with their shareholders, how they’re managing those relationships and dependencies with natural capital, with social capital, with human capital, and their impacts on them.

Not only describing these relationships and these dependencies, but also these impacts that they may have, as some of them may be material to investment decisions. And so, thinking about the development, the protection, the regeneration of those capitals.

Values in these capitals are not in silos, the same value travels from one to the other.

If I underinvest in regenerative agriculture, my soil will be degraded and in the short term I’ll be able to capture value that may travel to dividends to my shareholders. But if I only focus on that, I won’t have dividends 10 years from now, because I won’t have agriculture anymore, because soils will be dead.

So, there may be an important trade-off to go from efficiency to resilience and to think about investing in regenerating agriculture to continue to build this inventory of value that is sitting there in the soil and that I want to protect for the longer-term so that I can continue to provide dividends to shareholders.

These are the questions that so many CEOs and CFOs today are considering, and they needed a language.

We are providing this language thanks to concepts we’ve taken from the Integrated Reporting Framework.”

Continued use of the Integrated Reporting Framework

Continued use of the Integrated Reporting Framework is encouraged.

The Integrated Reporting Framework, when used together with ISSB Standards, can support a holistic view of the value creation process through governance and business model disclosure to drive connections between financial statements and sustainability‑related financial disclosures.

As Emmanuel Faber articulated, IFRS S1 already builds on concepts from the Integrated Reporting Framework, which helps a company articulate how it uses and affects resources and relationships for creating, preserving and eroding value over time.

By referring to this articulation of the value creation process, a company will be better placed to explain how it is working within its business model and value chain to manage the sustainability-related risks and opportunities that can affect its performance and ability to deliver financial value for investors over the short, medium and long term.

Next steps

The ISSB is currently seeking feedback on its priorities for its next two-year work plan, including four potential projects.

One of these potential projects is a research project on integration in reporting to explore how to integrate information in financial reporting beyond the requirements related to connected information in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

Visit our resource library to learn more about the Integrated Reporting Framework and Integrated Thinking Principles.

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