Birth of a standard: Where the ISSB came from and what it will do
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Birth of a standard: Where the ISSB came from and what it will do


The International Sustainability Standards Board (ISSB) is one of the most closely watched developments in climate standards to have been announced at COP26. Although its launch was the culmination of an ambitious project, its work is only just beginning.

When an incongruous band of officials at a handful of international organizations formulated a plan in 2019 to create a set of global sustainability disclosure standards under one roof, even they didn’t know if it would be possible. And when they started talking to the International Financial Reporting Standards (IFRS) Foundation in late 2020 about the possibility of the project sitting within that global financial reporting standards body, they certainly didn’t expect it to be launched by the time of the 2021 COP26 conference.

But despite all the challenges, and following extensive public consultations, on November 3 the IFRS Foundation duly announced the creation of the International Sustainability Standards Board (ISSB), with the objective of formulating a new baseline for sustainability disclosures to meet investor needs.

The new body, which will sit alongside the International Accounting Standards Board (IASB), will also absorb the existing Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF), in a move designed to help tackle the alphabet soup of reporting standards bodies, as well as ensure the right expertise sits inside it.

There were so many opportunities for this project to derail
Michel Madelain, IFRS Foundation
Michel Madelain, IFRS Foundation.jpg

“There were so many opportunities for this project to derail,” says Michel Madelain, one of the IFRS Foundation’s trustees. “Having a good result from the consultation was one thing, but we also needed the willingness of other bodies to merge with an organization that didn’t even exist. These were very challenging conditions.”

Every step along the way carried elements of risk and uncertainty, but despite sounding surprised that the project got this far, Madelain says he remained confident that the plan would stay on track – not least because of the extraordinary engagement that he saw from all those involved.

“I don’t think there was any specific moment where we felt that the project was in danger of not going through, but we knew we had a lot of steps to go through to get there,” he tells Euromoney.

If anything, Madelain is underplaying what has been achieved. The story of the ISSB’s genesis arguably goes back at least 15 years, to a time when the debate over how to construct reporting that could go beyond finance and into all other aspects of corporate impact and value creation was just beginning. The formation of the CDSB, a non-profit organization that was created during the 2007 World Economic Forum, was a critical early effort.

It was followed by the International Integrated Reporting Council (IIRC), launched in 2010 by the Prince of Wales and chaired by former Bank of England governor Mervyn King. In 2011, the Sustainability Accounting Standards Board (SASB) was founded as another avenue for exploring ways to help businesses and investors develop a corporate sustainability dialogue, followed in 2015 by the Task Force on Climate-Related Financial Disclosures (TCFD), chaired by Michael Bloomberg and sitting within the Financial Stability Board (FSB).

“That was a terrific time and what it did was spawn initiatives, and that’s what’s led to the criticism of ‘alphabet soup’ as a euphemism for too many things going on and a lack of clarity,” says Richard Sexton, chair of the VRF, speaking at a side discussion at COP26 on November 3, the day the ISSB was announced. From his vantage point inside the IIRC, where he was until its merger with SASB to create the VRF earlier this year, it was clear that someone needed to make a concerted effort to move towards standardization.

It was that same thinking that had prompted the original creation of the CDSB, says its chairman Richard Samans, speaking at the same COP26 event. The CDSB, modelled on the IASB, was itself a combination of a group of institutions whose frameworks and questionnaires were having an impact and were being seen as best practices, but were being applied separately by different pockets of the market, meaning that there was no real scale.

“The best hope for everyone in succeeding was to lock arms and come together behind a common ask of firms,” says Samans. “But at the time there wasn’t the interest on the part of the regulatory authorities or the international accounting authorities to do this, so there was a need for a bit of a workaround, and that’s what CDSB was.”

By 2019, the fragmentation that CDSB was attempting to tackle was, if anything, an even worse problem that it had been in 2007. And so, officials at SASB, the IIRC, the CDSB and others began to work away at a new plan to create something more unified. Coaxing and cajoling technical experts and figures from the public and private sectors, they began to form the outlines of an answer. Ideally, they wanted the project to get the blessing of the IFRS Foundation, as well as the regulators that sit within the International Organization of Securities Commissions (IOSCO), but there was no certainty that would happen.

It’s remarkable. Urgency and standardization don’t go together
Erkki Liikanen, IFRS Foundation
Erkki Liikanen_IFRS Foundation 960px.jpg

In the autumn of 2020 – only a little over a year ago – the group put out the first vision of how the pieces might fit together, and in December that year they followed up with their first version of a climate prototype standard.

“It was a labour of love,” says Samans. “At that time, we didn’t know whether there was going to be an IOSCO and IFRS appetite to take this up at an official level, but we put it out there.”

As it turned out, that appetite would come soon afterwards. With the IFRS Foundation and IOSCO both embracing the project, discussions began in earnest as to how best to create a new body that would sit within the foundation. A public consultation – which the foundation had already kicked off in September 2020 and which saw some 600 responses – delivered two messages: one, that there was market demand for a global solution, and two, that it favoured a role for the IFRS Foundation in providing it.

A technical readiness working group involving the World Economic Forum, VRF, TCFD, CDSB and IASB spent months figuring out exactly how that would be achieved and preparing the prototypes that have now been announced, while others pored over the governance requirements and the amendments to the IFRS Foundation’s constitution that would be needed to allow it to go ahead. Somehow, by the time of COP26, the pieces had fallen into place – with much of the credit falling to IFRS executive director Lee White, who has helped shepherd the process.

“This has been an extraordinary achievement,” says Sexton. “I didn’t believe it would be done by COP.” That is a view echoed by IFRS Foundation trustee chair Erkki Liikanen. “It’s remarkable,” he says. “Urgency and standardization don’t go together.”

IOSCO has been equally enthusiastic. In a statement welcoming the formation of the ISSB, IOSCO chairman Ashley Alder held out the prospect of formal endorsement of the ISSB’s work to IOSCO’s members. “If the ISSB’s future standard meets IOSCO’s expectations, our endorsement will support all our 130 members in considering ways they might adopt, apply or be informed by the standard,” he said.


What has undoubtedly given the ISSB momentum is the fact that it has not been created out of nothing. Between the CDSB, the VRF and others, a lot of companies were already being touched in some form by sustainability standards. Some $75 trillion of assets already support SASB standards, including more than half of the S&P Global 1200.

“That is not all going to be thrown out,” says Sexton. “It’s not all going to automatically move into the ISSB […] but it does provide that building block, and therefore gives some stability, some confidence to those who already report, to keep going, don’t stop, bring others along with you and keep engaged with the development. It’s very, very important that we keep this market-led.”

Everyone involved with the fledgling ISSB seems to spend as much time spelling out what it is not as explaining what it is. What it is not, they say, is a replacement for jurisdictional authorities such as securities regulators or the policies of governments, but rather something onto which jurisdictions can add whatever they feel is appropriate.

“We never tried to position this question in terms of who should own it, whether the regulators or the jurisdictions,” says Madelain. “What we tried to say is that there is a demand that is not met today but which is critical to the functioning of capital markets as well as meeting objectives on climate.”

Liikanen stresses that in all this, the priority has been to remain demand-driven. “We [at the IFRS Foundation] are not fishing for new tasks. We asked stakeholders, first, is there a need for global sustainability standards, and second, should we play a role?”

I fear that it would be very easy for lax standards on the ISSB side to float over to the IASB
Hester Peirce, SEC
Hester Peirce_SEC 960px.jpg

This is a sensitive area. While many have welcomed the creation of the ISSB, others have been forthright in the past about the risk of overreach – or of the dilution of accounting standards by having the ISSB sit alongside the IASB.

In July 2021, SEC commissioner Hester Peirce wrote to the IFRS Foundation urging it “not to wade into sustainability standard-setting”. Doing so, she argued, would improperly equate sustainability standards with financial reporting standards, would undermine the foundation’s investor-centred work and raise governance concerns.

“I fear that it would be very easy for lax standards on the ISSB side to float over to the IASB,” Peirce tells Euromoney now. “I would be concerned that there might be less focus on the accounting side and more focus on the sustainability side, with a drift of attention at the top level.”

And as environment, social and governance (ESG) concerns gather ever greater momentum, this is not a risk confined to accounting standards, says Peirce. “You are seeing this everywhere. Asset managers are thinking about all this and not just about financial returns, and ratings agencies are trying to consider it too.

“There may be a place for thinking about these things, and about how different factors affect financial outcomes, but I do think that we are going to be less rigorous with all kinds of people if we allow them to prioritize the more fuzzy approach that you have on sustainability.”

When it comes to the ISSB, Madelain at the IFRS Foundation counters the criticism by pointing to the new board’s independence from the accounting side of the foundation’s work.

“This is why we have two separate boards,” he tells Euromoney. “We want to maintain a connectivity between the two, and we do think there is an element of continuity between what you observe in a financial statement about what has already occurred, and what may happen over time that you want to capture through the concept of enterprise value.

“But we view them as independent, and this separation is how we will maintain the integrity of the accounting standards.”


Alongside its official launch, the ISSB has announced two prototypes for standards. One is for general requirements for the disclosure of sustainability-related financial information, and the other is specifically for climate.

The climate-related prototype, which details nearly 70 individual areas to be reported on, has the objective of requiring entities to disclose information about exposures to climate risks and opportunities to enable investors to form a view about future cashflows and therefore enterprise value. The standard applies to both physical and transition risks.

The requirements are gathered within four main headings, which match the TCFD pillars of governance, strategy, risk management, and metrics and targets.

The general prototype is concerned with the positive and negative impacts that a business can have on all its stakeholders and on the natural world. It incorporates elements of the IASB standards on the presentation of financial statements and it aligns with TCFD recommendations, and also uses the same four pillars.

The hope is for both public and private companies to embrace the future standards that the ISSB will produce, a point that reflects the changing nature of business and funding models, with companies staying private for longer and getting ever larger while they do so.

Samans argues that the pressure to adhere to the best standards is not lessened for private companies. “Even if you are private and not overseen by a securities authority, you typically have big institutional investors who have important responsibilities and an interest in a high standard of corporate governance,” he says. “We think that as these standards get taken up in the market there will be pressure from above from government and below from investors and employees.

“If you want to attract the best talent and keep loyal investors, you are going to need to take a serious look at the same standards of reporting and information gathering as those required by securities authorities.”

We think that as these standards get taken up in the market there will be pressure from above from government and below from investors and employees
Richard Samans, CDSB

That also reflects longstanding criticism of existing recommendations from bodies like the TCFD for the fact that they have been just that – recommendations. As Liikanen notes, the real question is when the standards produced by the ISSB will become mandatory.

“That is for jurisdictions to decide,” he says. “We hope that in the area of climate it does become mandatory, but it is not in our hands.”

For its part, the UK announced in late October that TCFD disclosures will be mandatory for 1,300 companies, including private companies, from April 2022.

There is still much else to be resolved within the ISSB itself. The nominations of its chair and vice-chair are expected to be announced soon, followed by the formation of a 14-strong board. After an expressions-of-interest process over the summer, the ISSB has determined that it will have offices in Montreal, Frankfurt, London and San Francisco. The selection of an Asian seat is further behind, with China or Japan assumed to be the strongest candidates.

Liikanen thinks there is a good chance that the first climate standards will be in the market in the second half of 2022, as well as a consultation on the body’s future agenda.

For the moment, the headline news about the ISSB is all about climate. With the organization being unveiled at COP26, and with climate as its first point of focus, this is understandable. But it is only the beginning of the ambition, not the end. Next on the agenda will be the expansion of the ISSB’s remit into all other areas of ESG.

Samans concedes that, for the moment, the general prototype will not get as much attention as the climate-specific one, but it is potentially very far reaching. And it’s clear that for all those involved, this is where the greatest value of the whole ISSB project will ultimately come.

“Climate first, but not climate only,” says Liikanen.


Mark Baker headshot2.jpg
Deputy editor
Mark Baker is deputy editor. Prior to joining Euromoney magazine he was based in Hong Kong as managing editor, Asia, for the Capital Markets Group. He previously edited EuroWeek magazine and was also deputy editor at International Financing Review.
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