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IOSCO Endorses Global ESG Rulemaker’s New Climate and Sustainability Disclosure Standards

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

The International Organization of Securities Commissions (IOSCO) endorsed the International Sustainability Standards Board’s (ISSB) two new climate and sustainability disclosure standards, and called for the rules to be considered worldwide, the IFRS Foundation said on July 25, 2023.

The IOSCO Board is made up of 35 securities regulators, including the U.S. Commodity Futures Trading Commission and the U.S. SEC. The organization’s membership regulates more than 95 percent of the world’s securities markets in some 130 jurisdictions, and it continues to expand.

IOSCO “is now calling on its 130 member jurisdictions—capital markets authorities that regulate more than 95% of the world’s securities markets—to consider how they can incorporate the ISSB Standards into their respective regulatory frameworks to deliver consistency and comparability of sustainability-related disclosures worldwide,” the foundation said.

The IFRS Foundation is a trustee body with oversight responsibility of the ISSB, which was established two years ago to develop environmental, social and governance (ESG) related disclosure rules.

Trustee Chair Erkki Liikanen called IOSCO’s endorsement “a landmark and a historical achievement” which validates the ISSB’s work to develop disclosure rules fit for capital market use at global level as was done decades ago with the IASB, the rulemaker that develops IFRSs.

“IOSCO’s endorsement sends a powerful signal to jurisdictions worldwide, providing them with the confidence they need to implement the ISSB Standards in their regulatory frameworks,” he said in a speech.

The endorsement is expected to also resonate with growth and emerging markets which make up 75 percent of IOSCO membership, according to the announcement. Further, it comes at a time “when a number of jurisdictions are taking steps to introduce mandatory requirements for use of” the ISSB’s first two standards, IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information and the IFRS S2, Climate-related Disclosures.

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. The standards take effect on Jan. 1, 2024.

High-Level Roadmap Also Published

To coincide with IOSCO’s endorsement, the IFRS Foundation also published a high-level roadmap to provide transparency around the ISSB’s strategy to support jurisdictional adoption.

This document is a precursor to an Adoption Guide for regulators, which will be finalized in 2023, the organization said.

To support preparers and regulators with implementation, the IFRS Foundation and the ISSB have adopted a four-fold strategy that comprises:

  • introducing proportionality and scalability mechanisms in IFRS S1 and IFRS S2;
  • introducing in IFRS S1 and IFRS S2 transitional reliefs from some disclosure requirements when those standards are first applied;
  • establishing a capacity-building program to provide technical support to regulators and to increase the capacity among preparers and other stakeholders to apply IFRS S1 and IFRS S2;
  • developing an Adoption Guide aimed at supporting regulators in their implementation considerations and enable the introduction of scalability and phasing in of the application of the requirements in IFRS S1 and IFRS S2 at a jurisdictional level. By establishing parameters for jurisdictional scaling and phasing-in, the Adoption Guide “is also intended to mitigate variation in the manner in which ISSB Standards are implemented across jurisdictions and, therefore, support consistency and comparability.”

 

This article originally appeared in the July 26, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.

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