THE global accounting standards body launched its first two disclosure standards for sustainability and climate on Monday (Jun 26), a landmark step that industry players hope will help to unify the way companies report on their environmental and social impact.

The International Sustainability Standards Board’s (ISSB) two standards, known as S1 and S2, mark the first global baseline of sustainability disclosures aimed at meeting the needs of capital market participants, including investors and regulators.

They will be effective for annual reporting periods beginning on or after Jan 1, 2024. Companies that choose to do so will have to publish their sustainability reports at the same time as their financial-related statements.

This means that investors, who have found it difficult to get sustainability-related information to make informed investment decisions amid a plethora of frameworks, will be able to obtain ISSB-aligned disclosures from companies in 2025.

S1 sets out general requirements for how a company should disclose information about its sustainability-related risks and opportunities, while S2 zooms in on climate-related ones. Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Corporates will have to apply both S1 and S2 requirements in their sustainability reports. This includes disclosing how companies used climate-related scenario analysis to identify the risks and opportunities and the impact on companies’ cash flows and financial position, their low-carbon transition plans, cross-industry and industry-specific metrics, as well as absolute greenhouse-gas emissions.

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The inclusion of Scope 3 emissions – which refer to a company’s indirect emissions from its value chain – drew the bulk of criticisms after the initial drafts were released, as companies were concerned about the difficulties in measuring these indirect emissions since there has not been a methodology as yet agreed upon.

The standards, however, provide transitional relief on Scope 3 emissions, among other requirements, in a company’s first year of reporting.

ISSB also recognised that companies across the world are at different stages of sustainability reporting and has designed the S1 and S2 requirements to be applied proportionately to a company’s capabilities and resources.

It will also be providing guidance and training, through its partners, to support smaller companies or those operating in developing economies.

With the standards now finalised, ISSB said in a Monday press release that it will be working with jurisdictions and companies to support adoption. It will first create a transition implementation group to support companies applying the standards and launch capacity-building initiatives to help with implementation. It will also work with jurisdictions that require incremental disclosures beyond the global baseline.

In the case of Singapore, the Monetary Authority of Singapore (MAS) told The Business Times that it is “committed to working with (its) regulatory counterparts to integrate this global reporting framework into the disclosure requirements of both financial institutions and listed companies”.

The central bank had previously said that financial institutions here would be mandated to make their disclosures based on ISSB standards. It is also working with the Singapore Exchange (SGX) Regulation to incorporate them into listing rules.

Nonetheless, regulators here will still be launching a public consultation next week first to seek feedback on the suitability of international standards for local adoption, according to a spokesperson from the Accounting and Corporate Regulatory Authority (Acra) in response to queries from BT.

Acra, along with SGX, formed a committee in June last year for such purposes.

“The government will decide whether to accept the (ISSB) recommendations after reviewing the feedback from the public consultation,” said the Acra spokesperson.

The first mandates on ISSB reporting in markets that are part of the Association of South-east Asian Nations (Asean) could come as early as 2025, said Fredrik Andersen, lead at Deloitte Asia-Pacific’s centre of excellence for sustainability and climate. This is due to strong interest in ISSB in Singapore and the wider regional market, coupled with the fact that some corporates are already reporting in line with TCFD recommendations – which are integrated into the new standards.

However, Cherine Fok, partner of KPMG’s environmental, social and governance advisory arm, said that the region’s cultural and structural fragmentation, along with resource challenges in the wake of the Covid-19 pandemic and other geopolitical developments, could drag the adoption over decades.

ISSB adoption in Asean, therefore, needs to be deliberately driven by regulators. To facilitate adoption in the shortest timeframe possible, in light of the urgency of the climate crisis, Fok suggested the need for a job transformation map at either a Singapore or Asean level.

This would include mapping various skills needed to implement ISSB standards, review existing job roles, hiring relevant talent from across the globe, as well as salary benchmarking.

Another way to quicken the pace of adoption is for corporates to engage in pro-forma reporting, said Fang Eu-Lin, sustainability and climate change leader at PwC Singapore. She pointed out that using hypothetical data or assumptions to make projections in reporting had been helpful for corporates when new reporting standards were issued in the past.

Conducting pilot programmes, in which companies can participate, and making available illustrative sustainability reports based on ISSB would also be helpful, said Fang.

“Additionally, ISSB can issue progress reports to track the adoption of ISSB standards, including a cut for the Asean region,” she added.

Praveen Tekchandani, partner at climate change & sustainability services at EY, said that technology can be leveraged to streamline the process and make compliance to these standards more accessible for companies with limited resources.

Market observers also agreed that the demand for limited and reasonable assurance, which refers to having an external party audit the disclosures, would increase even though ISSB does not mandate any third-party review.

Fang noted that external assurance is likely to become essential as the importance and stature of sustainability disclosures rises alongside financial information.

“This means that it’s a matter of time until sustainability-related information is assured at the same level as a company’s financial reporting,” she said.