ISSB digital standards not perfect

The International Sustainability Standards Board (ISSB) recently published its much-awaited digital taxonomy, to help investors navigate sustainability disclosures.

The International Financial Reporting Standards (IFRS) Sustainability Disclosure Taxonomy (ISSB Taxonomy) will help support dialogue between companies and investors and does not introduce any new requirements.

ISSB chair Emmanuel Faber said: "As jurisdictions around the world are considering the adoption or other use of ISSB Standards, the publication of the ISSB Taxonomy only a few months after the effective date of our inaugural Standards is critical to support capital market transparency and efficiency and enable companies and investors to digitally process sustainability-related financial disclosures provided through use of the ISSB Standards.

"Furthermore, we have taken steps to ensure the ISSB Taxonomy can help facilitate interoperability with other taxonomies when necessary - for example, to facilitate interoperability with the taxonomy being developed by EFRAG [the European Financial Reporting Advisory Group] - enabling all companies and investors to immediately more effectively identify disclosures required by the ISSB."

While the announcement has been met with positive response, not all in the industry are satisfied.

Philip Tapsall, general manager at Climate Valuation and finance practice lead at XDI (Cross Dependency Initiative - part of The Climate Risk Group), says the ISSB sustainability standards are not perfect.

The main deficiency is that the standards are not sufficiently detailed when it comes to physical climate risk, he told FS Sustainability.

"The standards are an excellent start but further work is needed to ensure companies are reporting on the full scope of physical risks that climate change may have on their business.

"In short, the physical risk component of the standards needs building out and in its current state may lead to the business impacts of climate change being under-reported".

The ISSB concedes that limitations to the current disclosure practices are holding back global disclosures.

It recently announced new priority research initiatives related to nature-related and human capital risks and opportunities.

Biodiversity, ecosystems, ecosystem services, and human capital are all on the table.

It will not immediately act on human rights - but it will monitor developments for potential future inclusion.

The focus areas respond to investor needs in evaluating the impacts and dependencies of investible companies, to align with international frameworks including from the Sustainability Accounting Standards Board (SASB), the Climate Disclosure Standards Board (CDSB), and the Task Force on Nature-related Financial Disclosures (TNFD).

The ISSB has slated its next tranche of information for release in June.

Read more: ISSBEFRAGEmmanuel FaberIFRSPhilip TapsallSASBXDI