Global ESG Body Prioritizes Rule Rollouts Over New Standards

The International Sustainability Standards Board plans to spend 2025 helping countries adopt its first two sets of rules rather than issuing any new standards.

The board—established in 2021 with heavyweight backing from bodies such as the G7 and World Bank—will continue to focus on the rollout of climate and general sustainability reporting standards issued in 2023. Its goal is to provide consistent information for investors worldwide concerned about companies’ performance on sustainability issues.

“Significant progress has been made during 2024,” the board stated in an email. “More than 30 jurisdictions, both from developed and emerging markets, have already taken action to adopt or otherwise use ISSB Standards.”

These include European Union member states and countries such as China and Japan, which are working on their own national standards designed to incorporate ISSB rules. A UK advisory body has recommended that the country move toward adopting the sustainability board’s climate and general sustainability standards with a few tweaks, and will make a final decision in 2025.

The lull in setting new rules comes as the European Union has written 12 sustainability reporting standards, two of them covering general sustainability reporting and 10 on specific areas ranging from pollution to a company’s workforce and business conduct. They started being phased in last year and will eventually be mandatory for all big European companies as well as multinational companies with a large presence in the EU.

Filling Gaps

Outside of Europe there are no detailed mandatory rules for environmental, social, and governance reporting for topics beyond climate. One challenge for ISSB will be to fill this void to help advance its general sustainability reporting standard, which requires companies to report on all sustainability topics that are material to their business.

Currently companies must rely on voluntary rules for the many areas not covered by the ISSB itself.

Many companies use voluntary rules from the Global Reporting Initiative, said Daniel Verbruggen, the former CFO of BNY Mellon who now works as a consultant at the CFO Centre. GRI standards underpin EU requirements for impact reporting, showing the damage that companies do to the world through things like pollution in contrast to the ISSB’s focus on investor reporting.

“We’re looking at the voluntary standards out there,” Verbruggen said.

ISSB has said that updating voluntary guidelines of the Sustainability Accounting Standards Board by June 2025 is a priority to fill gaps until it has had a chance to write more reporting standards itself on topics beyond climate change. Already the voluntary rules of the sustainability accounting board—merged into ISSB in 2022—underpin ISSB’s climate reporting requirements.

Scaled-Back Agenda

The ISSB has set its work plan through 2026. A public consultation found an appetite to prioritize implementing its first two standards over writing new rules, though it is moving forward with initial research on two other topics where it might consider future standards: biodiversity and workforce skills disclosures.

The board also decided not to take part in a project to update guidance for corporate management commentary—a narrative section of companies’ annual reports that is expected to house sustainability disclosures. The ISSB’s sister body—the International Accounting Standards Board—will press ahead with that project by itself.

“The ISSB must continue to focus on capacity building for their standards in areas of skills, jurisdiction and organization adoption—the ISSB’s partners are here to support,” said Sharon Machado, head of sustainable business at the Association of Chartered Certified Accountants.

ISSB investor reporting is a “global baseline” ensuring countries disclose basic information in the same way, the board said. Countries can add additional requirements such as GRI-style impact reporting if they want to.

This is what the EU has done, adding impact disclosure requirements to investor reporting.

“Many companies have long reported on sustainability,” Verbruggen said. “I believe it’s an important part of the battle against climate change but we need to know what to report, and how to do it.”

Compatible Standards

The ISSB is also working to cut through a muddle of different national standards emerging. The complex web of rules could mean that companies would have to make multiple sustainability reports for the different places in which they operate—in contradiction to the ISSB’s basic aim to draw up a single set of standards for firms.

To combat that problem the sustainability board been working with EFRAG—the European Commission’s accounting adviser—seeking to ensure that its standards are interoperable with the EU’s.

The EU has not endorsed the ISSB standards because it says the board’s rules are covered by the bloc’s own reporting requirements. However, the ISSB continues to insist that European reporting will not meet its standards and that EU companies must make separate ISSB reports. In May 2024 the two sides published guidance on how their standards could work together.

The international sustainability board also said that it is working with GRI “to deliver full interoperability.” In other words, the two are working toward guidance over how countries could combine investor and impact reporting, although no examples of how to do this have been issued yet.

GRI and the Sustainability Accounting Standards Board’s reporting will underpin many countries’ mandatory national regulations. “GRI and the ISSB need to join together,” Verbruggen said.