In June, the International Sustainability Standards Board (ISSB) released its highly-anticipated standards, which aim to harmonize sustainability reporting across industries. By at least one estimate, there are more than 600 ESG reporting provisions around the world, and many of them interpret “sustainability” differently. Below, I’ll share my thoughts on the ISSB’s standards, and how companies can make sense of what this all means for them.
The ISSB and other standards
One of the most important things about the ISSB’s mission is that it strives to complement and enhance existing standards—not replace them. At the moment, two of the most widely used reporting standards are GRI and TCFD.
The key difference: GRI is focused on how companies impact climate change and other sustainability metrics across ESG. For TCFD, the main concern is the way that climate risk affects a company's long-term financial performance. It examines transitions and physical risks in different types of decarbonization scenarios.
The ISSB’s standards closely follow the structure of the TCFD’s frameworks. As a result, the ISSB’s standards assess how prepared a business is for the transition to an economy that’s centered around decarbonization.
The ISSB’s standards evaluate four areas of a company’s operations: 1) metrics and targets, 2) risk management approaches, 3) business strategy, and 4) governance.
This layered structure is meant to recognize that sustainability risk exposure is a corporate vulnerability, and that it warrants thorough and rigorous examination.
While the ISSB seeks to harmonize reporting as much as possible, there will likely always be a need for industry-specific standards as well. Standards like those from GRESB, which are tailored to real estate and the built environment, are designed with the unique characteristics of their respective sectors in mind.
If your company already makes use of sustainability reporting, it’s crucial to determine two things: 1) given your current efforts, if the ISSB’s standards are actually necessary, and 2) if the answer is yes, then it becomes essential to see if you can leverage your existing practices to complete portions of the ISSB’s standards as well.
Ultimately, we want to ensure that companies aren’t bogged down with reporting redundancies, and that they’re still able to focus on their primary business operations.
Thinking of the future
A key reason that the ISSB’s standards stand out from other options is because they’re forward-looking.
Traditionally, reporting standards help companies measure how they’ve performed in the past, but the ISSB’s standards ask organizations to consider how well-positioned they are to navigate the ongoing shift toward sustainability in the global corporate environment.
One of the main reasons for this focus is because both the TCFD’s frameworks and the ISSB’s standards are designed specifically to support the finance industry when it comes to allocating capital.
In particular, this refers to the need for financial institutions to know which investments make sense long-term, and which assets they may want to avoid. To determine this, they need other sectors to report information about their climate risk exposure.
Also, even though the ISSB’s standards are currently voluntary, this could eventually change. From Singapore to Hong Kong and Japan, we may see companies around the world being mandated to comply with ISSB in the years to come. This would further advance the progress made by countries that already enforce the TCFD framework for disclosing climate risk.
The beginning of standardization
Given the sheer number of different options available, it can be challenging for companies to determine which reporting framework or standard is most relevant to them. From those that have a fairly broad scope to others that are designed for specific industries, there’s a pretty wide range to pick from.
From the ISSB’s perspective, this signaled a need to help standardize the reporting process. Especially as more businesses navigate the transition to a zero-carbon economy, it’s important to make using these standards both simple and comparable against other standards and industries.
The more easily that companies can understand what they need to comply with, the more effectively they can work toward lowering their carbon footprints. In this sense, the ISSB’s standards aim to serve as the first step toward harmonization within sustainability reporting.
Preparing for adoption of the ISSB’s standards
Depending on the jurisdiction, a company’s first ISSB reporting cycle could begin in January 2024. Before then, it’s critical that businesses understand the implications of the ISSB's standards, consider regulatory perspectives, and conduct gap analyses.
To accomplish this, data collection is vital. Companies need access to detailed insights, especially their Scope 3 emissions, to both measure and minimize their carbon footprint.
At Unravel Carbon, we specialize in making sense of data to help companies measure, reduce and report their emissions. At the core of both the ISSB’s standards and the TCFD’s frameworks is a focus on metrics and targets, and as a company, we’re able to help organizations develop a clear picture of their current situation, and take actionable steps toward decarbonization.
Though adopting the ISSB’s standards may seem daunting, it can absolutely be done. Once a business gains access to its primary granular data, every subsequent step in the process becomes far more manageable.
Ultimately, by using the ISSB’s standards, companies can become more aware of where they’re heading, and better position themselves to handle the global shift toward a greener economy and future.
The transformative potential of the ISSB’s standards
Beyond mandatory compliance, a major impact that the ISSB’s standards can have is in prompting companies to conduct a strategic and forward-looking analysis of their operations.
This exercise proves to be highly beneficial because it requires you to step back from the day-to-day, and take a clear look at where your organization is really headed. By going beyond performance monitoring, this future-focused approach enables businesses to adapt, minimize climate-related risks, and seize opportunities in the zero-carbon economy.
To achieve this, one of things that the ISSB places a strong emphasis on is requiring companies to determine their Scope 3 emissions. In doing so, organizations can better understand their supply chains, and the indirect emissions that are linked to their operations.
Seeing the ISSB’s recognition of Scope 3 signals just how important an awareness of what happens both upstream and downstream of your business truly is in working toward decarbonization.
In many cases (perhaps even the majority), Scope 3 emissions are where the largest exposure to climate and sustainability risk actually is.
At Unravel Carbon, evaluating Scope 3 is an area we specialize in. We’re keenly aware of the challenges that can arise when trying to make these measurements, so if there’s anything we can do to make the process easier for your business, please don’t hesitate to drop us a line.
Interested in learning more about how Unravel Carbon can help companies with their ISSB reporting? Get in touch with us.