IOSCO: ISSB Standards “Fit for Purpose” for Capital Markets

The endorsement by IOSCO sets the stage for ISSB standards to become the common language of sustainability disclosures globally.

The International Organization of Securities Commissions (IOSCO) has endorsed the International Sustainability Standards Board’s (ISSB) standards, with it calling on its 130 member jurisdictions to adopt them into their respective regulatory frameworks.

“It’s an important day for financial markets across the world as we are one step closer to reaching the milestone of having a real global framework all around the world that will allow market participants to assess and compare sustainability related risk and opportunity,” said Jean-Paul Servais, Chairman of the IOSCO Board.

“The adoption process won’t be the same for every country, as different scopes, national preferences, and market specificities will come into play,” he said, adding that IOSCO’s endorsement sends a strong signal to jurisdictions around the world that the ISSB Standards are “fit for purpose” for capital market use, enabling pricing in of sustainability-related risks and opportunities.

IOSCO carried out its formal assessment of the ISSB standards following the publication of the final standards on 26 June.

Servais said that thanks to the close collaboration between the ISSB and IOSCO that key sustainability-related disclosure standards are on track for corporate use by the end of 2024.

“As a global membership organisation, IOSCO calls on jurisdictions to consider ways in which they might adopt, apply, or be informed by the ISSB standards,” said Servais.

“The endorsement is on time, unanimous, and unconditional, providing clear rules of the road for issuers, preparers, investors, and auditors, benefiting from a global framework supported by IOSCO and the ISSB.”

Servais estimated that between 100,000 and 130,000 companies globally are likely to apply the standards.

Road to adoption

The next step from 2024 onwards is the adoption of the endorsed ISSB standards. 

To coincide with the endorsement, the IFRS Foundation has published a high-level roadmap providing transparency around the IFRS Foundation and the ISSB’s strategy to support jurisdictional adoption. This document is a precursor to an Adoption Guide for regulators, which will be finalised later in 2023. 

“This will be a positive challenge for many jurisdictions, especially for emerging markets that may require assistance in considering how to apply the standards,” said Servais.

The endorsement is expected to resonate with growth and emerging markets which make up 75% of IOSCO membership. The announcement 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 and IFRS S2. 

“To ensure trust in the disclosure standards, we are developing an enhanced capacity-building programme with the ISSB and engaging with auditing standard setters to ensure the necessary audit standards are ready for use by corporations,” said Servais.

Erkki Liikanen, Chairman of the IFRS Foundation, called the endorsement by IOSCO a “historical” moment in advancing the sustainability disclosure landscape.

Voluntary standards and frameworks had caused fragmentation and confusion among investors and companies, hindering effective decision-making regarding climate change risks and opportunities,” said Liikanen. 

“As we confront the risks and opportunities of sustainability, applying the same rigor to sustainability information as done in accounting is crucial.”

According to Liikanen, the IFRS Foundation is committed to supporting regulators in adopting the ISSB standards consistently and in a timely manner, working in partnership with IOSCO.

“The relevance of developing a high-quality sustainability assurance framework is also emphasised to underpin high-quality, reliable sustainability-related information, giving confidence to investors,” he said, adding that this work will require collaborative efforts and dialogue with the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) to align sustainability disclosures with the same rigor as financial statements.

For more than 12 months, the IFRS Foundation’s Jurisdictional Working Group members, including Japan, China, the UK, the US, and the EU, have been discussing the agenda of building the applicability, interoperability, competitiveness of the ISSB standards.

Beyond the Jurisdictional Working Group, there are 20+ jurisdictions, including Singapore and Chile, within the IFRS Foundation’s Sustainability Standards Advisory Forum that have expressed interest or commitment to apply and use the ISSB standards.

We won’t fail them,” said Emmanuel Faber, Chair of the ISSB. “It’s not just about setting standards but also about walking with [jurisdictions] in adopting this language.”

Faber said that the ISSB is implementing the ISSB standards document, a precursor to the jurisdictional adoption guide to be published by the end of this year.

“We will focus on ensuring that the ISSB standards are applied by jurisdictions to protect and promote the consistent and comparable global baseline that we’ve been tasked to build,” he said.

“The endorsement of IOSCO means that these standards have already become a common good, a public good for the better functioning of capital markets, which is much needed. I’m looking forward to the continuation of our partnership alongside this journey.”

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