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Global ESG Reporting Rules Echo Existing Voluntary Standards

Nov. 15, 2021, 5:01 AM

Mandatory sustainability accounting rules are going to look a lot like the old, voluntary rules—at least for a while.

Hotly anticipated prototype standards detailing some of the environmental, social and governance reporting rules that many companies will have to adopt in 2023 are based almost entirely on standards already used by many big companies. That suggests the new body formed to develop the rules, the International Sustainability Standards Board, will largely adopt existing voluntary reporting requirements, rather than starting from scratch.

“These had to be based on existing standards, given the urgency,” Veronica Poole, Deloitte LLP’s global IFRS and corporate reporting leader, said in a call. “The aim is to issue exposure drafts of these standards in the first quarter of next year and for them to be finalized by the second or third quarter. Feedback on the exposure draft will inform the ISSB’s changes, for example if Europeans favor a different approach to the U.S.”

It isn’t yet known what approach the U.S. will take.

Poole belongs to the Technical Readiness Working Group set up in March by the IFRS Foundation, which drafted the prototype standards. The IFRS Foundation is the parent of both the International Accounting Standards Board and the new ISSB, which published the prototype rules for climate and general sustainability reporting at its Nov. 3 launch.

Narrative Reporting

The first mandatory ESG reporting requirements for companies represent a major change in corporate accounting, and the ISSB hopes to finalize the rules next year for adoption in 2023.

Climate prototype standards are based directly on two existing sets of reporting rules: the Task Force on Climate-Related Financial Disclosures, which sets general narrative reporting requirements; and detailed metrics for individual industrial sectors set by the U.S.-based Sustainability Accounting Standards Board. Both of these bodies have effectively been rolled into the ISSB.

The TCFD, established in 2015 to bring order to the sustainability reporting of G-20 countries, has until now been voluntary, although some countries, including the U.K., have said they would make TCFD reporting mandatory. Poole said the ISSB has simply adopted TCFD standards published in 2017 for the main reporting categories.

Under the prototype standards, companies would have to structure climate disclosures around the four main TCFD pillars of governance, strategy, risk management, and metrics and targets, according to Bryan Esterly, SASB’s chief technical officer. These would be narrative disclosures, he said, designed to give investors a clear picture of the risks and opportunities companies face from climate change.

There is significant momentum for new rules, as the Group of 7, the G-20 and 36 individual countries—including the U.S. and China—have voiced support. Initially, there would only be detailed disclosure rules for climate, but the general disclosure rules would mean all companies in the countries that sign up to the ISSB rules would have to disclose any areas of sustainability that pose a material threat to them.


For climate, there are detailed reporting requirements for companies in different business sectors, such as autos. Esterly said the ISSB had adopted the 77 different industrial categories already identified in the voluntary reporting rules established by SASB.

“SASB standards cover a wide range of sustainability issues, not just climate,” Esterly said. “So we went over our reporting metrics and picked out those relevant to climate for the ISSB prototype—around a third of the total.”

That means the ISSB prototype includes about 30 detailed metrics to measure climate issues. Esterly said the ISSB climate rules would mean any individual company would need to use three to five of the detailed metrics, compared with around 14 for companies using the full range of SASB standards.

“Around 1,400 companies use SASB standards,” he said. “So we don’t think this will mean companies face a big extra expense gathering new data” for climate reporting.

Beyond Climate Accounting

The ISSB also published more general sustainability reporting rules that apply to all companies that use the new IFRS ESG reporting standards. The U.S. doesn’t use international accounting standards, and the SEC hasn’t yet said whether it will join the international initiative.

Esterly said the general reporting requirements were closely based on existing financial accounting rules and specified a number of basic areas, notably a requirement to publish sustainability reports regularly and to tie back any financial disclosures to the relevant financial accounts.

“The ISSB has simply adopted the definition of materiality used in IAS 1,” Esterly said, referring to International Accounting Standard 1, which covers the presentation of financial statements, essentially meaning that companies must disclose any information that could influence their decision-making. “A central aim is to ensure collaboration with financial accounting,” he said, though he noted that some areas of sustainability—in the social sphere, for example—wouldn’t result in financial charges.

Poole pointed out that these general sustainability reporting requirements would apply to all corporate sustainability disclosures, meaning that companies must report on all material ESG issues—even before standards beyond climate are drawn up by the ISSB.

“It’s for the ISSB to determine the next areas for sustainability reporting,” she said, noting that one of the board’s first acts would be to launch a public consultation on priorities. “But first will be the easy wins. For example, some areas of social policy where reporting is well established. Then there will be the areas that need to be reported urgently, such as biodiversity, that affects us all.”


There are, still, some reasons for skepticism. The IASB already requires companies to report any material threats in their financial accounting, including from climate and other sustainability areas. But one recent report found that it simply isn’t happening.

A September report by the Carbon Tracker Initiative, an independent financial think tank in London, looked at 107 carbon-intensive companies. Over 70% ignored material climate issues in their 2020 financial statements, and 80% of their auditors seemed to ignore them, according to Climate Tracker senior analyst Barbara Davidson.

“The formation of the ISSB is an important piece,” Davidson said, “but doesn’t address this information in audited financial statements.” Davidson said she hoped for more collaboration between sustainability and financial reporting now that both areas are under the control of the IFRS Foundation.

To contact the reporter on this story: Michael Kapoor at

To contact the editors responsible for this story: Jeff Harrington at; David Jolly at