The International Sustainability Standards Board (ISSB), operating under the International Financial Reporting Standards (IFRS), recently took a significant step in sustainability reporting by announcing the IFRS Sustainability Disclosure Taxonomy (“ISSB Taxonomy”). This digital tool is poised to fundamentally change how investors analyze sustainability-related financial disclosures, aligning with ISSB’s most recent sustainability and climate-related reporting standards.

This development allows companies to measure and report their sustainability performance more comprehensively, helping investors make more informed and sustainable investment decisions. Additionally, it reflects ISSB’s intention to enable investors to compare and analyze sustainability-related financial information in a digital format.

The ISSB was established in November 2021 during the COP26 climate conference to meet increasing demands from investors, companies, governments, and regulators. The ISSB’s objective was to develop IFRS Sustainability Disclosure Standards, providing a framework for disclosing sustainability risks and opportunities, allowing for a clearer understanding of the impact on companies’ future performance.

As is known, in June 2023, the ISSB announced IFRS S1-General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2-Climate-related Disclosures standards. These standards aim to shape the emerging global disclosure requirements and lay the foundation for more comprehensive and standardized sustainability reporting.

Following the release of these standards, the ISSB proposed a digital taxonomy that reflects the disclosure requirements of the initial two standards to facilitate the digital reporting of sustainability-related financial information prepared under these standards. The ISSB Taxonomy is aligned with the IFRS S1 and IFRS S2 Sustainability Disclosure Standards and relevant guidance, containing elements for tagging sustainability-related financial information prepared according to these standards.

The released digital taxonomy reflects the disclosure requirements stated in the initial standards, improving investors’ accessibility and comparability of reported information. Additionally, it aims to enhance dialogue between companies and investors by ensuring consistent tagging of sustainability information prepared using ISSB Standards.

Similar to the IFRS Accounting Taxonomy used for financial reporting, the ISSB Taxonomy is a classification system consisting of a series of XBRL files. These files define and structure the information, facilitating communication between preparers and users of disclosures. By tagging and sharing information in a structured format, the taxonomies provide seamless data access and data processing capabilities.

Although the ISSB Taxonomy does not introduce new reporting obligations, it provides an integrated framework to support compliance with existing standards, in conjunction with the IFRS Accounting Taxonomy and other digital taxonomies. This integration fosters greater transparency and comparability in capital markets by enabling companies to offer comprehensive digital financial reporting packages.

ISSB Chairman Emmanuel Faber emphasized the importance of the taxonomy’s release, stating that the publication of the ISSB Taxonomy, just a few months after the effective date of the Standards, is crucial for supporting transparency and efficiency in capital markets and enabling companies and investors to digitally process sustainability-related financial disclosures through the use of ISSB Standards.

The ISSB Taxonomy will be updated periodically to reflect changes in IFRS Sustainability Disclosure Standards, new Standards, common reporting practices, and emerging reporting issues.

In summary, the launch of the IFRS Sustainability Disclosure Taxonomy represents a significant step towards harmonizing sustainability reporting practices and providing investors with advanced digital tools to manage the complexities of sustainable investment.

This strategic initiative is expected to facilitate improved digital interaction between companies and stakeholders and ensure that sustainability data is both accessible and actionable. This development not only underscores the growing importance of sustainability in global financial reporting, but it also positions the ISSB at the forefront of shaping international standards that integrate ESG elements with financial narratives.