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Transitioning From TCFD to ISSB: What you need to know

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Article Overview

Over the past decade, businesses reporting on climate have had to wade through a sea of frameworks, policies, and standards — each with its own approach to disclosure. Now this “alphabet soup” is getting easier to navigate, as frameworks consolidate and converge.

One of the most transformative developments on this front is the 2024 sunsetting of the Task Force on Climate-related Financial Disclosures (TCFD) into the International Sustainability Standards Board (ISSB), which fully incorporates the TCFD’s recommendations. The ISSB’s first two standards on climate and general sustainability are expected to serve as the primary roadmap for disclosure rules and practices around the world moving forward. Additionally, the ISSB will take responsibility for monitoring the progress of global companies’ climate-related disclosures.

Below, we provide an overview of the transition from TCFD to ISSB, why it’s happening, and what it means for businesses. 

Background

TCFD’s framework sparked the shift to mandatory reporting. 

When the TCFD published its recommendations in 2017, they sparked a global uptick in climate-related financial risk disclosure, laying the foundation for the mandatory reporting trend that we are watching play out today. 

With its recommendations, TCFD sought to support investors’ decision making  by providing with comparable climate-related data and information about companies’ climate risks and opportunities. The TCFD framework was designed for entities across all jurisdictions and sectors, and organized climate impact assessment into four fundamental areas: governance, strategy, risk management, and metrics and targets. 

As the market began to use TCFD guidance more widely, many jurisdictions looked to it as the basis for imposing enforceable disclosure requirements. Since then, the framework has shaped transformative policies around the globe, including the SEC Climate Rule, Europe’s CSRD, and California’s SB 261

In 2023, as part of a deliberate effort to cultivate consistency in reporting, the Financial Stability Board (the global body of regulators that convened the TCFD) announced plans to transition responsibilities from the TCFD to the ISSB. 

The Transition from TCFD to ISSB

2024 marks a new era of reporting. 

On June 26, 2023, the ISSB finalized two new global standards — General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and Climate-related Disclosures (IFRS S2). The standards aim to converge the fragmented reporting landscape and establish consistency across international borders. They bring sustainability squarely into the world of securities regulation — and are creating a global baseline of disclosures for capital markets. 

The ISSB standards were embraced by the G7 and G20, and the International Organization of Securities Commissions (IOSCO) endorsed them for use by securities regulators around the world. IOSCO has called on its 130 members — who represent 95% of global financial markets — to consider how they can apply the standards. 

On January 1, 2024, the Task Force on Climate-related Financial Disclosure officially disbanded, and the IFRS Foundation, which oversees the ISSB, formally assumed its responsibilities. 

The ISSB is an independent standard-setter that serves the public interest, and its standards are designed to form a foundation for regulations around the globe. The ISSB does not establish direct requirements for any jurisdiction or company, but its standards can be used by any jurisdiction or company. Even if an enterprise is not legally mandated to use the ISSB standards, as they become the norm, investors, customers, and stakeholders will increasingly expect businesses to adhere to them. They are already reshaping voluntary disclosure. For 2024, the CDP Climate Change Questionnaire — the forum where 18,900 companies around the globe report voluntarily  — fully reflects the ISSB climate standard.  

The ISSB standards are built upon the TCFD framework, so organizations that have been reporting under TCFD should be well-equipped for the transition. And because the ISSB standards are more extensive, companies that apply ISSB standards will meet TCFD requirements and more. 

Features of the ISSB Framework 

New standards bring greater connection, coverage, and comprehensiveness. 

The ISSB standards are designed to guide companies in preparing comparable and assurance-ready disclosures about sustainability risks and opportunities that are likely to affect the company’s prospects — so investors have better information. There are three key enhancements to the TCFD recommendations that will better support investors. : 

  1. Connection. To help investors better understand how climate and general sustainability matters impact the financials, the ISSB standards include a general requirement for these disclosures to better align with financial disclosures, both in terms of location and timing. ISSB-based disclosure should be issued in or along with annual General Purpose Financial Reports. The timing for climate reporting under ISSB standards should also align with financial reporting and generally cover the same reporting period. Regulators may set more specific parameters, but the core message is that more connected information is more useful.
  2. Coverage. The ISSB standards go beyond the TCFD’s focus on climate and cover sustainability risks and opportunities across other topics. The General Requirements Standard (S1) directs companies to existing standards to guide their disclosures on topics other than climate. To help drive compatibility, the ISSB standards fully incorporate the Sustainability Accounting Standards Board (SASB) guidance for identifying industry-specific material topics and data points. The ISSB standards also allow companies to look to a variety of other standards (including the Climate Disclosure Standards Board (CDSB), the European Sustainability Reporting Standards (ESRSs), and the Global Reporting Initiative (GRI)) to support their sustainability disclosures, as long as those disclosures are focused on financially-material information.  
  3. Comprehensiveness. The ISSB framework applies a comprehensive lens, designed to increase understanding of the impacts of climate and general sustainability on enterprise value. Companies applying the ISSB standards must consider and disclose material sustainability risks and opportunities they face over the short-, medium- and long-term horizons. They also need to look across their value chains. On climate, the ISSB standards expect comprehensive reporting for GHG emissions, including scope 3, and specifically call for disclosure of financed emissions for certain financial sector activities. They also call for disclosure of more details about board governance, as well as transition plans and targets. Organizations are expected to discuss their resilience based on scenario analysis, and to provide a quantitative assessment of current and anticipated financial effects of climate risks and opportunities. 

The Future of Climate Reporting 

ISSB standards will increase consistency and transparency.

The transition to ISSB standards is a milestone in a crucial year for climate reporting. It promises to bring clarity and consistency to the complex web of standards that has long vexed businesses. Building on recommendations to transition to standards clarifies expectations, better arming investors with the data they need to make informed decisions — and making greenwashing more difficult. Regulators around the world that have required TCFD-based reporting are in the process of enhancing their rules to incorporate the ISSB Standards, and others are putting new ISSB-based requirements in place. As regulations evolve, market expectations will too. By reducing duplicative reporting for companies, the ISSB framework should ultimately lead to more efficient and cost-effective disclosures.

To be ready to thrive during this transition, organizations should familiarize themselves with the ISSB recommendations, identify gaps in their current reporting, and establish robust systems for tracking and reporting climate data. 

Learn how Persefoni can help you build reliable, traceable, and transparent climate disclosures. 

FAQs

Am I required to report following the ISSB standards?

While the ISSB is not a regulatory body, dozens of jurisdictions worldwide are likely to incorporate the mandatory application of ISSB standards into their climate disclosure regulations. Each authority will decide whether or not to mandate the use of the standards. Aside from regulatory requirements, investors or other stakeholders may request ISSB reporting to satisfy their data needs, whether that be in standalone reports, the 2024 CDP Climate Change Questionnaire, or other means. 

Does this mean that companies can no longer issue TCFD reports?

Companies can continue to report using TCFD recommendations if they choose, and for the time being, some companies may still be required to report using TCFD. Because the ISSB standards are based on the TCFD framework, many of the criteria will be the same. Using the TCFD is a good entry point in preparing to report under ISSB. 

How can I prepare for the transition to ISSB?

Among the most widely anticipated challenges businesses will face are the need for technical expertise, and difficulty tracking down data — especially scope 3 emissions. Companies can prepare by getting to know the ISSB standards and identifying gaps in current reporting practices. To respond to the ISSB standards, organizations will also want to reinforce their focus on governance and internal controls. Most importantly, reporting entities need to establish the appropriate systems to ensure reliable, traceable, and transparent data.

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