All For One And One For All: The ISSB Takes Over The TCFD

All For One And One For All: The ISSB Takes Over The TCFD

On July 10^th 2023, the Financial Stability Board (FSB) announced that the International Sustainability Standards Board (ISSB) will take responsibility for the Task Force on Climate-related Financial Disclosures (TCFD) from 2024. The takeover reflects a much-demanded consolidation of sustainability and climate-related frameworks, which will enhance the transparency and consistency of firms’ environmental disclosures. 

The announcement comes as an increasing number of regulators have implemented TCFD recommendations as the backbone of mandatory climate-related financial disclosures. Hence, the increased regulatory burden demands a further integration of sustainability-related financial disclosures, to guide firms’ data collection processes and strengthen the governance of ESG reporting. Brought into practice, the FSB’s decision means an integration of TCFD recommendations into the requirements of the ISSB’s climate-related disclosure standard. The move aims to improve interoperability and comparability between the ISSB’s global framework and specific national and regional TCFD-aligned requirements, thereby avoiding double reporting.

The key difference between the two standards is the request for specific information. Requirements in the ISSB’s IFRS S2 are described as being broadly consistent with the TCFD recommendations but differ by instituting some additional requirements and guidance. For example, the IFRS S2 sets out criteria for the disclosure of quantitative and qualitative information and requires firms to consider all information that is available without undue cost or effort. Additionally, the IFSR S2 requires organizations to consider industry-based disclosures for identifying climate risks and opportunities, reflecting the lasting contribution of the SASB. It also mandates disclosure of industry-based metrics relevant to a firm’s business operations.

The integration of the TCFD and the IFRS will translate into deeper scrutiny of organizations’ climate disclosures. This will trigger the demand for climate change consulting services, as firms seek consultants to refine and develop climate strategies, as well as to address the technical aspects of impact quantification and climate exposure (see Verdantix Green Quadrant: Climate Change Consulting 2023). Indeed, Verdantix expects the net zero and climate change strategy market to grow at a 28% CAGR over the next five years, as corporates look for consulting partners with expertise in their decarbonization needs and challenges specific to their industry (see Verdantix Market Size And Forecast: Net Zero Consulting Services 2022-2028).

In general, businesses and investors laud the TCFD-ISSB merge, as it will simplify climate and sustainability reporting. For example, the UK government has recently announced that its Sustainability Disclosure Standards (SDS) will be anchored in the IFRS framework, which now includes TCFD recommendations. Hence, with the integration of TCFD requirements, the IFRS S1 and S2 become the main framework for organizations’ sustainability and climate-related disclosures. However, some members of the investment community have raised concerns about the readiness of the ISSB and IFRS to drive sustainability impact, rather than just becoming a box-ticking exercise.

In any case, the consolidation of TCFD and ISSB standards is a step further towards the development of global repositories of climate-related data that are consistent, accessible and comparable across sectors and jurisdictions. This will allow financial markets to enhance climate risk assessments and scenario analysis, which will – in turn – improve the identification of financial vulnerabilities and the development of climate-resilient financial markets.