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Last updated: 29 Aug 2023 11:00 Posted in: AIA

In the third part of his sustainability series, Dr Peter Ellington explains how the new ISSB Standards IFRS S1 and S2 will take effect.

The new sustainability standards released by the International Sustainability Standards Board (ISSB) mark a significant milestone in how the world responds to sustainability issues that will eventually affect us all.

Where the ISSB standards fit

The world is grappling with complex sustainability challenges such as climate change, biodiversity loss, ecosystems collapse and human rights. The accounting community across the world must take action. When asked about the importance of the new sustainability reporting standards by the ISSB, Jessica Fries, Executive Chair at A4S (Accountants for Sustainability), explained that: 

‘Without the right information along the full value chain, neither businesses nor investors will be able to invest in a sustainable future. This is an issue A4S Finance Leaders’ Sustainability Barometer highlighted, with the lack of reliable data cited as the biggest barrier to action. Adoption of a common set of global sustainability standards is key to resolving this issue, standards that the ISSB is well positioned to provide.’

Setting standards at a global level shapes how businesses respond to sustainability challenges. The standards cascade through our institutional framework through laws, rules and guidance. The structure of the institutional response mirrors the multi-layered construct of an onion. Each layer, from supranational entities to individual organisations, is critical in shaping global sustainability actions and standards.

David Potts, Director of Operations, AIA said, ‘The new sustainability reporting standards issued by the ISSB provide some much-needed clarity; however we must ensure the regulatory burden on SMPs does not become prohibitive to useful reporting. As a professional accountancy organisation, AIA will continue to provide guidance and support to members implementing new requirements and highlight to standard-setters the importance of SMEs and SMPs.’

A layered framework

This article contextualises the recently introduced sustainability reporting standards within a layered framework. It explores how these standards integrate with the broader global response to sustainability and how they influence and are influenced by actions at various levels – from the broad strokes of supranational initiatives down to the granular strategies of large businesses and SMEs. The layers of the institutional response are:

  • supranational
  • government
  • professional bodies
  • organisations


The outermost layer of our onion represents the supranational response to the sustainability crisis. This level includes initiatives like the United Nations Sustainable Development Goals (UN SDGs), the Task Force on Climate-related Financial Disclosures (TCFD), the Global Reporting Initiative (GRI) and the Task Force on Nature related Disclosures (TNFD).

  • The UN SDGs: These consist of 17 Sustainable Development Goals addressing challenges like poverty, inequality, climate change and environmental degradation.
  • The TCFD: This organisation develops consistent climate-related financial risk disclosures for companies. Since 1 January 2021, all premium listed companies have been mandated by the UK government to report on their climate risk exposure in line with the TCFD recommendations. Mandatory TCFD reporting will roll out to all UK companies by 2025. Other countries, including Canada, the US, France, Germany, Italy and Japan, are introducing similar timelines. 
  • The GRI: As an independent international organisation, it assists businesses and governments in understanding and communicating sustainability impacts and issues.
  • The TNFD: This focuses on how businesses respond to the loss of nature.

The ISSB Sustainability Standards operate at this supranational level. The IFRS S1 establishes a global baseline for finance, requiring companies to disclose significant sustainability-related risks and opportunities, thus providing investors with essential data for informed decision making.

Material issues must now be classified into short, medium and long-term financial outcomes. It binds financial statements (IFRS Accounting Standards) and sustainability reports, ensuring holistic reporting. Further, it offers detailed implementation guidance on an industry-by-industry basis. It focuses on information requirements that are material, proportionate and decision-useful. By providing standards at an international level, it avoids duplicate reporting for companies subject to multiple jurisdictional conditions.

IFRS S2 complements S1 by mandating specific climate-related disclosures. Focusing on climate-related issues provides a starting point for companies that can then phase into broader sustainability issues as new sustainability standards are set. The requirement to report on scope 3 supply chain emissions is significant, as all businesses within a supply chain are included in calculating emissions. Carbon reporting will filter down from larger to smaller enterprises as carbon accounting matures.


The next layer of the onion symbolises the response from governments and sectors/ regulators. The ISSB standards significantly influence this level, especially for governments which are yet to embed sustainability into their laws and institutions.

In the UK, the government has committed to net zero by 2050 and has embedded this in law (The Climate Change Act 2008 (2050 Target Amendment) Order 2019. It is implementing change through bodies such as the Financial Conduct Authority (FCA), The Pensions Regulator (TPR), the Prudential Regulation Authority (PRA) and the Financial Reporting Council (FRC), which have the remit to ensure that risks and opportunities associated with climate change and sustainability matters are addressed by banks, pension funds, investors and accountancy bodies.

The government and these regulatory bodies transpose supranational standards, such as the ISSB standards, into laws and regulations, binding them at the national and sector levels. The FRC, for example, oversees accounting, auditing and reporting standards, embedding sustainability into these areas. The ISSB standards provide consistency in language and policy to these bodies and endorse their work, giving leverage, consistency of language, policy actions and deadlines that bring change at the national level.

Professional bodies

Professional bodies, including the IFAC International Federation of Accountants, are putting climate change and sustainability issues at the forefront of their work. They educate, guide and influence their members to prioritise sustainability and climate action in their professional practice. The IFAC globally and the FCA and FRC in the UK put pressure on accountancy bodies to place sustainability and climate change high on their agenda and promote their members’ responses to fulfil their potential for tackling these issues.

The ISSB standards assert the position of the accountancy bodies to ensure that financial reporting remains relevant to the opportunities and risks that businesses face. Ensuring that their members keep up with sustainability is a significant challenge; however, embedding rules for reporting sustainability issues into standards is a methodology that the membership respects. 

Preparing for the ISSB standards

The issues will become tomorrow’s day-to-day issues and we can prepare by being aware of the ISSB standards. Nick Hajdu from AIA partner Net Zero Now explains: ‘We’re seeing a convergence between financial accounting and sustainability accounting. Historically, they’ve been two separate things; however, in the future, they’ll likely become a combined report – which makes sense given the financial implications of corporate sustainability commitments.

‘So far, it’s only the largest of businesses in the UK that are under a legal obligation to report on sustainability initiatives and their progress towards the government’s 2050 target, but we can be sure, as the years pass, that this requirement will soon be mandatory for businesses of all sizes. As de facto guardians of a business’s financial transactions, accountants find themselves increasingly central to any organisation’s challenge to satisfy the complex nature of sustainability reporting requirements.

‘The opportunity is clear for accountants and accountancy practices to become the go-to experts in the sustainability reporting space. Frankly, it’s a simple case that those that don’t will get left behind.’


The innermost layer of the onion represents individual organisations, including large businesses and SMEs. Laws and regulations, sector-specific guidelines and professional bodies directly influence them. They adapt their strategies and practices to comply with established sustainability standards and contribute directly to solving the sustainability crisis.

At this level, businesses struggle with the day-to-day pressures of surviving in a challenging business environment. The work of the ISSB might seem a different story to the daily issues they face. However, the standards tickle down into rules, incentives, grants, tax breaks, consumer behaviour, employee preferences and, more generally, how society reacts to the crisis.

ISSB standards matter to SMEs

The sustainability and climate change issues are complex, and the world’s response is slow and complicated. The onion-like structure explained in this article, encompassing supranational bodies, governments, regulators, professional organisations and individual businesses, facilitates a coordinated, overall approach to sustainability. 

Sustainability standards at the highest levels seep down to influence actions across all levels. For example, FRSC S2 requires large organisations to measure the scope 3 emissions carbon emissions in their purchasing activity. This will lead to all businesses eventually having to report their carbon emissions to meet the purchasing requirements of their customers.

The sustainability director at Triple Bottom Line Accounting, Fran Ellington, has been helping small businesses in the UK supplying services to local government and large pension funds. She says they have been required to provide their net zero or sustainability strategy to retain their contracts: ‘This starts with greenhouse gas emissions measurements that will inform the net zero strategy and the accompanying sustainability policies required by such customers.’ 

While the standards may be set at high level, they bring us closer to a future where sustainability is an integral part of our societies, economies and what we must account for.


Author biography

Dr Peter Ellington is CEO and Founder of Triple Bottom Line Accounting, a UK based digital practice providing a range of services to SMEs, and Associate Professor at the University of East Anglia.

"The sustainability and climate change issues are complex, and the world’s response is slow and complicated. The onion-like structure explained in this article, encompassing supranational bodies, governments, regulators, professional organisations and individual businesses, facilitates a coordinated, overall approach to sustainability. "

Dr Peter Ellington, CEO and Founder of Triple Bottom Line Accounting