Following the publication of the ISSB Standards, the IFRS Foundation will take over monitoring of companies’ climate progress from 2024.
On 10 July 2023, the International Sustainability Standards Board (ISSB) and Financial Stability Board (FSB) announced that the IFRS Foundation (the organisation that founded the ISSB) would take over the monitoring of the progress on companies’ climate-related disclosures relating to the Task Force on Climate-related Financial Disclosures (TCFD). This announcement follows the ISSB’s publication of its inaugural sustainability standards IFRS S1 and IFRS S2.
The transfer in monitoring activities marks the latest development in the ISSB’s ambition to consolidate the sustainability reporting landscape internationally, with the TCFD joining other standards (such as the SASB Standards) in the list of frameworks that were previously independently managed but are now under the consolidated auspices of the ISSB.
Background to TCFD and ISSB
The TCFD was established in 2015 at the request of the Financial Stability Board (FSB), with the goal of developing disclosure standards that would enable investors and stakeholders to assess climate-related financial risk for companies. The voluntary recommendations were published in 2017, and since then the TCFD has been monitoring the progress of companies regarding climate-related disclosures. The TCFD publishes an annual status report, covering the progress of companies reporting TCFD-aligned information. The most recent TCFD status report reflected on five years of the recommendations (2017-22), showing a growing number of companies disclosing TCFD-aligned information year on year.
The ISSB standards track the same disclosure framework as the TCFD recommendations. The initial standards, which cover general sustainability reporting and climate-specific disclosures, have been developed to form a global baseline of sustainability reporting that companies may use to provide sustainability-related information to investors in a clear and comparable way.
For a detailed discussion on the standards including the content, application, and considerations for companies, refer to Latham’s Client Alert.
Transfer of TCFD Monitoring Responsibilities
Standards IFRS S1 and IFRS S2 fully incorporate the recommendations of the TCFD, and the FSB has therefore noted the standards mark “a culmination of work of the TCFD”. As such, the FSB has requested that beginning in 2024 (as the ISSB standards become applicable), the IFRS Foundation will take over monitoring responsibilities from the TCFD. This will begin following the publication of the TCFD’s 2023 annual status report.
The transfer of responsibilities marks a significant step in the consolidation of sustainability reporting standards. As one of the major climate reporting frameworks, the TCFD has been widely used internationally, and incorporated directly or indirectly into a number of mandatory legal or regulatory regimes globally. ISSB Chair, Emmanuel Faber, commended the work of the TCFD and noted that the ISSB “welcomes the FSB’s request to transfer the TCFD’s monitoring responsibilities to the ISSB”.
Latham & Watkins will continue to monitor developments regarding sustainability disclosure standards globally.