Global convergence of sustainability disclosure standards – what boards need to know

SUSTAINABILITY disclosures have finally begun to align globally after a long, winding journey spanning three decades. What originated in the 1980s as voluntary environmental-related disclosures by companies have today evolved into mandatory disclosure regulations across environment, social and governance (ESG) factors adopted by more than half the stock exchanges worldwide – and for good reason.

These standards are necessary because they offer a clear, transparent and comparable framework for companies to report their ESG impacts, risks and opportunities – factors that are financially material and directly influence a company’s enterprise value.

Investors want to understand how businesses are addressing pressing issues such as climate change risks, gender diversity and supply chain vulnerabilities, all of which can materially affect future cash flows and risk profiles.

By providing high-quality, decision-useful information about sustainability-related financial risks and opportunities, these standards empower investors and capital providers to make smarter decisions and enhance the comparability of data for investment analysis.

For companies preparing these reports and the board directors overseeing them, the past couple of decades have often felt like navigating an alphabet soup of varying standards, from the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) to the Task Force on Climate-related Financial Disclosures (TCFD).

As someone who regularly trains boards and management teams, I frequently hear business leaders express, both privately and candidly, their frustration that these efforts seem like a “waste of time”.

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There was therefore a global sense of palpable relief when the International Sustainability Standards Board (ISSB) was established in November 2021 at the United Nations Climate Change Conference in Glasgow, creating a global baseline of sustainability disclosures tailored to capital market needs.

Speaking recently in Singapore at a Singapore Institute of Directors (SID) event, ISSB vice-chair Sue Lloyd acknowledged that the current landscape is “very fragmented, not investor-focused, and confusing”.

The ISSB’s mission is to cut through this complexity by providing investors with high-quality information to better allocate capital and understand sustainability-related risks and opportunities.

This convergence means that companies adopting the ISSB’s first two standards, S1 and S2, can now cover what was previously addressed by TCFD, SASB, and the Climate Disclosure Standards Board.

This streamlines reporting for companies and enhances comparability for investors, enabling better decisions about how companies manage risks.

Countries around the world are progressively adopting these standards. Singapore is among a pioneer cohort of 21 jurisdictions, with Asia-Pacific countries interestingly making up the majority at 12.

The Singapore Exchange adopted the standards from FY2025, requiring listed companies to report on Scope 1 and Scope 2 greenhouse gases and incorporate IFRS Sustainability Disclosure Standards.

Lloyd shared that more than a thousand companies have referenced the ISSB standards in their reports, and 30 jurisdictions are actively working to embed these standards in their legal frameworks.

What do these developments mean for board directors?

First, the shift from voluntary to mandatory reporting demands greater oversight and expertise. Directors must grasp the technical details of such disclosures, especially under IFRS S2, which requires companies to disclose both qualitative and quantitative financial impacts of climate-related risks and opportunities.

While the qualitative aspect of such disclosures are relatively straightforward, many directors find the quantitative disclosures challenging. The methodologies of arriving at such figures – often using long-term and wide-ranging climate scenarios – are still nascent and sometimes lack precision.

Lloyd acknowledged that these figures “don’t have to be perfect” but should provide a reasonable basis for understanding risk hot spots, and be transparently explained.

The ISSB is cognizant of balancing the usefulness of information with the pace of progress, especially in emerging areas such as nature-related disclosures, which are harder to quantify.

Another critical area for directors is the linking of financial statements to material sustainability information. The S1 and S2 standards require these disclosures to be integrated for investment decisions to be meaningful. Directors also face challenges managing data volume, ensuring data credibility, and obtaining external assurance for such disclosures.

ISSB member Verity Chegar, speaking at the same event, highlighted that this integration requires bringing together finance and sustainability functions – “a significant change management exercise” that ultimately leads to more robust reporting and a greater understanding of value drivers.

One ongoing debate that is often raised is the ISSB’s single-materiality approach, which focuses on sustainability-related risks and opportunities that are material to a company’s financial performance and prospects, rather than broader societal and environmental impacts.

Some market observers have advocated for the ISSB to adopt the double-materiality approach, which considers both financial materiality and impact materiality (impact on society and the environment) of sustainability-related matters.

This approach is adopted by the GRI framework as well as the European Sustainability Reporting Standards. The latter’s Corporate Sustainability Reporting Directive applies to large companies with an annual turnover of more than 150 million euros (S$220 million) in the European Union (EU), and it includes parent companies with operations in the EU, even if they are located outside the jurisdiction.

Boards of such companies will be required to have full view and oversight of both approaches in its disclosures.

The ISSB, however, has maintained that its investor-focused scope ensures global comparability and usability in capital markets. It has also emphasised that it works closely with European standard setters to align definitions where possible to help companies streamline reporting and use ISSB disclosures as part of their European compliance requirements.

The American elephant in the room

The American factors add complexity. Given the global uncertainty triggered by the Trump administration since the start of the year and its multifaceted attack on ESG principles and governance, one key question playing on the minds of boards has been: Will we see an increasingly divergent disclosures landscape even as global standards are harmonising?

The US Securities and Exchange Commission (SEC) has declined to recognise the ISSB standards as an alternative reporting framework, and its own set of climate disclosure rules were dropped in March following significant political opposition.

Given the US market’s size and influence – it accounts for 70 per cent of the MSCI World Index and has more than 5,000 listed companies – this non-participation complicates the global ambition of achieving a level playing field and interoperable data across markets.

Still, Chegar pointed out that US companies are still required to provide material information to investors, and even if there is less guidance from the SEC, investors continue to demand material sustainability-related financial information.

ISSB standards can serve as helpful guidance for these companies, and some states, such as California, explicitly permit the use of ISSB standards.

Thinking ahead

Looking ahead, despite near-term challenges, the momentum towards global convergence and harmonisation is clear. The ISSB standards represent a major milestone in advancing a standardised, investor-centric approach to sustainability reporting.

For board directors, mastering these standards – their philosophy, operational challenges and strategic implications – is crucial for effective oversight and ensuring their companies’ long-term value creation and success.

The writer is CEO of Eco-Business, SID senior accredited director, and independent non-executive director of various listed company and government boards