ISSB publishes new guide on identifying and disclosing sustainability-related risks

IFRS Foundation, the organisation behind the International Sustainability Standards Board (ISSB), has published a new guide to help companies assess and disclose sustainability-related risks to investors.

The guide is part of ISSB’s mandate to support the implementation of its sustainability reporting standards, known as IFRS S1 and S2. Specifically, it aims to help companies understand how sustainability-related risks and opportunities are defined in IFRS S1, including how they can arise from a company’s dependencies and impacts.

IFRS S1 introduces the concepts of dependencies on resources and relationships, be these human, intellectual, financial, natural, manufactured or social, across its value chains – and how companies can also affect these resources and relationships.

ISSB explains in the guide that a company’s dependencies and impacts can give rise to sustainability-related risks and opportunities that could “reasonably be expected to affect its prospects”, including cash flows, access to finance or cost of capital.

Sustainability-related risks still largely underestimated

Recent CDP data suggests that companies still largely underestimate their sustainability-related risks – particularly around water. 

Just half of the 3,163 large companies analysed by CDP this year currently engage with their supply chains on water issues – yet it’s estimated that US$77 billion is already at risk.

Actions recommended by CDP to better anticipate water risks include inserting water requirements into supplier contracts, collecting water data, raising awareness of water issues, or collaborating on innovation – all of which can also be applied to other aspects of sustainability.

Investors demand information on climate risks

Investors and capital markets are increasingly demanding that companies provide information on their climate and sustainability-related risks to inform their investment decisions. 

In fact, many have called for the global adoption of ISSB standards by 2025, consecrating the standards published in 2023 and promoting a wave of new mandatory reporting requirements based on them.

“At the heart of the ISSB’s approach is the notion of integrated thinking—considering the inextricable link between a company and its stakeholders, society, the economy and the natural environment throughout its value chain, a concept the guide explains,” the IFRS Foundation explained.