ISSB Releases Cutting-Edge Digital Taxonomy for Enhanced Sustainability Reporting

IFRS Taxonomy Digital

The IFRS Foundation’s International Sustainability Standards Board (ISSB) has announced the launch of the IFRS Sustainability Disclosure Taxonomy (ISSB Taxonomy), a cutting-edge digital tool designed to help investors analyze sustainability-related financial disclosures. This taxonomy is based on the ISSB’s recently released sustainability and climate-related reporting standards, aiming to enhance the clarity and accessibility of critical financial data.

In a statement accompanying the announcement, the IFRS highlighted that the new Taxonomy "will enable investors to search, extract, and compare sustainability-related financial disclosures as ISSB establishes its global baseline of Standards". This functionality is intended to streamline the process for investors, providing a consistent and reliable framework for assessing the sustainability impacts and risks disclosed by companies.

The ISSB was established in November 2021 during the COP26 climate conference with the aim of developing IFRS Sustainability Disclosure Standards. This initiative was spurred by the demand from investors, companies, governments, and regulators for a global baseline of disclosure requirements that would offer a consistent understanding of how sustainability risks and opportunities impact companies' prospects. In June 2023, the ISSB introduced its first set of standards, the general sustainability (IFRS 1) and climate (IFRS 2) reporting standards. These new standards are expected to shape emerging disclosure requirement systems for many regulators around the world.

Following the release of these standards, the ISSB introduced a proposed digital taxonomy that aligns with the disclosure requirements of IFRS 1 and IFRS 2. This taxonomy aims to facilitate the structured digital reporting of sustainability-related financial information, thereby enhancing the accessibility and comparability of the reported data for investors. The initiative is expected to streamline the reporting process, making it easier for investors to analyze and compare sustainability disclosures across different companies and industries.

Similar to the IFRS Accounting Taxonomy used for financial reporting, the new taxonomy is a classification system comprising a set of XBRL files. These files are used to identify and structure information, making it easy to find and facilitating communication between preparers and users of the disclosures. This system allows information to be tagged and exchanged in a structured format, ensuring it can be accessed and processed efficiently.

The IFRS emphasized that the new taxonomy is designed to be consistent with the IFRS Accounting Taxonomy, enabling companies to present a comprehensive reporting package to investors and to integrate seamlessly with other digital taxonomies. This consistency supports a unified approach to financial and sustainability reporting.

ISSB Chair Emmanuel Faber emphasized that as jurisdictions globally consider adopting or utilizing ISSB Standards, the timely publication of the ISSB Taxonomy, just a few months after the inaugural Standards' effective date, is essential. This initiative is vital for supporting capital market transparency and efficiency, allowing companies and investors to digitally process sustainability-related financial disclosures using the ISSB Standards.

This short animated video explains what the IFRS digital taxonomies are and how the taxonomies enable companies to present information prepared in accordance with IFRS Standards in a structured computer-readable format.