The International Sustainability Standards Board’s (ISSB) past, present, and future: critical reflections and a research agenda

The International Sustainability Standards Board (ISSB), formed in November 2021, has significantly reshaped the landscape of international sustainability reporting, moving towards universally accepted standards. It emerged from numerous competing voluntary frameworks and has quickly introduced IFRS S1 and S2 reporting standards, gaining global attention. However, the ISSB faces criticism for prioritizing investor interests over other stakeholders and focusing on financial impacts rather than broader societal and environmental effects. Despite its commitment to public interest, concerns exist about the influence of financial stakeholders in shaping its agenda. This paper critically analyzes the ISSB's formation, current plans, and future directions, identifying three key themes: its jurisdiction and scope, ongoing legitimacy challenges, and potential 'capture' by influential stakeholders. It aims to provide a comprehensive overview and a research agenda to address these issues.

The ISSB's formation marks a critical moment in standardizing sustainability disclosures. Over the past decade, a rise in non-financial reporting bodies sought to address the limitations of traditional reporting regarding environmental, social, and governance challenges. Investors, regulators, and stakeholders increasingly demand transparency and consistency in sustainability performance reporting, recognizing the growing importance of intangible assets. The reporting landscape, often criticized as a confusing 'alphabet soup,' has seen consolidation. Key developments leading to the ISSB include the merger of the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) to form the Value Reporting Foundation (VRF). The VRF subsequently merged with the Climate Disclosure Standards Board (CDSB) into the IFRS Foundation to create the ISSB in 2021. The ISSB's initial agenda was to establish comprehensive, consistent, and comparable global standards covering various ESG issues, resulting in the rapid development of IFRS S1 and S2, incorporating recommendations from the TCFD and SASB standards. This process involved extensive collaboration and emphasized materiality assessment, consistency, transparency, and verification.

In May 2023, the ISSB conducted a public consultation to determine its agenda priorities for 2024–2025. The top priority was supporting the implementation of IFRS S1 and S2 to establish the ISSB as a key sustainability reporting body. Other priorities included enhancing SASB standards, ensuring interoperability with other jurisdictional and voluntary standards, and improving connectivity between financial and sustainability standards. The IFRS Foundation's current work plan includes projects on integrating reporting to foster a comprehensive understanding of an entity's sustainability approach and enhancing connectivity between the ISSB and the IASB. External relationships are also crucial; the ISSB signed a memorandum of understanding with the Global Reporting Initiative (GRI) in March 2022 to harmonize reporting efforts, recognizing the importance of a global reporting system for all stakeholders. While EFRAG supports ISSB disclosures, the US response has been mixed, with the SEC delaying full implementation of climate-related disclosure rules amid growing anti-ESG sentiments. The central challenge for the ISSB's long-term success lies in developing closer connections among standard-setting bodies, their standards, and other reporting entities and regulators.

The ISSB's formation has significant implications for sustainability reporting and international accounting standards, partly due to its strong connection with the IASB. Three key themes are critical to its future: its global scope, legitimacy challenges, and the potential 'capture' of sustainability reporting by influential stakeholders. The ISSB's creation by the IFRS Foundation, a financial accounting standard setter, raised questions about the necessity of a new body given existing initiatives. The IFRS Foundation aimed to extend its jurisdiction, leverage financial reporting preparers' technical needs, and influence sustainability reporting towards a financial capital ideology. Although it did not achieve primacy in Europe, its global influence through IFRS Accounting Standards and its control over SASB position it to affect sustainability disclosures worldwide. The recent SEC adoption of TCFD-aligned rules and the transfer of TCFD monitoring to the ISSB further solidify its power. The ISSB benefits from an extensive international network, including IOSCO and the World Economic Forum, often aligning with neoliberal and capitalist ideologies, ensuring financial market actors' interests are represented in standard-setting.

The ISSB faces ongoing legitimacy challenges as a new standard setter in a field with established bodies like the GRI. Its legitimacy is derived from its structural power and ties with regulators, rather than market acceptance. Academics have expressed skepticism about the ISSB's focus on investors, lack of alignment with UN Sustainable Development Goals, and insufficient expertise in sustainability. Concerns exist that the ISSB represents a 'capture' of the standard-setting process by powerful financial groups. While the ISSB seeks consensus through collaboration, such as with GRI, dissenting voices highlight a more political debate over ideological positions. The ISSB's selective engagement with stakeholders and its potential to disregard existing scientific research in sustainability accounting further compound these legitimacy issues. Variations in national stances on ISSB adoption, such as independent initiatives in New Zealand verses consideration of adoption in Australia, underscore this complexity. The ISSB's standards prioritize financial materiality, reflecting a shareholder value perspective, which critics argue leads to a 'financialization of sustainability issues,' potentially sidelining broader environmental and social goals in favor of short-term financial implications. This tension between investor interests and broader sustainability impacts remains a central challenge and a key area for future research.

Based on critical reflections on the ISSB's scope, legitimacy, and financial capture, a comprehensive research agenda is proposed. Regarding the ISSB's scope and jurisdictions, future research should explore how its work affects other non-European jurisdictions, how its standards are translated locally, and potential forms of resistance in national contexts, especially in developing countries. It should also investigate the impact of local lobbying activities, such as in the USA, on ISSB standard-setting and application. For legitimacy challenges, research is needed to understand stakeholder views on the ISSB and its IFRS Foundation links, identify supporting and dissenting stakeholders and their motivations, explore how the ISSB prioritizes stakeholders, and analyze its responses to dissenting voices. Concerning the 'investor capture' of sustainability information, future research should examine the influence of the IFRS Foundation's board composition on standard development, solicit feedback from a broad range of stakeholders on the ISSB's initial standards, analyze the practical implications of new ISSB standards on reporting and information management, and investigate how different stakeholders interpret the intertemporal nature of organizational sustainability strategies. These questions aim to inform and develop the field, addressing outstanding challenges for academics and providing insights for practitioners.

This paper concludes that the ISSB's formation in 2021 was a pivotal step towards globally accepted sustainability reporting standards, consolidating multiple bodies. Its analysis reveals a complex interplay between the ISSB and other reporting bodies, regulators, and stakeholders, acknowledging criticisms, particularly regarding its investor-centric approach. The ISSB faces the challenge of reconciling its position under the IFRS Foundation's investor-focused umbrella with the needs of broader stakeholder groups. While there's a push for closer collaboration between financial and sustainability standard setters, achieving this is difficult due to the established focus of bodies like the IFRS Foundation on investors. This highlights a fundamental tension: whether a sustainability reporting body can thrive under an investor-focused banner without being unduly influenced by capital providers. The paper suggests that these critical questions, long debated in academic research, are gaining increased importance with the ISSB's emergence. It offers historical reflections, analyzes potential future developments, and outlines a research agenda for academics. For practitioners, the paper provides a crucial reference point for understanding the ISSB's global influence and anticipating future developments, aiding in strategic planning of practical responses within the dynamic field of sustainability reporting.