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ISSB Research Projects on Biodiversity and Human Capital

Picture of William Tygart

The International Sustainability Standards Board (ISSB) recently announced the addition of two new research initiatives to its work plan: biodiversity, ecosystems and ecosystem services (BEES) and human capital1. This report provides an overview of these initiatives, including their background, objectives, and potential implications for sustainability reporting.

Background

The ISSB is an independent, private-sector body that develops and approves IFRS Sustainability Disclosure Standards (IFRS SDS)1. The ISSB's mission is to develop a comprehensive global baseline of sustainability-related disclosure standards that meet the information needs of investors2. In addition to these new initiatives, the ISSB is also working on enhancing existing SASB standards, specifically those related to the Extractives & Minerals Processing sector, Electric Utilities & Power Generators, and the Food & Beverage sector3.

In May 2023, the ISSB initiated a consultation on its agenda priorities for the next two years2. The consultation sought feedback from stakeholders on the ISSB's proposed work plan, which included potential research projects on biodiversity, human capital, human rights, and integration in reporting4. Based on the feedback received during the consultation, the ISSB decided to add two new research initiatives to its work plan: BEES and human capital1. The consultation also revealed a growing demand for information on biodiversity and human capital, leading the ISSB to prioritize these areas4. The ISSB decided not to pursue a research project on human rights at this time, based on market feedback5. Furthermore, the ISSB decided not to begin a project related to integration in reporting at this time1. However, the ISSB has agreed to closely monitor developments in this area and may consider including such a project in a future agenda consultation1.

Biodiversity, Ecosystems and Ecosystem Services (BEES)

The BEES initiative will examine the information that investors require to be disclosed to better assess a company's sustainability-related risks and opportunities associated with biodiversity2. Biodiversity is a foundational characteristic of natural systems and provides essential ecosystem services that support economic activity2. Companies' operations can have significant impacts on biodiversity, both positive and negative3. For example, a company's operations may depend on ecosystem services such as clean water and fertile soil3. These services can be affected by factors such as climate change, pollution, and land-use change3. This study aligns with the global goal of halting and reversing biodiversity loss by encouraging companies to better manage their impacts on biodiversity6.

The BEES initiative will consider how to build upon the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD)7. The TNFD is a global initiative that has developed a framework for organizations to report and act on evolving nature-related risks8. The TNFD framework includes recommendations for disclosing information on a company's dependencies and impacts on biodiversity6.

Human Capital

The human capital study will examine the information that investors require to be disclosed to better assess a company's sustainability-related risks and opportunities associated with its workforce2. Human capital is increasingly recognized as a crucial element of value creation9. Proper disclosure of human capital information can help investors gauge a company's long-term sustainability9. Investors are increasingly demanding workforce data and related disclosures, recognizing the importance of human capital in a company's long-term success, especially in the face of challenges like growing resignation numbers, layoffs, and evolving labor markets10.

How a company manages and invests in its human capital can directly affect its ability to deliver value over the long term11. Increased transparency on human capital can incentivize companies to improve their social performance and contribute to a more sustainable and equitable economy9.

The human capital study will likely address several key areas, including:

  • Workforce development and skills: How companies invest in upskilling their workforce to meet evolving business needs9.
  • Diversity and inclusion: How companies promote diversity and inclusion in their workforce9.
  • Health, safety, and well-being: How companies protect the health, safety, and well-being of their employees9.
  • Compensation and benefits: How companies compensate and provide benefits to their employees9.

Initial research for this project will seek to define the project's scope and determine how best to stage work on the topic to produce timely analysis and explore the necessity and feasibility of standard-setting11.

ISSB's Standard-Setting Process

The ISSB employs a rigorous and transparent process for developing new disclosure standards. This process involves a thorough due process, including consultation with a wide range of stakeholders, such as investors, companies, and standard-setters12. The ISSB also builds upon existing frameworks and initiatives, such as the Integrated Reporting Framework, the SASB Standards, and the TCFD recommendations, to ensure coherence and consistency in sustainability reporting13.

Providing Feedback to the ISSB

The ISSB actively encourages stakeholder feedback throughout its standard-setting process. Stakeholders can provide feedback to the ISSB on its research initiatives through various channels, including submitting comments on the ISSB website and participating in outreach events14. This feedback is crucial in ensuring that the ISSB's standards meet the needs of investors and other stakeholders and contribute to a more robust and effective sustainability reporting landscape.

Potential Implications for Sustainability Reporting

Both the BEES and human capital initiatives are expected to result in new disclosure requirements that will supplement existing IFRS S1 and S2 standards2. These initiatives have the potential to significantly impact sustainability reporting9.

Benefits for Investors

The new disclosure requirements that are expected to result from these initiatives will provide investors with more comprehensive and comparable information about companies' sustainability-related risks and opportunities9. This information will help investors to make more informed investment decisions9.

Benefits for Companies

The new disclosure requirements may also encourage companies to improve their management of sustainability-related risks and opportunities9. By providing investors with more information about these risks and opportunities, companies will be incentivized to take steps to mitigate them9. This could lead to improved environmental and social performance by companies9.

Conclusion

The ISSB's BEES and human capital initiatives are important studies that have the potential to significantly improve sustainability reporting9. The new disclosure requirements that are expected to result from these initiatives will provide investors with more decision-useful information about companies' sustainability-related risks and opportunities9. This, in turn, will help investors to make more informed investment decisions and encourage companies to improve their management of sustainability-related risks and opportunities9.

These initiatives represent a significant step towards a more comprehensive and integrated approach to sustainability reporting. By expanding the scope of disclosure beyond climate, the ISSB is recognizing the interconnectedness of environmental, social, and governance factors and their impact on a company's long-term value creation. The focus on biodiversity and human capital reflects a growing understanding of the importance of these factors in driving sustainable economic growth and societal well-being.

The potential long-term impacts of these initiatives are substantial. Increased transparency and comparability in sustainability reporting can contribute to a more efficient allocation of capital, incentivize companies to adopt more sustainable practices, and ultimately support the transition to a more sustainable and equitable global economy. The collaboration between the ISSB and other initiatives, such as the TNFD, further strengthens the global effort to address critical sustainability challenges. The active participation of investors and companies in shaping these standards and integrating them into their decision-making processes will be crucial in realizing the full potential of these initiatives and driving progress towards a more sustainable future.

Works cited

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  2. What you need to know about ISSB's new research projects | EY - Global, accessed January 5, 2025, https://www.ey.com/en_gl/insights/ifrs/issb-takes-on-new-research-projects
  3. September 2024 – Where does the world stand on ISSB adoption? - S&P Global, accessed January 5, 2025, https://www.spglobal.com/esg/insights/september-2024-where-does-the-world-stand-on-issb-adoption
  4. ISSB agenda priorities for sustainability reporting | EY - Global, accessed January 5, 2025, https://www.ey.com/en_gl/insights/ifrs/issb-agenda-priorities-for-sustainability-reporting
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  6. TNFD welcomes the ISSB's decision to commence work on nature-related issues, accessed January 5, 2025, https://tnfd.global/tnfd-welcomes-the-issbs-decision-to-commence-work-on-nature-related-issues/
  7. ISSB delivers further harmonisation of the sustainability disclosure landscape as it embarks on new work plan, accessed January 5, 2025, https://tnfd.global/issb-delivers-further-harmonisation-of-the-sustainability-disclosure-landscape/
  8. ISSB launches research on biodiversity risk disclosures - Green Central Banking, accessed January 5, 2025, https://greencentralbanking.com/2024/04/29/issb-launches-research-on-biodiversity-risk-disclosures/
  9. Human Capital Disclosure and Nature and: ISSB Expands Focus - IRIS Business, accessed January 5, 2025, https://www.irisbusiness.com/the-issbs-focus-on-nature-and-human-capital-disclosure-a-new-frontier-in-sustainability-reporting/
  10. Investors Urge ISSB to Develop Reporting Standard for Human Rights and Human Capital, accessed January 5, 2025, https://www.esgtoday.com/investors-urge-issb-to-develop-reporting-standard-for-human-rights-and-human-capital/
  11. Human Capital - IFRS Foundation, accessed January 5, 2025, https://www.ifrs.org/projects/work-plan/human-capital/
  12. ISSB Releases Final Global Sustainability Disclosure Standards - Kirkland & Ellis LLP, accessed January 5, 2025, https://www.kirkland.com/publications/kirkland-alert/2023/06/issb-releases-final-global-sustainability-disclosure-standards
  13. An introduction to ISSB's new International Sustainability Disclosure Standards (IFRS SDS), accessed January 5, 2025, https://eco-act.com/blog/issb-disclosure-standards/
  14. ISSB publishes Feedback Statement on its Consultation on Agenda Priorities - BDO Global, accessed January 5, 2025, https://www.bdo.global/en-gb/news/ifrs-news/issb-publishes-feedback-statement-on-its-consultation-on-agenda-priorities