Beyond the Brussels Effect: The Surprising Rise of the International Sustainability Standards Board

When the European Union adopted its sweeping Corporate Sustainability Reporting Directive (CSRD) in 2022, observers bet on Brussels setting the global standard for corporate climate disclosure. The EU’s ambitious rules, with their expansive scope, double materiality framework, and extraterritorial reach, seemed destined to trigger the famous ‘Brussels Effect,’ where Europe’s regulatory muscle forces the world to follow its lead.

That’s not what is happening.

Instead, a less flashy contender is emerging as the unlikely winner, the International Sustainability Standards Board (ISSB). While politicians fought culture wars over ‘woke capitalism’ and regulators scaled back their ambitions, this private standard-setter has quietly built a consensus that neither the EU nor the United States managed to achieve amid regulatory fragmentation.

The ISSB is succeeding not despite lacking regulatory authority, but because of it. By focusing on financial materiality, building on widely adopted private frameworks like SASB and TCFD, and leveraging the institutional credibility of the IFRS Foundation, the ISSB offers something regulators couldn’t: a practical, implementable baseline that companies already know how to use.

Why a Global Baseline Became Necessary

Climate reporting began as a voluntary movement. Corporations and NGOs co-developed the GHG Protocol to measure carbon emissions, and frameworks such as SASB and TCFD helped firms analyze climate risk. These efforts improved transparency but lacked consistency. As sustainability concerns became more financially material, affecting valuations, insurance costs, and litigation exposure, regulators intervened, but the result was more fragmentation, not less.

The EU adopted double materiality, requiring companies to report both how sustainability affects financial performance and how corporate activity affects people and the planet. The US SEC proposed an investor-focused rule, then scaled it back under political pressure. California enacted an ambitious regime mandating Scope 3 emission reporting for both public and private firms.

For multinational companies, this complexity became untenable. Divergent materiality definitions, assurance thresholds, and emissions rules forced firms into costly parallel reporting, while investors struggled to compare data. It is within this fractured landscape that the ISSB emerged.

The ISSB’s Rise: Credibility Without Coercion

Unlike the EU or the SEC, the ISSB has no regulatory authority. Yet within two years of issuing its first standards, jurisdictions representing more than half of global GDP announced adoption or alignment. This reflects several structural advantages:

Built on private standards: The ISSB did not start from scratch. Its roots lie in SASB, a market-driven initiative launched in 2011 to address the gap between investor demand for ESG data and traditional financial disclosure. The ISSB consolidated SASB's industry-specific metrics with TCFD’s risk framework and the CDSB/IIRC reporting structures into standards IFRS S1 and S2. This transformed soft law into a globally recognized baseline, making adoption feel like formalizing existing practice rather than adopting a novel regime.

Grounded in investor materiality: By using financial materiality—familiar to regulators, auditors, and capital markets—the ISSB lowered barriers to adoption. By contrast, the EU’s broader double-materiality model requires new systems and extensive value-chain analysis. For jurisdictions conscious of competitiveness and administrative burden, the ISSB offered a more feasible approach.

Inherited IFRS legitimacy: The IFRS Foundation already administers the world’s most widely used financial accounting standards. Its trusted governance structure and due-process mechanisms gave the ISSB built-in credibility and an international network of potential adopters. Though not a public regulator, the ISSB possessed the institutional backbone of one.

Politically unaffiliated positioning: Crucially, the ISSB is not explicitly affiliated with any state or jurisdiction. It is not the EU’s standard, nor America’s. This political neutrality—real or perceived—positioned the ISSB as a technocratic solution rather than a geopolitical instrument. Its standard-setting process was expert-driven and transparent, with government engagement occurring after, not before, development. Jurisdictions could therefore adopt ISSB standards without appearing to capitulate to foreign regulatory agendas.

Political Headwinds Created an Opening

The ISSB’s rise was accelerated by setbacks elsewhere. Following years of debate and litigation threats, the SEC adopted a narrowed climate rule in 2024 and then voted not to defend it in court in 2025, creating a federal vacuum. California filled part of the gap, but companies now face a patchwork rather than a unified US regime.

Europe also scaled back. In 2025, the European Commission’s ‘Omnibus Simplification Package’ significantly reduced the number of companies subject to CSRD reporting, and several member states pushed to streamline ESRS standards. Although the EU still has the most comprehensive disclosure regime, its global regulatory pull has softened.

The ISSB avoided these pitfalls by design. Its standards can be phased in, implemented voluntarily, or adapted locally, which is an attractive feature in politically volatile environments.

Regulators Began Seeking Interoperability

Perhaps most tellingly, jurisdictions that initially championed their own approaches are now exploring alignment with the ISSB. EFRAG is assessing ISSB-ESRS interoperability. California’s Air Resources Board is considering ISSB-compliant reports as a compliance pathway. Regulators increasingly recognize that global firms need consistent reporting frameworks; divergent requirements raise costs and reduce data usefulness.

Following the release of the ISSB standards, IOSCO endorsed the rules and urged member jurisdictions to adopt or align with them. G7 and G20 leaders expressed support. By mid-2025, 36 jurisdictions, including Brazil, the UK, Australia, Hong Kong, Japan, China, and Singapore, had announced adoption or alignment.

Major institutional investors such as BlackRock, State Street, and Vanguard also endorsed the standards. In this way, the ISSB is becoming the global common denominator, which means that jurisdictions with robust sustainability regimes can layer additional requirements on top; others adopt the baseline alone.

What This Tells Us about Global Governance

The ISSB’s rise challenges conventional wisdom about how international standards emerge. Rather than great power rivalry or hegemonic regulation, we are seeing governance by functionality. In the absence of strong state-led initiatives, private standard-setters with technocratic legitimacy and market credibility can fill the vacuum.

This hybrid model, combining private authority, voluntary adoption, and eventual regulatory uptake, may represent the future of global coordination in technical domains. By presenting itself as a neutral, investor-focused solution rather than a state-driven project, the ISSB enabled jurisdictions with divergent priorities to view it as a legitimate focal point for harmonization.

Conclusion: A Pathway Forward, with Caveats

The story of climate disclosure is becoming one of how private standard-setters, building on years of market-driven practice and institutional credibility, can achieve coordination that has eluded regulators. The ISSB is winning not by being the boldest framework, but by being the one that can actually work—balancing ambition with feasibility and global reach with practical implementation.

At the same time, important questions remain. Some critics fear that a purely financial-materiality model may miss socially or environmentally significant risks that don’t immediately affect enterprise value. The relationship between ISSB and the EU’s rules will require careful management to ensure interoperability rather than duplication. And because enforcement will vary widely across jurisdictions, the quality and comparability of disclosures may still diverge. The ISSB offers a promising foundation for global climate disclosure, but whether it can deliver on its full potential remains to be seen.

This blog post is based on the authors’ article Beyond the Brussels Effect: The Surprising Rise of the International Sustainability Standards Board, forthcoming in the Journal of International Economic Law (JIEL).

Stavros Gadinis is a Professor of Law at U.C. Berkeley School of Law. 

Silvia Fregoni is a Doctoral Student at U.C. Berkeley School of Law.