Together IFRS S1 and IFRS S2 mark the start of a new era of requiring companies to make sustainability-related disclosures.
The ISSB was launched by the IFRS Foundation at COP26 with the aim of improving the consistency and quality of sustainability reporting across the globe, by matching the importance of sustainability reporting with the current regulations around financial reporting. To reinforce this message, the ISSB sits alongside the International Accounting Standards Board (IASB) and is overseen by the trustees of the IFRS Foundation and the Monitoring board.
The ISSB brings together the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF), the name behind the Integrated Reporting Framework and the Sustainability Accounting Standards Board (SASB) Standards.
Sustainability reporting is becoming increasingly important for stakeholders, with many larger companies already adopting some form of sustainability reporting to accommodate the demands of their key stakeholders. One of the key challenges faced by many investors and other stakeholders is they have not had access to good quality and globally comparable sustainability information, a stark difference to financial data. The developments being made by the ISSB are therefore game changing for sustainability reporting globally.
This is recognised by the international community. The ISSB has international support and is backed by the G7, G20, the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board, amongst others. The Standards issued by the ISSB will help combat the challenges of companies 'greenwashing', meaning stakeholders will be able to make better-informed decisions with confidence.
The main objective of this Standard is to disclose all information about sustainability-related risks and opportunities that could reasonably be expected to affect a company’s prospects.
IFRS S1 provides the basic requirements for sustainability disclosures, which should be used with IFRS S2 as well as the future Standards the ISSB releases. The Standard:
The two Standards are designed to be applied together. However, IFRS S2 has been developed to capture climate-specific requirements which includes:
Get ready – Be prepared for the possibility of reporting on 2024 information – remember the sustainability report will have to be reported on at the same time as your financial statements which will cause increased pressure on year-end reporting (the ISSB exemption noted above may be allowed for the first reporting period, but is dependent upon local jurisdictions and regulators).
Understand your current position – evaluate your current governance structure and sustainability strategy to ensure it is fit for purpose going forwards and perform gap analysis to identify areas where work is needed to enable compliance with the Standards.
Create a sustainability roadmap – After understanding your current position, establish how you can address the gaps identified, adopting a timeline of key milestones for your sustainability journey, identifying individuals within your organisation responsible and any potential constraints.
Ensure good quality data – ensure adequate controls and processes are in place now to help collate and analyse good quality sustainability data that will compliment your disclosures.
Familiarise yourself with the Standards – Companies who are already reporting on sustainability information will likely have an advantage but it’s important to note there will be some differences in the Standards which you will need to identify. Not having a good understanding of all the applicable standards could result in lengthy reports containing duplication or omitted information resulting in non-compliance.
Educate your organisation – Ensure all levels of your business have a sound understanding on the importance of sustainability to help drive, grow and implement you sustainability strategy, ensuring there is buy-in at the top of your organisation to encourage the correct mindset to filter down.
We hope you find the information helpful in giving you some insight into IFRS Sustainability Disclosure Standards IFRS S1 and S2. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or visit www.grantthornton.global/locations to find your local member firm.
