VICTORIA GEDDES, Executive Director
On 26 June 2023, the ISSB (International Sustainability Standards Board) issued its inaugural standards – IFRS S1 and IFRS S2 – after 18 months of intensive consultation and research. Over the past five years, sustainability factors have become increasingly mainstream in investment decision making and they are central to how companies manage their organisation and tell their story. The ISSB standards have been designed in direct response to widespread demand for a single reporting framework that provides a common language for companies disclosing the effect of climate-related risks and opportunities.
IFRS S1
IFRS S1 sets out the general requirements for sustainability-related financial disclosure and the SASB standards are at its core in identifying what information to disclose.
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- Asks for disclosure of material information about sustainability-related risks and opportunities with the financial statements, to meet investor information needs.
- Applies TCFD architecture whenever providing information about sustainability
- Requires industry-specific disclosures and, in this respect, reporting according to the SASB industry standards is non-negotiable as a starting point. In relation to metrics companies must also adopt those recommended by SASB but can also include CDSB, GRI or the European ESRS metrics if it serves the information needs of investors.
- For matters other than climate refers to sources to help companies identify sustainability related risks and opportunities and information
- Can be used in conjunction with any accounting requirements.
IFRS S2
IFRS S2 sets out specific climate-related disclosures and has fully incorporated the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). It is used in accordance with IFRS S1.
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- Requires disclosure of material information about climate-related risks and opportunities, including physical and transition risks
- Requires industry-specific disclosures which are supported by accompanying guidelines built on SASB Standards. Note that industry-based metrics provided are illustrative guidelines rather than requirements with the exception of financed emissions. ISSB has indicated its intention to make industry-based metrics mandatory in the future.
- Disclosure of a company’s gross Scope 1, 2 and 3 greenhouse gas emissions (GHG) measured in accordance with the GHG Protocol Standard. Guidance is provided on the measurement and disclosure of GHGs. Reporting Scope 3 emissions has been delayed for one year.
- Scenario analysis to illustrate a company’s climate resilience – this can be qualitative initially and guidance is provided as to how to go about this when starting out.
The standards have been designed to provide decision-useful information to investors. They are intended to be provided alongside the financial statements as part of the same reporting package. They have been developed to work with any accounting requirements whilst benefiting from being built on the concepts underpinning IFRS accounting standards required for use in more than 140 jurisdictions. They are supported by the International Organization of Securities Commissions (IOSCO), the Financial Stability Board and the G7 and G20 leaders.
Companies already reporting to the SASB standards, TCFD recommendations, and the CDSP and Integrated Reporting frameworks are already well advanced on the pathway to applying the ISSB standards, which are built on these frameworks to create a new common language for reporting.