June 26, 2023, the International Sustainability Standards Board (ISSB) published its first two standards – S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures.
These standards represent a new era in global corporate reporting.
They come at a time where the intersectionality of modern slavery and climate change is an issue that is at the forefront of ESG strategy for many organisations.
Summary of the ISSB Sustainability Disclosure Standards
In response to capital market demand for a common language of investor-focused sustainability-related disclosure, the standards are intended to be the foundation for a comprehensive global baseline of sustainability disclosures specifically focused on the needs of investors and the financial markets.
The standards also address the cost, complexity and risk to both companies and investors associated with the current, fragmented landscape of voluntary, sustainability-related standards and requirements.
In summary:
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
- IFRS S1 requires an entity to disclose information about its sustainability-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the entity.
- IFRS S1 requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium, or long term (collectively referred to as ‘sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’).
- IFRS S2 Climate-related Disclosures
- IFRS S2 requires an entity to disclose information about its climate-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the entity.
- IFRS S2 requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (collectively referred to as ‘climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’).
- IFRS S2 applies to:
- climate-related risks to which the entity is exposed, which are:
- climate-related physical risks; and
- climate-related transition risks; and
- climate-related opportunities available to the entity.
- The IFRS Sustainability Disclosure Standards will become effective starting January 2024.
- Both standards are effective for annual reporting periods beginning on or after 1 January 2024 with earlier application permitted as long as both Disclosure Standards are applied.
- Given sustainability disclosure is new for many companies globally, the ISSB will introduce programs that support those applying its Standards as market infrastructure and capacity is built.
- Each jurisdiction to prescribe reporting obligations.
- Mandatory application of IFRS Sustainability Disclosure Standards depend on each jurisdiction’s endorsement or regulatory processes. The application of IFRS Sustainability Disclosure Standards is not linked to the application of IFRS Accounting Standards.
- Proposed Australian rules are largely aligned with the baselines released overnight by the International Sustainability Standards Board (ISSB). Australian regulatory support for the standards.
- On 27 June 2023, The Australian government published new rules for climate disclosures, to provide many of the elements investors will need to efficiently allocate capital in the transition to a resilient, net zero economy.
The government has proposed a roadmap for disclosure and assurance including a phase-in timeline, with the rules applying to the largest companies from July 1 2024 and expanding to smaller companies over the following three years.
FairSupply’s carbon accounting methodology, which calculates Scope 3 GHG emissions, is compliant with the GHG protocol, the TCFD guidelines, the PCAF standard, and the IFRS Climate-related Disclosures.
