INTRODUCTION
The International Sustainability Standards Board (ISSB), on 26 June 2023 issued two IFRS Sustainability Disclosure Standards – IFRS Sl on disclosures of Sustainability-related financial information and IFRS S2 on Climate-related disclosures.
CONCEPTUAL FOUNDATION
The ISSB had issued the conceptual framework which set out the following seven tenets as the guiding principles for standard setting.
IFRS Sl sets out the disclosures relating to sustainability-related risks and opportuni ties that are material, proportionate and decision-useful to investors.
Materiality:
- IFRS Sl requires entities to disclose material information relating to sustainability related risks and opportunities.
- Information that is expected to influence decisions of the users of the reports would be considered material.
- The materiality judgments are entity specific.
- Materiality is a combination of qualitative and quantitative factors.
Connected information:
To make the disclosures relevant connections between various disclosures within sustainability-related risks and opportunities or with financial statements should be provided.
IFRS S2 sets out specific climate-related disclosures and is designed to be used in conjunction with IFRS Sl.
CORE CONTENT
Disclosures in IFRS Sl and S2 are based upon the four pillars of the Task Force on Climate- related Financial Disclosures (TCFD). In summary:
GENERAL REQUIREMENTS
Statement of compliance – An entity whose disclosures comply with all the requirements of these standards shall make an explicit and unreserved statement of compliance.
Sources of guidance – An entity could refer and consider the applicability of material disclosure topics by cross referencing from different standards as well like SASB.
Location of disclosures – The disclosures are location- agnostic and could be presented either with management commentary or in line with local regulations.
Judgments uncertainties, errors – An entity discloses information about the most significant uncertainties & judgments made that have the most significant impact on the disclosed information.
Timing of reporting – The entity’s sustainability related financial disclosures shall cover the same reporting period as the related financial statements.
Comparative information – An entity shall disclose comparative information in respect of the preceding period for all amounts disclosed in the reporting period.
Sensitive information – An entity may not disclose information that might potentially cause competitive harm in the market.
FIRST-TIME ADOPTION AND TRANSITION
These standards are effective annual reporting periods beginning on or after l January 2024. Earlier application collectively of both the standards is permitted with appropriate disclosures.
Transition: The standards provide certain first-time adoption dispensations with a view to make the transition process smooth.
- A first-time adopter is not required to disclose comparative information and is permitted to report sustainability-related financial disclosures after it publishes its related financial statements.
- The standards provide a primacy to climate related disclosures and permit a first-time adopter to report solely on IFRS S2
- If a first-time adopter’s method of measurement of its greenhouse gas emissions is other than the Green house Gas Protocol: A Corporate Accounting and Reporting Standard (2004), then the entity is permitted to continue using that other method in its first annual reporting period. Further, a first-time adopter is not required to disclose its Scope 3 greenhouse gas emissions.
