Companies currently reporting toward Sustainability Accounting Standard Board (SASB) or Taskforce for Climate-related Financial Disclosures (TCFD) will need to transition to the new International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards for reporting years beginning on or after January 1, 2024.
Launched by the International Sustainability Standards Board (ISSB) in 2023, IFRS Sustainability Disclosure Standards (also known as the ISSB standards) provide investors with decision-useful, globally comparable sustainability-related information. Whether or not companies have previously reported to SASB and TCFD, those looking to voluntarily apply IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and S2 (Climate-related Disclosures) will benefit from a newly launched guide. It offers essential guidance as companies work toward full disclosure with the standard.
Our key takeaways from the guide include:
1. Voluntary application and investor expectations
IFRS S1 and IFRS S2 respond to investor need for transparent, comparable, and reliable data on climate and sustainability risks. While full compliance is encouraged, companies may implement the standards progressively. This flexibility allows companies to gradually build the necessary reporting systems and capabilities.
2. Clear communication on compliance
Companies will need to clarify the extent of their application by regularly updating and communicating their assessment of their progress toward compliance.
3. Transition reliefs and phased implementation
Recognizing that some companies may require time to converge on full disclosure, the ISSB has introduced transition reliefs. For example, companies may focus on climate-related disclosures in the first reporting year, with broader sustainability disclosures phased in later. Additionally, although IFRS S1 requires sustainability-related financial disclosures to be reported simultaneously with financial statements for the same period, companies may delay reporting sustainability information alongside financial statements and may defer certain disclosures, such as Scope 3 greenhouse gas emissions[i].
4. Proportionality mechanisms
To address varying levels of readiness, the ISSB has included proportionality mechanisms. These allow companies to report using “reasonable and supportable” data available at the time, without incurring excessive costs or efforts. Companies can apply qualitative approaches where quantitative data may be difficult to obtain initially, which is particularly helpful for first-time reporters or those with limited resources.
As companies transition to the ISSB standards, it’s important to note that many jurisdictions worldwide are either considering or have already mandated sustainability reporting aligned – either closely or partially – with the ISSB standards. At the time of this posting, jurisdictions that have adopted ISSB-aligned disclosure regulations include Bangladesh, Brazil, Costa Rica, Turkey, and Nigeria. Other jurisdictions such as New Zealand and the United Kingdom have adopted climate-related disclosure standards based on the TCFD recommendations. The UK government has also announced plans to create UK sustainability disclosure standards based on the ISSB standards.
No matter where you’re at in your disclosure journey Context can help. Whether its pulling together your first IFRS index, disclosing to CSRD, or creating a sustainability report that your stakeholders want to read, we can support you. Please reach out to myself (kyisin.aung@contextamerica.com) if you’d like to discuss your organization’s needs.
[i] Although the ISSB offers transition relief on Scope 3 emissions, California has enacted a new law (Senate Bill 219) requiring businesses to disclosure their climate-related financial risks and carbon emissions, including Scope 3. For companies operating in California, analyzing Scope 3 emissions will be a priority.
