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The International Sustainability Standards Board (ISSB) aims to develop standards that will provide a comprehensive global baseline of high-quality sustainability-related financial disclosures to meet the information needs of users of general-purpose financial reports (primary users).
These standards, which are referred to as IFRS Sustainability Disclosure Standards, set out requirements for disclosures about a company’s sustainability-related governance, strategy, risk management, and metrics and targets. IFRS S1 and IFRS S2 are the first two IFRS Sustainability Disclosure Standards developed by the ISSB.
IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium, and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.
Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which is endorsed by the G7 and G20, while countries like the UK, New Zealand, and Switzerland have introduced mandatory TCFD reporting requirements.
Now that IFRS S1 and IFRS S2 are issued, the ISSB (International Sustainability Standards Board) will work with jurisdictions and companies to support adoption. Key contents and comparison of the two standards can be found in later section.
The ISSB expects:
the application of IFRS S1 will benefit investors by improving their ability to monitor, acquire and aggregate material sustainability-related information;
the application of IFRS S2 will benefit data collection efforts for climate-related financial information; and
the application of the Standards will improve connectivity with financial statements, including the identification of current and anticipated financial effects.
Furthermore, the release of sustainability-related information together with general purpose financial statements is expected to improve investors’ ability to jointly monitor and understand disclosures, leading to more timely and better informed decision-making.
How to prepare for the transition to the IFRS Sustainability Disclosure Standards?
For sustainability reporting starters (companies with little to none previous sustainability reporting practices), report on sustainability-related information using current IFRS Sustainability Disclosure Standards will have the ability to leverage these materials in selected areas, such as:
disclosure of governance, strategy and risk management;
disclosure of transition plans;
use of carbon credits;
reporting of GHG emissions; and
setting of GHG emission reduction targets.
And as sustainability reporting can often be challenging and compromised by inefficient data management and cross-organisational collaborations, a digital solution is thus of importance for companies’ sustainability reporting in compliance with the International standards such as the newly introduced IFRS Sustainability Disclosure Standards for in-house sustainability management and effective communication with external stakeholders, for meeting listing rules, procurement requirements, or other compliance needs. And as the ISSB point out that: Digital reporting is expected to enhance the accessibility, searchability, presentation and structure of sustainability information and facilitate digital consumption of sustainability-related disclosures.
For companies considering transition from existing ESG reporting framework to the current IFRS Sustainability Disclosure Standards:
Review the current reporting standards and identify gap between the current standards against the IFRS Sustainability Disclosure Standards. If the reporting companies is currently adopting an international recognised ESG reporting standards, such as the TCFD, GRI or CDP, etc, This could be easily done with GC Insights’ ESG Connector - a SaaS platform for easy ESG reporting enables cross-reference for data among multiple international ESG frameworks. Making transition from more than one standards to ISSB easy.
On of the requirements from the IFRS Sustainability Disclosure Standards is for reporting companies to provide comparative information for sustainability-related or climate-related financial information. This can be easily achieved by ESG Connector’s auto-connection for historical data and track record enabled by secured Cloud services.
How the two standards published today could impact stakeholders in China?
As reported previously, the Ministry of Finance of the People’s Republic of China (MoF, Link to article) and The Stock Exchange of Hong Kong Limited (HKEX, Link to article) have shown support and calling for input on behalf of the ISSB to invite participations from Chinese stakeholders in a bid to seek advises and balance the country’s practical applications of the IFRS standards to make it more adaptable for companies in the country. While the HKEX have introduce new climate-related disclosures aligned with the International Sustainability Standards Board (ISSB) Climate Standard for preparers to get ready for mandate TCFD-aligned disclosures by 2025 as announced by the Hong Kong Green and Sustainable Finance Cross-Agency Steering Group.
Get ready for adopting the IFRS Sustainability Disclosure Standards is an important step for Chinese companies to join the global baseline for sustainability-related financial disclosures, and prepare for the forthcoming updates for listing rules in China to report on ESG information that has been implied by the policy makers.
HKEX’s proposal also acknowledge the readiness of the issuers and their concerns, the Exchange proposes interim provisions for certain disclosures (e.g. financial effects of climate-related risks and opportunities, scope 3 emissions, and certain cross-industry metrics) for the first two reporting years following the effective date of 1 January 2024. (Link to article) which is align with the ISSB transition relief proposal in IFRS S1 announced in April 2023. (Link to article)
Our previous coverage of the ISSB-related updates
ISSB 2023 Agenda: Sustainability Reporting: ISSB Inaugural Standards to Issue by End Q2 2023 Link
Key Updates on Transition Relief: What's New in Global Sustainability Reporting? - Latest Updates from IFRS-ISSB Link
HK 2024: HKEX to mandate ESG disclosures aligned with the ISSB Link
SASB Strategies: ESG Disclosures: ISSB to Enhance SASB Standards Link