Regulatory Update: IFRS S1, S2 and Proposed ISSA 5000 Shape Global Sustainability Disclosures
New regulatory updates are bringing significant advancements in reporting standards amidst the growing global focus on sustainability.
The launch of the International Sustainability Standards Board (ISSB) IFRS S1 and S2 standards ushers in a new era of global sustainability disclosures in capital markets. These standards provide a comprehensive framework for companies to communicate their sustainability performance and facilitate more informed investment decisions.
The ISSB’s IFRS S1 provides a broad standard encompassing disclosure requirements concerning a listed company’s material sustainability-related risks and opportunities over the short, medium, and long term. The disclosures revolve around governance, strategy, risk management, and sustainability-related metrics and targets. To determine materiality, S1 and S2 require companies to consider industry-specific standards outlined by the Sustainability Accounting Standards Board (SASB).
IFRS S2, on the other hand, focuses specifically on climate-related disclosures. It requires companies to disclose information about climate-related risks and opportunities that may reasonably impact their cash flows, access to finance, or cost of capital over the short, medium, and long term. Key metrics include Scope 1, 2, and 3 emissions, climate-related physical risks, and capital expenditures aimed at addressing climate risks and opportunities.
Both IFRS S1 and S2 fully integrate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Companies are required to report on both S1 and S2 alongside their management report. The new standards apply to all entities following IFRS Accounting Principles, with annual reporting periods commencing on or after January 1, 2024.
Early adoption is permitted, and companies have some flexibility in the first annual reporting period. The coming months offer great opportunity to gradually adopt these standards with capacity-building initiatives being formulated to provide smooth implementation for companies.
Proposed ISSA 5000 Standard for Global Sustainability Reporting
On August 2, the International Auditing and Assurance Standards Board (IAASB) issued its proposed International Standard on Sustainability Assurance (ISSA) 5000. This aims to provide external assurance on a company’s sustainability reporting. ISSA 5000 is a principles-based, overarching standard suitable for both limited and reasonable assurance engagements on sustainability information reported across any topic.
This new standard is intended to enhance confidence and trust in sustainability reporting and aligns with other reporting frameworks. The IAASB created this standard to work with sustainability information that is prepared under any suitable reporting framework across the world. This includes existing frameworks like those issued by the European Union, the International Sustainability Standards Board, the Global Reporting Initiative, and the International Organization for Standardization. Therefore creating a global baseline for all sustainability reporting.
The IAASB is currently gathering input from stakeholders through outreach, with public comments on the proposed standard being accepted until December 1. They will then plan to finalize the standard based on all the feedback received.
Innovating for Sustainability
As local jurisdictions begin to adopt new sustainability standards, ESC is here to help businesses smoothly navigate the implementation of new and current reporting guidelines. Our experienced sustainability consultants are available to assist you in both regulatory compliance and also ensuring you are aligning with ESG best practices. Contact us today to start innovating on your sustainability journey.