IFRS Sustainability Standards

Contents

Introduction. 1

The Need for Sustainability Disclosure Standards. 3

Overview of IFRS Sustainability Disclosure Standards. 3

IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information. 3

IFRS S2: Climate-related Disclosures. 4

First Transition Option. 4

The Implications of the New IFRS Sustainability and Climate Disclosure Standards for Businesses. 4

Impact in Qatar. 4

Requirements: 6

How to comply with the new IFRS sustainability and climate disclosure standards: 6

Criticisms. 7

Conclusion. 7

Introduction

?

In today's dynamic business environment, sustainability considerations have become crucial in investment decision-making. Investors and stakeholders now demand high-quality and globally comparable information on sustainability-related risks and opportunities. To meet this need, the International Sustainability Standards Board (ISSB) was established by the Trustees of the IFRS Foundation. The ISSB's primary objective is to develop comprehensive and standardized sustainability disclosure standards that satisfy investor information requirements and facilitate global capital markets. In this guide, we will explore the essential aspects of the IFRS Sustainability Disclosure Standards, their significance, and their impact on corporate reporting.

On June 26, 2023, the ISSB released its inaugural Sustainability Disclosure Standards, marking the dawn of a new era in international corporate reporting. The first two standards issued by the International Sustainability Standards Board are as follows:

IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1)

IFRS S2: Climate-related Disclosures (IFRS S2)

The effective date for these new standards is expected to be January 2024, with companies commencing the issuance of disclosures in 2025. However, the mandatory application of the IFRS Sustainability Disclosure Standards is contingent upon the endorsement or regulatory processes specific to each jurisdiction. It is important to note that the application of these sustainability standards is independent of the application of IFRS Accounting Standards.

It is the responsibility of companies to demonstrate that their boards possess the necessary skills and knowledge to address sustainability and climate-related issues effectively.

While the adoption of these standards is currently optional in the Middle East, firms may face pressure from investors, activists, and banks to embrace these new guidelines. Industry experts believe that there is a compelling business case for companies to take these standards seriously.

The primary aim of these standards is to establish a common language for discussing sustainability matters. It is noteworthy that these standards go beyond mere numerical data and encompass the methodologies employed for disclosures. For example, when reporting climate-related targets, companies are required to elaborate on how they establish these targets, whether a third party validates the methodology, and the metrics used to review them.

Auditors will also play a vital role in examining these processes and methodologies. Unlike the current practice of primarily verifying data, auditors will assess the materiality assessment process, determining what is included and, more importantly, what is excluded.

Additionally, there are compelling business reasons to comply with these standards, which are rooted in traditional accounting metrics. For instance, IFRS S1 necessitates disclosures about risks and opportunities that could reasonably impact an entity's cash flows, access to finance, or cost of capital in the short, medium, or long term. The objective is not to collect arbitrary or superfluous information, but to provide useful data that companies can utilize in managing their businesses on a monthly basis. While there may be associated costs, considering these standards as a compliance expense would be misguided, as they are an integral part of running a business if aligned with the business strategy.

Striking a balance between urgency and thoughtful consideration of risks is essential in adopting these standards. Ideally, companies would have sufficient time to reflect on risks and engage in comprehensive discussions at the board level. However, external pressures necessitate a dual approach: determining what needs to be reported while practically assessing its impact on the business and elevating it to the board level. Unless sustainability becomes ingrained in a company's DNA and governance framework, it will not succeed in the long run. It is our responsibility to prioritize this critical issue for the sake of ourselves, future generations, and the sustainability of our pension funds.

The Need for Sustainability Disclosure Standards

?

Over the years, there has been a considerable increase in the need for sustainability information. Investors and stakeholders want clear and accurate data to assess a company's long-term viability and resiliency. Fragmented voluntary norms and criteria have added complexity and inefficiency to the lives of both businesses and investors. The ISSB has established four important objectives to solve these difficulties.:

1. Global Baseline of Sustainability Disclosures: The goal of the ISSB is to create standards that offer a consistent and comparable baseline of sustainability disclosures across countries.
2. Information Needs of Investors: The guidelines will prioritise addressing investors' information demands by providing them with meaningful and decision-useful sustainability information.
3. Comprehensive Sustainability Information: Companies will be able to supply global capital markets with full sustainability information, allowing them to make educated investment decisions.
4. Interoperability and Stakeholder Alignment: To maintain uniformity and comparability, the standards will promote interoperability with jurisdiction-specific regulations and broader stakeholder groups.

Overview of IFRS Sustainability Disclosure Standards

?

These standards mark a significant milestone in international corporate reporting and set the stage for a comprehensive and standardized approach to sustainability disclosures.

?

IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information

IFRS S1 provides the general rules for disclosing financial information related to sustainability. It outlines best practises for identifying, measuring, and disclosing sustainability-related risks and opportunities that have a financial impact on the firm. The standard's goal is to improve the transparency and comparability of sustainability disclosures, allowing investors to make better judgements.

IFRS S2: Climate-related Disclosures

?

IFRS S2 is specifically concerned with climate-related disclosures. It offers advice on identifying, measuring, and disclosing climate-related risks and opportunities. The goal of the standard is to address the critical demand for uniform and comparable climate-related information, allowing investors to properly assess the financial effects of climate change on businesses.

First Transition Option

Recognising the critical importance of addressing climate-related hazards, the ISSB has proposed a climate-first transition option. Companies can choose to disclose just climate-related disclosures in their first year of using the IFRS Sustainability Disclosure Standards under this option. This allows businesses to concentrate on the most important sustainability issue while gradually expanding their sustainability disclosures over time.

?

The Implications of the New IFRS Sustainability and Climate Disclosure Standards for Businesses

The new standards are intended to provide investors and other stakeholders with more comprehensive and comparable information about a company's sustainability performance. This information is anticipated to assist investors in making more informed investment decisions and in holding corporations accountable for their sustainability performance.

Impact in Qatar

Qatar, being one of the largest LNG producer in the world, will experience significant implications with the introduction of the new IFRS Sustainability and Climate Disclosure Standards. These standards aim to enhance the transparency and comparability of sustainability information, enabling investors and stakeholders to make more informed decisions. The impact in Qatar can be summarized as follows:

• Enhanced Investor Confidence:?The implementation of the new standards will provide investors in Qatar with comprehensive and reliable sustainability data, allowing them to evaluate companies' performance more effectively. This increased transparency will foster greater investor confidence and encourage sustainable investment practices.
• Accountability and Responsibility: Qatari companies will be required to disclose their sustainability-related risks, opportunities, and climate-related financial information. This will hold corporations accountable for their sustainability performance, pushing them to prioritize environmental and social responsibility in their business practices.
• Competitive Advantage: Qatari businesses that proactively adopt and comply with the new standards will gain a competitive advantage. They will be recognized as leaders in sustainability reporting, attracting environmentally conscious investors and consumers who prioritize sustainable business practices.
• Driving Sustainable Practices:?The new standards will create a framework that encourages Qatari companies to improve their sustainability performance. This will drive the adoption of sustainable practices, such as reducing greenhouse gas emissions, managing water resources, preserving biodiversity, and respecting human rights.
• Sector-Specific Impacts:?Certain industries in Qatar, such as energy, manufacturing, agriculture, and infrastructure, may experience a more significant impact due to their inherent environmental footprint. The new standards will urge these industries to prioritize sustainability and take proactive measures to address their environmental impacts.
• External Assurance and Transparency:?External assurance of sustainability disclosures will become a crucial requirement. This will ensure the accuracy and completeness of the reported information, enhancing transparency and building trust with investors, stakeholders, and the general public.

The implementation of the new IFRS Sustainability and Climate Disclosure Standards in Qatar will have far-reaching implications. Firstly, it will enhance investor confidence by offering them reliable sustainability data to evaluate companies' performance. This increased transparency will promote sustainable investment practices and prioritize accountability.

Furthermore, Qatari businesses that proactively adopt these standards will gain a competitive advantage (both glocal and global subsidiaries). They will be seen as leaders in sustainability reporting, attracting socially and environmentally conscious investors and consumers. This will foster a culture of responsible business practices, driving the transition to a more sustainable future.

Certain industries in Qatar will experience a more significant impact due to their environmental footprint. The new standards will encourage these industries, such as?energy, manufacturing, agriculture, and infrastructure, to prioritize sustainability and adopt proactive measures to mitigate their environmental impacts.

To ensure the accuracy and completeness of sustainability disclosures, external assurance will become a crucial requirement. This will enhance transparency and build trust with investors, stakeholders, and the general public, further promoting sustainable practices.

?

Requirements:

Among the most important requirements of the new standards are:

? Sustainability-related risks and opportunities must be disclosed: Companies must report present and future material sustainability risks and opportunities. Relevant, reliable, comparable, and clear disclosure is required.

? Climate-related financial information disclosure: Businesses must disclose greenhouse gas emissions, financial repercussions, and transition plans. The Task Force on Climate-related Financial Disclosures (TCFD) framework should be used for disclosure.

? Use of a consistent framework: Companies must provide sustainability information using a consistent framework. This will maintain data consistency across firms and over time.

? External assurance: Businesses should obtain external assurance for their sustainability disclosures. The accuracy and completeness of the disclosures will be evaluated by an impartial third party.

The new criteria will have an impact on firms' efforts to be more sustainable. Companies will be required to provide more complete and comparable sustainability data under the rules, allowing investors and other stakeholders to make more informed investment decisions. This might put more pressure on firms to improve their sustainability performance, which would benefit the environment and society as a whole.

How to comply with the new IFRS sustainability and climate disclosure standards:

• ?Identify and evaluate sustainability-related risks and opportunities: The CSO and sustainability team should identify and evaluate the company's sustainability-related risks and opportunities. Climate change, water, biodiversity, and human rights are all examples of dangers.
• Gather data and information: The CSO and sustainability team should gather data and information on the company's sustainability-related risks and opportunities. This information could include information on greenhouse gas emissions, water consumption, and garbage generation.
• The CSO and sustainability team should identify trends and patterns. This analysis will assist the organisation in determining its risks and opportunities.
• Create a sustainability strategy that outlines the company's sustainability goals and actions.
• Report on sustainability performance: In compliance with the new standards, the CSO and sustainability team shall report on the company's sustainability performance. This reporting should be thorough and comparable, and it should be accessible to investors and other stakeholders.

?

• The new IFRS sustainability and climate disclosure standards are a major advancement in sustainability reporting. They are expected to help companies improve their sustainability performance and transition to a more sustainable future.

Criticisms

Standards may argue that they may be difficult and expensive for firms to apply. As yet, the standards are optional for Middle Eastern ?companies.?However, the standards make some allowance for lack of resources, including the concept of undue cost or effort 16 times across the two standards. This provides companies with some flexibility.

Mandating the standards in Middle East may take time as it will require amending the Companies Act. Yet Middle East ?firms that do business abroad or are owned by multinationals in jurisdictions which are implementing the new standards will have to comply.

?

Conclusion

The publication of the IFRS Sustainability Disclosure Standards is an important step towards standardised and comprehensive sustainability reporting. These guidelines meet the growing demand for transparent and decision-useful information by providing a global baseline of sustainability disclosures. The ISSB's dedication to collaboration and connection guarantees that the standards are compatible with existing reporting systems and allow for integrated reporting. Investors will have access to the information they need to make educated decisions and support sustainable value creation when companies embrace these standards and deliver meaningful sustainability disclosures.