The launch of IFRS S1 and S2 Standards for enhanced corporate reporting

In June 2023, the International Sustainability Standards Board (ISSB) unveiled two pivotal documents that promise to reshape the landscape of corporate sustainability reporting: the "IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information" and the "IFRS S2 Climate-related Disclosures." These standards mark a significant milestone in the journey towards integrating sustainability into the fabric of global financial reporting, highlighting the increasing acknowledgment of environmental and climate-related risks and opportunities as critical factors in financial decision-making.

The IFRS S1 sets the foundation for sustainability disclosures, guiding entities in communicating relevant, reliable, and comparable information about sustainability-related risks and opportunities to investors and other stakeholders. It aims to enhance transparency and support informed decision-making by providing a comprehensive framework for reporting on governance, strategy, risk management, and metrics and targets related to sustainability issues.

Building on this foundation, the IFRS S2 delves deeper into the specificities of climate-related risks and opportunities, requiring entities to disclose their impacts on business models, strategies, financial planning, and performance. This standard acknowledges the urgent need for a consistent, universally applicable framework to evaluate and communicate the financial implications of climate change, offering detailed guidance on governance, strategy, risk management, and the quantification of metrics and targets, including greenhouse gas emissions.

Together, these documents represent a transformative approach to sustainability reporting, aiming to harmonize global practices and ensure that entities provide meaningful and actionable information on their sustainability and climate-related impacts. By establishing clear, mandatory requirements for disclosure, the ISSB seeks to bridge the gap between current practices and the needs of financial markets for high-quality, reliable sustainability information, thereby facilitating a more sustainable and resilient global economy.

IFRS S1

The document titled "IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information," issued in June 2023 by the International Sustainability Standards Board (ISSB), establishes the foundation for sustainability-related financial disclosures. It is designed to guide entities in disclosing information about sustainability-related risks and opportunities that are relevant to primary users of general-purpose financial reports. These disclosures aim to inform decisions related to providing resources to the entity.

The document encompasses several key areas:

• Objective: To require entities to disclose useful information on sustainability-related risks and opportunities for decision-making by users of financial reports.
• Scope: It applies to all entities preparing sustainability-related financial disclosures under IFRS Sustainability Disclosure Standards.
• Conceptual Foundations: The document outlines the conceptual underpinnings, including fair presentation, materiality, reporting entity, and connected information, ensuring that the disclosed information is relevant and faithfully represented.
• Core Content: It specifies core areas for disclosure, including governance, strategy, risk management, and metrics and targets. These areas cover the governance structures overseeing sustainability issues, the strategy to address these risks and opportunities, the risk management processes in place, and the specific metrics and targets used to track and report performance.
• General Requirements: These include guidelines on the sources of guidance, the location and timing of disclosures, comparative information, and a statement of compliance. It emphasizes the need for judgments in the face of uncertainties and how to address errors in previous disclosures.
• Appendices: The document includes appendices with defined terms, application guidance, and additional information to assist entities in applying the standard effectively.

The standard is comprehensive, aiming to integrate sustainability-related financial information within the broader context of an entity's financial disclosures. It acknowledges the interconnectedness of an entity with its stakeholders, society, the economy, and the natural environment, emphasizing the need for transparency in how sustainability-related risks and opportunities are managed and their potential impact on the entity's financial performance and position.

Overall, the IFRS S1 document sets a global benchmark for sustainability reporting, encouraging entities to provide meaningful, relevant, and reliable information about their sustainability practices and performance.

IFRS S2

The document titled "IFRS S2 Climate-related Disclosures," issued in June 2023 by the International Sustainability Standards Board (ISSB), sets forth requirements for entities to disclose information regarding climate-related risks and opportunities that influence financial decision-making. The main objectives and contents include:

• Objective: The standard aims to ensure entities provide useful information about their climate-related risks and opportunities, aiding primary users of general-purpose financial reports in making informed decisions.
• Scope: It applies to entities exposed to climate-related risks, including physical and transition risks, and opportunities.
• Core Content:Governance: Disclosures on governance structures and responsibilities for managing climate-related risks and opportunities.Strategy: Information on how climate-related risks and opportunities impact the entity's business model, strategy, financial position, performance, cash flows, and the climate resilience of its strategy.Risk Management: Insights into the processes for identifying, assessing, prioritizing, and managing climate-related risks and opportunities.Metrics and Targets: Details on metrics and targets used to assess and manage relevant climate-related risks and opportunities, including greenhouse gas (GHG) emissions.
• Appendices:A (Defined Terms): Definitions of key terms used within the standard.B (Application Guidance): Additional guidance on applying the standard’s requirements, such as climate resilience assessment using scenario analysis and measuring GHG emissions.C (Effective Date and Transition): Information on the standard's effective date and transition provisions.

The document underscores the necessity for entities to integrate climate-related considerations into their reporting, emphasizing transparency and accountability. It provides a structured approach for entities to communicate the impact of climate change on their operations and financial planning, aiming to enhance the reliability and comparability of climate-related disclosures across entities.

This initiative reflects a growing recognition of the financial implications of climate risks and opportunities, aiming to facilitate more informed investment, lending, and insurance underwriting decisions, thereby promoting a more sustainable global economy.