IFRS revolutionises climate reporting with global sustainability standards

IFRS

The International Sustainability Standards Board (ISSB) of the IFRS Foundation unveiled its new global sustainability and climate disclosure standards.

This critical step advances the integration of sustainability reporting into the broader financial reporting process. The standards are expected to be implemented for annual reporting periods starting January 2024, with companies issuing disclosures according to the standards in 2025.

These standards, supported by the G20 and others, are designed to provide investors with globally comparable sustainability-related disclosures, according to Erkki Liikanen, Chair of the IFRS Foundation Trustees. The new standards aim to help companies and investors reduce duplicate reporting.

The ISSB, launched in November 2021 at the COP26 climate conference, is driven by demand from investors, companies, governments, and regulators for a global baseline of disclosure requirements. This demand stems from the need for understanding the impact of sustainability risks and opportunities on companies.

The newly introduced standards include “IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information” and “IFRS S2 Climate-related Disclosures”. Each standard contains disclosures relating to general sustainability and climate-specific risks and opportunities. These include Governance, Strategy, Risk management, and metrics and targets, including progress towards targets set by the company or required by law or regulation.

IFRS S1 requires companies to disclose information about sustainability-related risks and opportunities that could impact the entity’s cash flows, access to finance, or cost of capital in the short, medium, or long term.

IFRS S2, designed to be used with S1, details specific climate-related disclosures including reporting of Scopes 1, 2, and 3 greenhouse gas (GHG) emissions, and the amount of capital expenditure, financing, and investment deployed towards climate-related risks and opportunities.

IFRS Foundation Trustees Chair Erkki Liikanen said, “The global baseline approach, supported by the G20 and others, will provide investors with globally comparable sustainability-related disclosures that have the potential to move market prices, without constraining jurisdictions from requiring additional disclosures. This will help companies and investors by tackling duplicative reporting.”

ISSB Chair Emmanuel Faber stated, “Our objective is to bring information that is useful to the primary users of general purpose financial reporting when they are considering providing resources to entities.”

Following the launch, Faber added, “We know that better information leads to better economic decisions. Today’s publication is just the starting point as we consult on our future priorities, beyond climate.”

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