What’s the issue?
Sustainability reporting has seen a steady growth over the past decade according to our recent global Survey of Sustainability Reporting, but there is an urgent need for globally consistent and comparable standards to support the information needs of investors. There is currently diversity on what sustainability-related information companies publish and when.
The objective of the International Sustainability Standards Board (ISSB) is to create a global baseline of investor-focused sustainability information that jurisdictional standard-setters can build on. To achieve this, the ISSB needs to move quickly to keep pace with local jurisdictions – e.g. the first companies will begin to apply European Sustainability Reporting Standards (ESRSs) from 1 January 2024.
ISSBTM analysis of feedback showed mixed views on an appropriate effective date for the proposals1. Aligning with European timelines was a concern for many. The ISSB needs to balance demands for standards to be effective as early as possible while addressing the practical challenges for companies – including the availability and quality of data.
Many respondents supported reporting sustainability-related financial information at the same time as the financial statements. This would facilitate greater connectivity between sustainability-related financial information and financial statements, supporting capital allocation decisions.
There is an urgent need for global standards to help companies to report the sustainability information that investors need. By setting an effective date of 1 January 2024, the ISSB aligns with the EU timeline. It is now up to local jurisdictions to decide how and when they will adopt the standards.
What was proposed?
The original proposals (issued on 31 March 2022) did not include an effective date.
A company would need to report sustainability-related financial information at the same time and for the same period as its annual financial statements. This is consistent with sustainability reporting proposals in certain jurisdictions including the EU2, but not in other jurisdictions where sustainability-related information may be published after the financial statements.
What’s the ISSB’s latest thinking?
The ISSB agreed that the standards3 will be effective for annual reporting periods beginning on or after 1 January 2024. However, adoption of the standards is dependent on local jurisdictions, so the first application date could differ around the world.
Companies could choose to apply the standards early – if they apply them together and disclose that they have applied them early.
The ISSB also agreed that companies, in principle, would need to report sustainability-related financial disclosures at the same time as their financial statements. This is to encourage connectivity and ensure that information is decision-useful for investors.
To address practical challenges for companies, the ISSB introduced a transition relief to allow them to report sustainability-related financial disclosures after their financial statements in the first year of application only. However, the relief does not override local jurisdictional requirements.
A company will determine when to issue its annual sustainability-related information as follows:
Despite the relief, sustainability-related financial disclosures would need to be authorised by the same bodies or individuals that authorise the financial statements.
The ISSB also agreed other reliefs for the first year of reporting, including providing a climate-first option, an exemption from presenting comparative information4, and on greenhouse gas emissions disclosures5.
What’s the impact?
The effective date of 1 January 2024 aims to recognise the urgent need for a global baseline, but adoption of the standards is dependent on local jurisdictions.
For companies that are in the scope of multiple frameworks, aligning the effective date with other jurisdictional sustainability frameworks is key.
After the first year, companies would need to report sustainability-related financial information at the same time as the financial statements. This would require careful planning – probably over multiple reporting cycles – and adequate resources, systems and processes. Companies may need to use estimates, requiring significant judgement.
Actions for management
- Get ready for the possibility of reporting on 2024 year-end information.
- Design your reporting systems, processes and controls to enable reporting of sustainability-related financial information at the same time as the financial statements.
- Create a roadmap and identify any capacity constraints.
- Engage in discussions on the adoption timeline and the applicable transition reliefs in your jurisdiction(s).
How did we get here?
|Proposed IFRS S1
|Published 31 March 2022
|ISSB Board meeting: 20–23 September 2022; Frankfurt
|Topics that the ISSB planned to discuss further included ‘frequency of reporting’ and timing of reporting
|ISSB Board meeting: 15–16 November 2022; Frankfurt
|The ISSB discussed timing of reporting sustainability-related financial information
|ISSB Board meeting: 16 February 2023; Montreal
|AP3B and AP4A: Effective date
|The ISSB agreed to provide a one-year transition relief in reporting sustainability-related financial information and agreed an effective date
|ISSB Board meeting 4 April 2023; virtual
|The ISSB agreed to provide a transition relief allowing companies to report only on climate in the first year of application
1 Proposed IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and proposed IFRS S2 Climate-related Disclosures.
2 EU requirement in the proposed Corporate Sustainability Reporting Directive (CSRD).
3 IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.
4 The ISSB agreed to provide an additional year before the related comparative information is required. For example, in the first year of reporting, a company choosing to use the climate-first relief would not need to disclose comparative information for their climate-related disclosures. In the second year of reporting, companies would need to disclose comparatives for climate-related disclosures, but not for broader sustainability disclosures.
5 The ISSB agreed to include relief for the first year of application from disclosing Scope 3 greenhouse gas emissions, and from using the Greenhouse Gas Protocol, where companies currently use a different measurement method. See further details on reliefs applicable to greenhouse gas disclosures.
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