What’s the issue?

Making judgements, assumptions and estimates is a fundamental part of preparing sustainability-related financial information.

The International Sustainability Standards Board (ISSB) analysis of feedback on its proposal1 showed that users find information more useful when they can understand the judgements, assumptions and estimates used. This information helps them to understand the context behind the decisions that management has made.

The feedback also highlighted the need to clarify the requirements on using consistent financial data and assumptions in both sustainability-related financial information and the financial statements. Because connectivity between sustainability reporting and financial reporting is important for users, the underlying assumptions would need to be consistent ‘to the extent possible’.

Judgements, assumptions and estimates are essential in preparing sustainability-related financial information. Users need relevant disclosure about them to be able to interpret sustainability-related financial information.

Derek Yuen
Partner, ESG Reporting and Assurance
KPMG China

Derek Yuen
Partner, ESG Reporting and Assurance
KPMG China

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What was proposed?

Under the proposals, companies would need to:

  • apply judgement – e.g. when identifying relevant disclosures and material sustainability-related financial information;
  • make assumptions – e.g. when considering whether information about possible future events that have uncertain outcomes is material; and
  • use estimates – e.g. when metrics cannot be measured directly and measurement uncertainty arises.

Companies would need to disclose:

  • assumptions about the future and other sources of significant outcome uncertainty;
  • metrics that have significant estimation uncertainty (companies would also need to explain the sources and nature of estimation uncertainties, and the factors affecting the uncertainties); and
  • the sustainability-related risks and opportunities that could reasonably give rise to a material adjustment to the carrying amounts of assets and liabilities in the next financial year.

A company would need to ensure that its sustainability-related data and assumptions are consistent with those used in its financial statements ‘to the extent possible’. For example, information disclosed as part of sustainability-related reporting about a company’s plan to replace its existing machinery with a greener alternative – e.g. in the next five years – would need to be consistent with assumptions and estimates made in relation to that machinery in the financial statements.

What’s the ISSB’s latest thinking?

In addressing the feedback, the ISSB agreed to add requirements for companies to:

  • disclose information about the judgements that had the most significant effects;
  • identify the sources of guidance used in preparing sustainability-related financial information; and
  • explain any differences in assumptions used in preparing sustainability-related information, compared with those used for the financial statements.

It agreed to clarify that the disclosure requirements related to estimation uncertainty will also be relevant for current and anticipated financial effects, in addition to metrics.

It also agreed to clarify the meaning of ‘to the extent possible’ by making clear that this was intended to cover situations in which the requirements of IFRS® Accounting Standards (or other generally accepted accounting principles) differ from IFRS Sustainability Disclosure Standards.

What’s the impact?

These additional requirements would support users in understanding the decisions management has made and allow them to make informed judgements.

Although new disclosure requirements would be added, they are based on the information that companies already have.

Generally, sustainability-related financial information should be based on the same set of facts and circumstances as the financial statements – and financial and sustainability reporting teams need to work together to ensure that this is the case.

However, in some circumstances, financial and sustainability reporting standards may require different data and assumptions to be used. For example, multiple sets of assumptions may be used as part of scenario analysis to inform the assessment of resilience, including assumptions that are not consistent with those used to prepare impairment analysis.

If a company uses different financial data and assumptions, then it will need to explain this. 

Actions for management

  • Understand the proposed requirements on using consistent data and assumptions. See our guide for more detail.
  • Identify reporting areas that involve judgements, assumptions and estimates and document the key factors and decisions required.
  • Make sure that financial and sustainability reporting specialists work together so that sustainability-related financial information is prepared based on the same set of facts and circumstances as the financial statements.
  • Identify areas where reporting standards require different data and assumptions to be used. Make sure that such differences can be explained and justified.

How did we get here?


Document version Reference
Proposed IFRS S1 ED/2022/S1 Published 31 March 2022
ISSB Board meeting: 18–21 October 2022; Montreal

AP3B Fundamental concepts

Meeting summary

The ISSB discussed introducing a requirement to disclose the judgements a company makes in identifying sustainability-related risks and opportunities and related disclosures
ISSB Board supplementary meeting: 3 November 2022; Virtual video call

AP3 Sources of guidance to identify sustainability-related risks and opportunities and disclosures

Meeting summary

The ISSB discussed the requirement for a company to apply judgements in considering the sources of guidance identified
ISSB Board meeting: 17–19 January 2023; Frankfurt 

AP3B Disclosure of judgements, assumptions and estimates

Meeting summary 

The ISSB decided to require disclosure of the judgements a company makes. It also agreed to clarify requirements about using consistent financial data and assumptions

1 Proposed IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.

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