Introducing a climate-first option

In response to the practical concerns, the ISSB has agreed a relief that would allow companies to adopt a climate-first approach. This would give them the option to report only on climate-related risks and opportunities in their first year of application. 

Companies using this relief would have an additional year to report on the full range of sustainability-related risks and opportunities and still state compliance with IFRS Sustainability Disclosure Standards. The relief also includes allowing an additional year before the related comparative information is required. If companies have chosen to apply the relief, they would need to disclose this fact. 

This relief is among a suite of transition reliefs from the ISSB that aim to support companies. Other reliefs applicable only in the first year of application include those that exempt a company from: 

• presenting comparative information;
• disclosing Scope 3 emissions; 
• using the GHG Protocol when currently using other methodologies; and
• reporting at the same time as the financial statements.

The climate-first relief is a pragmatic approach to address the challenges first-time adopters may face when disclosing information about the full range of sustainability matters. 

Taking the relief would give companies an additional year to implement robust processes, systems and controls for other sustainability-related information, and improve the quality of their disclosures in the longer term. However, it is crucial that companies start to get ready now, not only for climate-related disclosures but for the broader sustainability disclosures.

Our recent global Survey of Sustainability Reporting showed that 61 percent of the world’s largest 250 companies report on climate-related information, as required by the TCFD³ recommendations. For these companies and others, the climate-first relief would ease the transition to adopting IFRS Sustainability Disclosure Standards.

The relief aims to facilitate adoption in individual jurisdictions – i.e. by alleviating reporting readiness concerns and avoiding the need for their own phase-in reliefs. However, it will be for each jurisdiction to decide whether to adopt the relief. 

The Hong Kong Stock Exchange stated in the 2022 Analysis of ESG Practice Disclosure that it supports the establishment of the ISSB and the adoption of the ISSB Standards. In April 2023, the Hong Kong Stock Exchange published a consultation paper on the enhancement of climate disclosures under the ESG Framework. It proposes to mandate all issuers to make climate-related disclosures in their ESG reports for the financial year commencing on or after 1 January 2024 and introduce new climate-related disclosures based on the ISSB Climate Standard.

Acknowledging the readiness of issuers and the concerns expressed by issuers and market practitioners, the Hong Kong Stock Exchange proposes interim provisions for certain disclosures for the first two reporting years following the effective date of 1 January 2024.

As suggested by the Hong Kong Stock Exchange, issuers should start reviewing their internal procedures and put in place any measures necessary and begin planning and building the necessary infrastructure and system for complying with the enhanced requirements.

• Engage in discussions on the adoption timeline and the transition reliefs that would apply in your jurisdiction(s).
• Assess whether your existing systems, processes and controls are sufficient to report on climate-related information if adopting the transition relief.
• Get ready to report on the full range of sustainability-related risks and opportunities, leveraging existing systems, processes and controls and identifying any gaps in the information required.