Introduction
The International Sustainability Standards Board (ISSB) on 26 June 2023 issued the first IFRS Sustainability Disclosure Standards - IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The publication of the first two IFRS Sustainability Disclosure Standards is a key milestone in the ISSB’s vision – to create a global baseline for investor-focused sustainability reporting that local jurisdictions can build on.
The standards are designed to meet the needs of all companies, not just the most sophisticated. They provide a clear idea of what companies need to report to meet the needs of global capital markets – providing investors with globally comparable information.
Adopting these standards will signify an important change in status, as they will increase the prominence and connectivity of sustainability reporting within the main financial filings. It is important to engage now to understand what this new global baseline will look like and to assess how your company needs to adapt.
The standards are effective from 1 January 2024, but it will be for individual jurisdictions to decide whether and when to adopt. With support from global bodies including the IOSCO, a rapid route to full adoption is expected in a number of jurisdictions. Some public and private companies may choose to adopt them voluntarily – e.g. in response to investor or societal pressure.
Realising a global baseline
The ISSB’s first two standards are designed to be applied together, supporting companies to identify and report information that investors need for informed decision making – in other words, information that would affect the assessments that investors make about companies’ future cash flows.
To achieve this, the general standard provides a framework for companies to report on all relevant sustainability-related topics across the areas of governance, strategy, risk management, and metrics and targets.
This is supported by more detailed guidance on how to report on climate-related risks and opportunities in the climate standard. In the future, additional standards covering other topics are expected – but in the meantime companies will use guidance highlighted in the general standard to report on other topics.
(Source: KPMG IFRG’s article on ‘ISSB Standards are now live!’ dated 26 June 2023)
Applicability
The standards are effective from 1 January 2024, but it will be for individual jurisdictions to decide whether and when to adopt. With support from global bodies including the IOSCO1, a rapid route to full adoption is expected in a number of jurisdictions.
Some public and private companies may choose to adopt them voluntarily – e.g. in response to investor or societal pressure.
Connecting sustainability and financial reporting
Going forward, connected financial and sustainability reporting will be a requirement, rather than a feature, of good-practice reporting. The ISSB refers to the information disclosed as ‘sustainability-related financial disclosures’ – demonstrating that disclosures need to be connected with information in the financial statements, not a disconnected exercise.
Finance and sustainability teams will need to work closely together to ensure the information disclosed is complementary and based on the same facts and circumstances. Although the sustainability-related information may differ in nature from information presented in the financial statements, it needs to be consistent to the extent possible. This is required regardless of whether financial statements are prepared under IFRS Accounting Standards or other generally accepted accounting principles.
Companies will need processes and controls in place so that they can provide sustainability-related information of the same quality, and at the same time, as their financial statements.
Next steps
Currently, top 1,000 listed companies in India are required to furnish a Business Responsibility and Sustainability Report (BRSR) to the stock exchanges as part of their annual report. The BRSR seeks disclosures from listed companies on their performance against the nine principles of the National Guidelines for Responsible Business Conduct (NGRBC). As per the BRSR guidance note, listed companies can prepare and disclose sustainability reports (as part of annual report) based on internationally accepted reporting framework such as GRI, SASB, TCFD, Integrated Reporting (<IR>) and can cross-refer the disclosures made under such frameworks to the disclosures sought under the BRSR.
Globally, ISSB Standards are supported by the G20, G7 and IOSCO, giving deep credibility to their mission of becoming the new global baseline. Jurisdictions including Australia, Canada, Hong Kong (SAR, China), Nigeria, Japan, Singapore, and the UK have announced plans to integrate these new standards into local requirements, or to develop national requirements based on the ISSB standards.
The mandatory reporting under BRSR does not restrict companies from adopting the ISSB framework and companies can look to adopt these standards on a voluntary basis as it will help in producing globally comparable sustainability disclosures. This will also aid in cross border transactions and securing sustainable finance.
Now is the time to get ready to report using these new standards. Companies in India should understand the impact of the new sustainability disclosure standards. They will need to ensure they have the processes and controls in place to produce robust and timely information.
While assurance requirements are not within the ISSB’s remit, companies should watch for this space for more developments as more clarity is expected from regulators in India on this topic.
To access the text of the ISSB announcement, please click here
To access the ‘ISSB Talk book’ released by KPMG IFRG Limited, please click here
1 International Organisation of Securities Commissions
2 Task Force on Climate-Related Financial Disclosures
3 Sustainability Accounting Standards Board
4 European Financial Reporting Advisory Group
5 Securities and Exchange Commission