18 November 2022 (Updated 17 February 2023)
What’s the issue?
Proposed IFRS S11 provides a framework for companies to disclose material information across all sustainability-related topics, not just climate. Although the International Sustainability Standards Board (ISSB) is developing further standards beyond climate, its proposals direct companies to consider additional sources of guidance, including guidance from other standard setters.
The ISSB’s analysis of feedback on the proposals showed that many respondents agreed with the overall approach of referring to other guidance to identify sustainability-related risks and opportunities and related disclosures. However, concerns were raised about a few specific aspects of the proposals, in particular how far to go – e.g. whether companies would need to apply all of the other guidance listed in proposed IFRS S1, and whether this included Global Reporting Initiative (GRI) standards and European Sustainability Reporting Standards (ESRSs).
It is now clear that companies will need to assess whether SASB disclosure topics and underlying metrics are relevant to their operations. Companies are also going to be explicitly allowed (but not required) to use metrics from GRI and ESRSs where they are useful to investors and there is no equivalent IFRS Sustainability Disclosure Standard.
What was proposed?
Under the proposals, as the first step companies would identify and report on all significant2 sustainability-related risks and opportunities to which they are exposed – i.e. the key factors that will influence the prospects of the business in the short, medium and long term.
To help identify these risks and opportunities, companies would use judgement and consider materials within the IFRS® Sustainability Disclosure Standards as well as:
- Sustainability Accounting Standards Board (SASB) standards;
- non-mandatory ISSBTM guidance – e.g. the Climate Disclosure Standards Board (CDSB) Framework’s application guidance;
- other investor-focused frameworks; and
- industry or local practice.
In a second step, companies would then identify material information to disclose. They would use IFRS Sustainability Disclosure Standards where available. For topics not yet covered by the ISSB, companies would need to consider the metrics in the industry-based SASB standards. Companies would use judgement and refer to the list of other guidance above to select disclosures that:
- are relevant;
- faithfully represent how the company is exposed to the identified sustainability-related risk or opportunity; and
- are neutral.
What’s the ISSB’s latest thinking?
The ISSB has confirmed that companies would need to consider other guidance in the absence of specific standards when reporting on topics other than climate. It clarified which guidance a company ‘shall consider’ (i.e. guidance companies need to assess for relevance but not necessarily apply) and which guidance companies ‘may consider’ (i.e. there is no requirement to use these materials).
The ISSB’s decisions can be summarised as follows:
Companies would use the materials highlighted in Step 2 for topics not covered by IFRS Sustainability Disclosure Standards. Initially, this would include all topics except climate.
What’s the impact?
Companies would need to assess whether industry-specific SASB disclosure topics and underlying metrics are relevant to their operations. This exercise can start now.
The decisions made also signal that other guidance, including the CDSB Framework application guidance, has a place in the ISSB’s suite of standards, particularly while the ISSB is working on developing future standards on further topics.
The explicit permission to consider the GRI standards and ESRSs to meet the objectives of IFRS S1 would be particularly helpful for companies that already report GRI metrics or those in the scope of ESRSs, as it supports interoperability and the global baseline approach.
Actions for management
- Familiarise yourself with the proposals and understand what they would require. See our guide for more detail.
- Consider the SASB disclosure topics and metrics, if you have not already done so. This will be an essential step in preparing for future IFRS Sustainability Disclosure Standards that companies can take now.
- Explore whether other existing frameworks such as the CDSB Framework application guidance would be relevant for identifying sustainability-related risks and opportunities and related disclosures for your company.
- Consider whether any disclosures under ESRSs (if appropriate) may be relevant for disclosing sustainability-related risks and opportunities. This may support alignment if your company is required or wishes to apply both sets of standards.
- Assess whether any disclosures that your company already reports under GRI standards will fulfil the objectives of the IFRS Sustainability Disclosure Standards.
- Consider undertaking a benchmarking exercise against industry peers or companies within your jurisdiction to identify relevant sustainability-related risks and opportunities and related disclosures to consider.
How did we get here?
|Proposed IFRS S1||ED/2022/S1||Published 31 March 2022|
|Proposed IFRS S2||ED/2022/S2||Published 31 March 2022|
|ISSB Board meeting: 20–23 September 2022; Frankfurt||
AP3B and AP4B: Plan for redeliberations
|Topics that the ISSB planned to discuss further included identifying sustainability-related risks and opportunities and disclosures (including using the materials of other standard setters)|
|ISSB Board meeting: 18–21 October 2022; Montreal
||he ISSB removed the word ‘significant’ from its proposals to describe which sustainability risks and opportunities a company would be required to disclose|
|ISSB Board meeting: 3 November 2022; virtual||
AP3: Sources of guidance to identify sustainability-related risks and opportunities and disclosures
|The ISSB confirmed, with some changes, its general approach in proposed IFRS S1 that would permit a company to use guidance from external materials to identify sustainability-related risks and opportunities and to prepare related disclosures in the absence of a specific IFRS Sustainability Disclosure Standard|
|ISSB Board meeting: 16 February 2023; Montreal||
AP3A: Sources of guidance to identify sustainability-related risks and opportunities and disclosures
|The ISSB confirmed that it would permit a company to use guidance from external materials to identify disclosures (including metrics) about sustainability-related risks and opportunities in the absence of a specific IFRS Sustainability Disclosure Standard|
1 Proposed IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.
2 See our article for discussion on the ISSB’s decision to remove the word ‘significant’.
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