6 April 2023 (Updated 31 August 2023)
What’s the issue?
Sustainability reporting is rapidly evolving. The International Sustainability Standards Board (ISSB) aims to create a globally consistent baseline of reporting standards that jurisdictions can adopt and build on.
To achieve this, information needs to be provided about broader sustainability-related risks and opportunities. The breadth of information, processes, controls and data required could pose practical challenges for companies, particularly in their first year of application.
Additionally, jurisdictional standard setters highlighted the need for phased adoption to alleviate the reporting readiness challenges, given the varying levels of maturity in sustainability reporting across jurisdictions.
The option to report only on climate-related matters in the first year aims to ease the transition for companies adopting the new standards. The relief addresses both the urgent need for climate-related disclosures and the reporting readiness concerns from preparers and jurisdictions.
What are the requirements?
Companies have the option to report only on climate-related risks and opportunities in their first year of reporting, allowing them to take a ‘climate-first’ approach.
Companies using this relief 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, then they 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 reporting 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.
What’s the impact?
The ‘climate-first’ option is a pragmatic approach to address the challenges first-time adopters may face when disclosing information about the full range of sustainability-related matters.
Taking the relief gives 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-related financial disclosures.
Our 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 TCFD1 recommendations. For these companies and others, the climate-first relief will 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.
Actions for management
- Engage in discussions on the adoption timeline and the transition reliefs that will 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.
1 Taskforce on Climate-related Financial Disclosures.
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