Highlights
Materiality judgements are fundamental to sustainability reporting – they determine the volume, type and precision of information to be reported. To meet users’ information needs cost effectively, companies need to balance providing enough information about the topics that matter without obscuring useful information with immaterial content.
Many companies are considering IFRS® Sustainability Disclosure Standards alongside other frameworks that take a different approach to materiality, such as GRI1 Standards or European Sustainability Reporting Standards (ESRS). Understanding how the principles in these different standards fit together practically is essential for companies wanting a robust and efficient process.
What’s the issue?
The International Sustainability Standards Board (ISSB) has issued guidanceopens in a new tab that can help companies to understand and apply its approach to materiality.
The ISSBTM guidance explains:
how companies identify sustainability-related risks and opportunities that could reasonably be expected to affect their prospects; and
how they determine whether information about them is material.
Having identified sustainability-related risks and opportunities that could reasonably be expected to affect their prospects, the guidance suggests a four-step process2 to support companies in making materiality judgements about what information to provide.
What’s the impact?
To report effectively under IFRS Sustainability Disclosure Standards, it is essential that companies understand the ISSB’s approach to materiality. The additional guidance will help companies to understand the conceptual principles in its Standards and support them in preparing for first-time reporting.
The guidance includes some observations around the interoperability of the ISSB’s approach with ESRS, building on the earlier joint statement from EFRAG3 and the ISSB.
The four-step process in the guidance can help companies establish due process over their sustainability reporting materiality judgements. It may be particularly helpful for those companies that are new to sustainability reporting or that currently report sustainability-related information under frameworks that do not focus on investor needs.
What’s next?
Use the ISSB’s guidance when making materiality judgements. Bookmark our ISSB Standards Today page so that you can stay up-to-date as we provide more answers to your key questions.
Your questions answered
1 Global Reporting Initiative.
2 Companies applying IFRS Practice Statement 2 Making Materiality Judgements may already be applying a similar process for their financial reporting.
3 The advisory body to the EU on corporate reporting.
4 IFRS S1 does not include ESRS as a source of guidance that may be used to identify sustainability-related risks and opportunities that could reasonably be expected to affect prospects; however, it does require a company to consider reasonable and supportable information that is available to the company without undue cost or effort.
5 Sustainability Accounting Standards Board, now part of the IFRS Foundation.
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