IFRS Sustainability Disclosure Standards: Definition
In June 2023, the International Sustainability Standards Board (ISSB) issued its inaugural pair of IFRS® Sustainability Disclosure Standards: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. These standards are applicable for annual reporting periods commencing on or after January 1, 2024. Companies are mandated to apply both IFRS S1 and IFRS S2 together to demonstrate compliance with IFRS Sustainability Disclosure Standards. Nevertheless, the ISSB offers transitional relief for some requirements during the first year of application of IFRS S1 and IFRS S2.
For Sustainability Managers
Understanding IFRS Sustainability Disclosure Standards helps you select the right frameworks and meet evolving disclosure requirements.
For CFOs
IFRS Sustainability Disclosure Standards directly impacts financial planning, risk exposure, and regulatory compliance costs.
For Sustainability Reporting
IFRS Sustainability Disclosure Standards is a core element of sustainability reporting that auditors and regulators expect to see addressed.
Related Terms
IFRS
The IFRS Foundation is a non-profit, public interest organisation established to create high-quality, understandable, enforceable, and globally accepted accounting and sustainability disclosure standards. These standards are developed by two standard-setting bodies, the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB).
IFRS S1
The primary objective of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is to mandate entities to provide information concerning their sustainability-related risks and opportunities. This information should be valuable to the primary users of general-purpose financial reports when making decisions related to allocating resources to the entity.IFRS S1 establishes fundamental criteria for the content and presentation of sustainability-related information, particularly when adhering to IFRS sustainability disclosure standards. These provisions aim to assist primary users in making financial decisions that pertain to the entity. It's worth noting that IFRS S1 can also be applied when financial statements are prepared in accordance with generally accepted accounting principles (GAAP).Countries such as Australia have developed their Mandatory Climate Reporting legislation through IFRS guidance and companies have to disclose in line with AASB S2 and ASSB S1 .The essential components of this Standard include:Conceptual Foundation: The effectiveness of sustainability-related financial information is enhanced when it possesses qualities such as comparability, verifiability, timeliness, and understandability. These attributes are fundamental characteristics of quantitative information.Core Content: This comprises four key elements—governance, strategy, risk management, and metrics and targets.While identifying sustainability-related risks and opportunities that could impact the entity's prospects, report preparers are obligated to consider both IFRS sustainability-related disclosure standards and the disclosure topics outlined in the Sustainability Accounting Standards Board (SASB) standards, which are categorised by industry. In cases involving water and biodiversity matters, the CDSB Framework Application Guidance may also be applicable. Additionally, organisations may utilise standards from other standard-setting bodies (such as GRI) and industry-standard guidance. It is crucial that all sources of guidance are disclosed and clearly identified.
IFRS S2
The primary aim of IFRS S2 Climate-related Disclosures is to compel an organisation to provide information concerning its climate-related risks and opportunities. This information should prove valuable to the primary users of general-purpose financial reports when deciding how to allocate resources to the entity.IFRS S2 focuses specifically on climate-related physical and transition risks, along with climate-related opportunities. The disclosure requirement pertains only to those climate risks and opportunities that have a direct impact on the entity's future outlook.The Core Content of IFRS S2 closely aligns with the four key topics found in IFRS S1. However, it necessitates additional depth and detail to adhere to the Standard's reporting requirements.Countries such as Australia have developed their Mandatory Climate Reporting legislation through IFRS guidance and companies have to disclose in line with AASB S2 and ASSB S1 .
Disclosure standards
Standards for carbon accounting disclosure encompass the guidelines, frameworks, and reporting requisites followed by organisations to transparently and consistently report their greenhouse gas emissions and other climate-related information. Several standards include the GHG Protocol, Carbon Disclosure Project (CDP), Task Force on Climate-related Financial Disclosures (TCFD), Global Reporting Initiative (GRI), and Science-Based Targets (SBTs).
Climate-related Financial Disclosure
Climate-related Financial Disclosures aims to enhance and expand the reporting of financial information related to climate change. Investors and markets require clear, comprehensive, and high-quality information about the effects of climate change to make informed decisions about companies' climate-related risks. This includes assessing risks and opportunities arising from rising temperatures, climate policies, and emerging technologies in a changing world.