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The Australian Accounting Standards Board (AASB) has issued AASB S1, a voluntary guideline for disclosing sustainability-related financial information applicable to annual reporting periods from January 1, 2025.
While not mandatory, this standard provides a framework for entities choosing to report on a broad range of sustainability topics beyond climate. It aligns with the international IFRS S1 but is specifically for application within Australia, offering principles and requirements for the content and presentation of such disclosures to aid users in their financial decisions. The AASB has also issued a separate, mandatory standard, AASB S2, focusing specifically on climate-related financial disclosures.
Understand that AASB S1 is a voluntary standard in Australia, meaning entities can choose whether or not to apply it, unlike the mandatory AASB S2 on climate-related disclosures. However, if an entity claims compliance, it must apply all paragraphs.
Before you issue your report or carry any work related to AASB S1 it is benefitial to Identify who the primary users of sustainability-related financial reports are (investors, lenders, and other creditors) and the types of decisions they make based on this information (providing resources to the entity).
As part of AASB S1 your organisation needs to define materiality in the context of sustainability-related financial disclosures. Recognise that information is material if omitting, misstating, or obscuring it could reasonably be expected to influence the decisions of primary users. Understand that materiality is entity-specific and considers both quantitative and qualitative factors.
Understand that the AASB S1 standard focuses on risks and opportunities that could reasonably be expected to affect an entity's cash flows, access to finance, or cost of capital over the short, medium, or long term, collectively referred to as affecting the entity's prospects.
There is an very strong connection to financial disclosures and that lenses should be applied when identifying risks and opportunities.
Reporting organisations need to define the value chain and understand its importance in identifying sustainability-related risks and opportunities. It is key to recognise that an entity's dependencies and impacts extend beyond its direct operations to its broader value chain.
Understand that sustainability-related financial disclosures are part of an entity's general purpose financial reports, which also include financial statements.
There is an importance of connections between sustainability-related financial disclosures themselves (governance, strategy, risk management, metrics and targets) and between these disclosures and the related financial statements.
Similar to AASB S2 (the climate reporting), AASB S1 has the four key areas for disclosure required by the standard:
AASB S1 acts as an overarching, voluntary standard for sustainability-related financial information, providing a general framework and principles. AASB S2 is a specific, mandatory standard focused solely on climate-related disclosures, and it draws upon and is informed by certain elements of AASB S1.
Here's how they differ:
Climate and Sustainability are two different things in the eyes of AASB
Entities obligated to report on climate change under AASB S2 can look to AASB S1 for broader context and guidance, while entities aiming for more comprehensive sustainability reporting can voluntarily adopt AASB S1 in addition to complying with the mandatory AASB S2. The AASB's strategy reflects a "climate first, but not only" approach, with the potential for future mandatory requirements for other sustainability topics that could build upon the foundation of the current voluntary AASB S1.
AASB S1 aims to provide a framework for entities that voluntarily choose to disclose information about their sustainability-related risks and opportunities as part of their general purpose financial reports.
The objective is to enable primary users of these reports to understand how sustainability-related matters could reasonably be expected to affect the entity's cash flows, access to finance, and cost of capital over the short, medium, and long term.
This is based on the understanding that an entity's ability to generate cash flows is inextricably linked to its interactions and dependencies within its value chain and the broader environment.
No, the application of AASB S1 is voluntary. While the AASB has issued AASB S2 Climate-related Disclosures, which is mandatory for certain entities under the Corporations Act 2001, AASB S1 is an optional standard that entities may elect to apply if they wish to provide broader sustainability-related financial disclosures. However, if an entity chooses to state compliance with AASB S1, it must apply all of its paragraphs as if the standard were mandatory.
An entity applying AASB S1 is required to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity's prospects. This includes risks and opportunities that could impact its cash flows, access to finance, or cost of capital over the short, medium, or long term.
The standard emphasizes considering the entity's entire value chain and its dependencies and impacts on resources and relationships within that chain. Risks and opportunities that are not expected to have a reasonable impact on the entity's prospects are outside the scope of this standard.
AASB S1 outlines a structure for sustainability-related financial disclosures, encompassing four key areas:
In the context of AASB S1, information is considered material if omitting, misstating, or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make based on those reports. These decisions relate to providing resources to the entity, such as buying or selling equity and debt instruments, providing loans, or exercising voting rights. Materiality is entity-specific and involves considering both the magnitude and nature of the effect of a sustainability-related risk or opportunity.
When identifying sustainability-related risks and opportunities, an entity should primarily apply other applicable Australian Sustainability Reporting Standards. In addition, AASB S1 mandates that entities refer to and consider the applicability of the disclosure topics in the SASB Standards. Entities may also refer to and consider the applicability of other sources like the CDSB Framework Application Guidance and pronouncements from other standard-setting bodies, provided they do not conflict with Australian Sustainability Reporting Standards. For identifying applicable metrics in the absence of specific Australian standards, entities should again consider SASB Standards and may refer to other relevant sources and industry practices.
AASB S1 requires that disclosures be provided as part of the entity's general purpose financial reports. Subject to any specific regulations, the exact location within these reports is flexible. Entities can present the information in a separate identifiable section or integrate it throughout the financial report, as long as the sustainability-related financial disclosures are clearly identified and distinguished from other information. The location should be easily accessible to primary users.
Yes, AASB S1 provides limited exemptions. An entity is not required to disclose information otherwise mandated by an Australian Sustainability Reporting Standard if law or regulation prohibits such disclosure. If this exemption is used for material information, the entity must identify the type of information and the source of the restriction. Additionally, an entity may omit information about a sustainability-related opportunity if it is commercially sensitive, meaning it is not publicly available, its disclosure could seriously prejudice the entity's economic benefits, and it cannot be disclosed in an aggregated manner without causing the same prejudice. If this exemption is used, the entity must disclose that it has done so and reassess the sensitivity at each reporting date. These exemptions do not apply to sustainability-related risks or as a basis for broad non-disclosure.
The voluntary Australian Sustainability Reporting Standard AASB S1 September 2024 is closely aligned with international standards, specifically the IFRS Sustainability Disclosure Standard IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, issued by the International Sustainability Standards Board (ISSB). AASB S1 incorporates IFRS S1. However, there are
Australian-specific paragraphs, identified with the prefix “Aus”, are not included in IFRS S1.
Regarding broader environmental and social considerations beyond climate change, AASB S1 has a wide scope. It applies to reporting sustainability-related financial information across a range of possible sustainability topics, including climate-related financial disclosures.
The objective of AASB S1 is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports.
In the absence of a specific Australian standard for a particular sustainability-related risk or opportunity, entities are instructed to refer to and consider the applicability of disclosure topics in the SASB Standards. They may also refer to and consider the applicability of the CDSB Framework Application Guidance, pronouncements of other standard-setting bodies, and the sustainability-related risks and opportunities identified by entities in the same industry or geographical region.
Entities may refer to and consider the applicability of sources like the Global Reporting Initiative Standards and the European Sustainability Reporting Standards, to the extent they align with the objective of AASB S1 and do not conflict with Australian standards.
The voluntary Australian Sustainability Reporting Standard AASB S1, issued in September 2024, aims to improve transparency and decision-making for primary users of general purpose financial reports by providing a framework for disclosing information about an entity's sustainability-related risks and opportunities. Although application of AASB S1 is voluntary, entities electing to comply must apply all its paragraphs as if it were mandatory.
The key components and underlying principles of AASB S1 include:
Notably, unlike IFRS S1, AASB S1 does not allow delaying sustainability reporting beyond the financial statements or limiting initial application to climate-related information only.
By establishing these components and principles, AASB S1 aims to provide a structured and consistent framework for voluntary sustainability-related financial disclosures. This should lead to more transparent, comparable, and decision-useful information for primary users such as investors, lenders, and other creditors, enabling them to better assess the risks and opportunities facing the reporting entity and make more informed decisions about resource allocation.
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