The Benefits of International Financial Reporting Standards (“IFRS”) on Sustainability Disclosures
On 26 June 2023, the International Sustainability Standards Board (“ISSB”) published the first two IFRS Sustainability Disclosure Standards: IFRS S1 and IFRS S2. These standards provide the general requirements for the disclosure of material sustainability-related financial information; and climate-related information about an organisation’s risks and opportunities in sustainability.
The IFRS Sustainability Disclosure Standards are built on and consolidate the Task Force on Climate-Related Financial Disclosures (“TCFD”), SASB Standards, CDSB Framework, Integrated Reporting Framework and World Economic Forum metrics. ISSB aims to harmonise and provide a single global baseline sustainability disclosure for the capital markets. Indeed, by adopting these reporting standards, organisations can expect to minimise the ‘alphabet soup’ and information overwhelming situation in their sustainability disclosures.
According to ISSB, their partnership with the Global Reporting Initiative (“GRI”) also enables ISSB to build its requirements to be interoperable with GRI standards. This reduces the disclosure burden and communication effort for organisations using ISSB and GRI Standards for reporting. Also, ISSB has designed these standards as part of the same reporting package alongside financial statements. Since more than 140 jurisdictions already use the IFRS Accounting Standards, it helps to address the duplicative reporting issue for companies subject to multiple jurisdictional requirements and simultaneously provides a way to achieve global comparability.
The effective application date of these two standards is for reporting periods beginning on or after 1 January 2024. Still, their application depends on the adoption by the respective jurisdictions and the stock exchanges. Nonetheless, organisations who wish to apply the standards voluntarily in addition to the existing disclosure requirements are welcome to do so.
To the investing communities, the publication of these standards is considered laudable. With these standards, investors can now analyse, assess, and relate the impact of environmental and social issues on their investees’ financial performance and thereby improve their investment decision-making.