Regulatory updates

Over the last few years, there has been an increase in emphasis towards the disclosure of non-financial information and related risks and opportunities by the companies, alongside the traditional financial information and disclosures. In order to facilitate the creation of a global baseline for investor-focused sustainability and non-financial reporting, in March 2022, the International Sustainability Standards Board (ISSB) had issued the Exposure Drafts (EDs) of its first two IFRS Sustainability Disclosure Standards – IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2, Climate-related Disclosures .

Based on the feedback received from different stakeholders, on 26 June 2023, ISSB released the final standards. The standards are designed to meet the needs of all companies, and provide a clear idea of what companies need to report on, in order to meet the needs of global capital markets. In this regard, some important aspects which need to be considered are:

• Applicability: The standards are effective from 1 January 2024, but it would be for individual jurisdictions to decide whether and when to adopt them. Some public and private companies may choose to adopt them voluntarily on account of investor or societal pressure.
• Overview of the standards: The standards are designed to be applied together and are complementary in nature. IFRS S1 provides a framework for companies to report on all relevant sustainability-related topics across the areas of governance, strategy, risk management, and metrics and targets and provides guidance on general reporting aspects such as materiality, connected information, reporting boundary, fair presentation, etc. It is supported by more detailed guidance on how to report on climate-related risks and opportunities by IFRS S2.

(Source: Foundation for Audit Quality’s analysis, 2023 read with IFRS S1 and IFRS S2)

• Consistency with the existing frameworks: The standards have not been developed by the ISSB from scratch, but are based on the existing frameworks and standards, including the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). The ISSB is also committed to working with the Global Reporting Initiative (GRI) to ensure that the standards are complementary to and compatible with the existing GRI standards. Additionally, ISSB has also been working closely with the jurisdictional standard setters and incoming mandatory reporting frameworks – for example, the European Commission and the European Financial Reporting Advisory Group (EFRAG) in the EU, and the Securities and Exchange Commission (SEC) in the US.
• Interlinking sustainability and financial reporting: The standards refer to the information disclosed by companies as ‘sustainability-related financial disclosures’ – thereby implying that the sustainability-related and non-financial disclosures must be connected with the information in the financial statements and should thus, not be a separate exercise. Although, it may differ in nature from the information presented in the financial statements, the same needs to be consistent to the extent possible. This is required irrespective of whether the financial statements are prepared under IFRS Accounting Standards (AS) or other Generally Accepted Accounting Principles (GAAP).

To access the text of IFRS S1, please click here

To access the text of IFRS S2, please click here

In June 2023, the International Sustainability Standards Board (ISSB) had issued the first two IFRS Sustainability Disclosure Standards – IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2, Climate-related Disclosures, which come into effect from January 2024 onwards. In order to facilitate smooth implementation of the standards by the companies, on 14 December 2023, ISSB has released certain important resources. These include:

• Enhanced SASB standards: The ISSB has issued certain amendments to the non-climate related content in the Sustainability Accounting Standards Board (SASB) standards, with a view to enhance their international applicability. The amendments introduced mainly remove and replace jurisdiction-specific references , without significantly altering industries, topics or metrics. The key amendments issued include:

• Replacing jurisdiction-specific terms of reference with internationally applicable references for standards, definitions or calculation methods
• Providing general descriptions for standards, definitions or calculation methods to replace jurisdiction-specific terms of reference
• Permitting preparers to use applicable jurisdictional laws or regulations to replace jurisdiction-specific terms of reference and align with preparers’ legal and regulatory compliance requirements
• Removing certain jurisdiction-specific metrics that are unsuitable for international application, had no identified international equivalents or were not adaptable to general descriptions.

• New educational material for IFRS S2: Additionally, ISSB has issued the new education material to help companies consider the nature and social aspects of climate-related risks and opportunities, when applying IFRS S2. The material sets out three examples, thereby illustrating how companies need to approach certain aspects of their climate-related disclosures.

To access the text of the resources, please click here