International Sustainability Standards Board Issues Global Sustainability Disclosure Standards, IFRS S1 for Companies Disclosures on Sustainability to Investors & IFRS S2 for Climate-Related Disclosures
27th June 2023 | Hong Kong
The International Sustainability Standards Board (ISSB) has issued the first global sustainability disclosure standards, IFRS S1 for companies disclosures on sustainability to investors and IFRS S2 for climate-related disclosures. ISSB: “The Standards will be officially launched by ISSB Chair Emmanuel Faber at the IFRS Foundation’s annual conference today and through a week of events hosted by stock exchanges around the world, including those in Frankfurt, Johannesburg, Lagos, London, New York, Santiago de Chile; the ASEAN Capital Markets Forum is also hosting a launch event in Singapore.” See below for more info.
“ International Sustainability Standards Board Issues Global Sustainability Disclosure Standards, IFRS S1 for Companies Disclosures on Sustainability to Investors & IFRS S2 for Climate-Related Disclosures “
The Standards – IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1. Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
International Sustainability Standards Board Issues Global Sustainability Disclosure Standards, IFRS S1 for Companies Disclosures on Sustainability to Investors & IFRS S2 for Climate-Related Disclosures
26th June 2023 – The International Sustainability Standards Board (ISSB) has today issued its inaugural standards—IFRS S1 and IFRS S2 —ushering in a new era of sustainability-related disclosures in capital markets worldwide. The Standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions.
And for the first time, the Standards create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.
The Standards will be officially launched by ISSB Chair Emmanuel Faber at the IFRS Foundation’s annual conference today and through a week of events hosted by stock exchanges around the world, including those in Frankfurt, Johannesburg, Lagos, London, New York, Santiago de Chile; the ASEAN Capital Markets Forum is also hosting a launch event in Singapore.
About the Standards
IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.
Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
A Global Baseline
The ISSB developed IFRS S1 and IFRS S2 with the benefit of extensive market feedback and in response to calls from the G20, the Financial Stability Board and the International Organization of Securities Commissions (IOSCO), as well as leaders in the business and investor community.
This support for a comprehensive global baseline of sustainability-related disclosures demonstrates the widespread demand for a consistent understanding of how sustainability factors affect companies’ prospects.
The ISSB Standards are designed to ensure that companies provide sustainability-related information alongside financial statements—in the same reporting package. The Standards have been developed to be used in conjunction with any accounting requirements. They are also built on the concepts that underpin the IFRS Accounting Standards, which are required by more than 140 jurisdictions. The ISSB Standards are suitable for application around the world, creating a truly global baseline.
Adoption of the ISSB Standards
Now that IFRS S1 and IFRS S2 are issued, the ISSB will work with jurisdictions and companies to support adoption. The first steps will be creating a Transition Implementation Group to support companies that apply the Standards and launching capacity-building initiatives to support effective implementation. The ISSB will also continue to work with jurisdictions wishing to require incremental disclosures beyond the global baseline and with GRI to support efficient and effective reporting when the ISSB Standards are applied in combination with other reporting standards.
IFRS S1
IFRS S1 is effective for annual reporting periods beginning on or after 1 January 2024 with earlier application permitted as long as IFRS S2 Climate-related Disclosures is also applied.
The objective of IFRS S1 is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the entity.
IFRS S1 requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (collectively referred to as ‘sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’).
IFRS S1 prescribes how an entity prepares and reports its sustainability-related financial disclosures. It sets out general requirements for the content and presentation of those disclosures so that the information disclosed is useful to users in making decisions relating to providing resources to the entity.
IFRS S1 sets out the requirements for disclosing information about an entity’s sustainability-related risks and opportunities. In particular, an entity is required to provide disclosures about:
- the governance processes, controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities;
- the entity’s strategy for managing sustainability-related risks and opportunities;
- the processes the entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities; and
- the entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.
IFRS S2
IFRS S2 is effective for annual reporting periods beginning on or after 1 January 2024 with earlier application permitted as long as IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is also applied.
The objective of IFRS S2 is to require an entity to disclose information about its climate-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the entity.
IFRS S2 requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (collectively referred to as ‘climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’).
IFRS S2 applies to:
- climate-related risks to which the entity is exposed, which are:
- climate-related physical risks; and
- climate-related transition risks; and
- climate-related opportunities available to the entity.
IFRS S2 sets out the requirements for disclosing information about an entity’s climate-related risks and opportunities. In particular, IFRS S2 requires an entity to disclose information that enables users of general purpose financial reports to understand:
- the governance processes, controls and procedures the entity uses to monitor, manage and oversee climate-related risks and opportunities;
- the entity’s strategy for managing climate-related risks and opportunities;
- the processes the entity uses to identify, assess, prioritise and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the entity’s overall risk management process; and
- the entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by law or regulation.
Emmanuel Faber, ISSB Chair: “Today represents the outcome of more than 18 months of intense work to deliver an inaugural set of sustainability disclosure standards for the global capital markets. The ISSB Standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner. We have consulted closely with the market to ensure the Standards are proportionate and will result in disclosures that are relevant for investment decision-making. We know that better information leads to better economic decisions. Today’s publication is just the starting point as we consult on our future priorities, beyond climate.”
Erkki Liikanen, Chair of the IFRS Foundation Trustees: “The global baseline approach, supported by the G20 and others, will provide investors with globally comparable sustainability-related disclosures that have the potential to move market prices, without constraining jurisdictions from requiring additional disclosures. This will help companies and investors by tackling duplicative reporting.”
Takashi Nagaoka, Chair of the IFRS Foundation Monitoring Board: “The Monitoring Board welcomes the ISSB’s publication of IFRS S1 and IFRS S2. We will continue to collaborate closely with the leadership of the ISSB and the IFRS Foundation Trustees, and remain focused on supporting the ISSB’s ongoing and future work including on other sustainability topics beyond climate, to ensure continued robust governance, due process and oversight of the Foundation and its standard-setting boards.”
Klaas Knot, Chair of the Financial Stability Board:”I welcome the publication today by the ISSB of its final standards on general sustainability-related disclosures and on climate-related disclosures. The publication of the ISSB standards marks an important milestone for achieving globally consistent disclosures.”
Jean-Paul Servais, Chair of the International Organization of Securities Commission (IOSCO): “IOSCO has been actively involved in the IFRS Foundation’s consideration of whether and how to apply its trusted reputation and internationally renowned global standard-setting process to the topic of sustainability disclosures. We commend the leadership of the ISSB for the pace and quality of their work. IOSCO is conducting an independent assessment of the ISSB Standards, with a view to completing this review promptly.”
Richard Manley and Carine Smith Ihenacho, Chair and Vice-Chair of the ISSB Investor Advisory Group: “High-quality data is necessary to support price discovery and capital formation, and facilitates efficient capital markets. ISSB Standards will equally support preparers in communicating sustainability information to their investors and other providers of capital.”
Mary Schapiro, Head of the Task Force on Climate-related Financial Disclosures (TCFD) Secretariat and Vice Chair for Global Public Policy at Bloomberg L.P: “The global economy needs common reporting standards to reduce fragmentation and drive comparability in climate-related financial data. Built upon the foundation of the TCFD framework, the ISSB Standards provide a global baseline for companies to disclose decision-useful, climate-related financial information—information that is critical for creating more transparent markets, helping achieve a smooth low-carbon transition, and building a more resilient and sustainable global economy.”
Ilham Kadri, Executive Committee Chair, World Business Council for Sustainable Development: “I commend and applaud the ISSB for issuing both the climate-related and the general requirements disclosures standards: companies and investors are in dire need to have a common language to report and value their climate and social sustainability strategies.”
Klaus Schwab, Founder and Executive Chairman, World Economic Forum: “The publication of the first two ISSB Standards represents a vital step forward in establishing a global baseline for sustainability reporting. Consistent and comparable sustainability information, paired with financial information, empowers investors and stakeholders to gain a comprehensive understanding of a company’s performance and their commitment to driving sustainable value creation. We look forward to our continued collaboration.”
Woochong Um, Managing Director General, Asian Development Bank: “We welcome the inaugural IFRS Sustainability Disclosure Standards which deliver a global baseline of sustainability-related financial disclosures that have the potential to enhance Asian capital markets through attracting more investment and boosting private sector development in Asia. We encourage Asian Development Bank members to give their consideration to the adoption of the Standards.”
Jean-François van Boxmeer, Chair, European Round Table for Industry (ERT) and Chair, Vodafone Group: “ERT has strongly supported the ISSB and the development of a single trusted set of global standards for sustainability reporting. Global alignment is crucial to provide a comprehensive and clear view of a company’s sustainability performance and to allow for the comparability of disclosures on a global level. Separate and differing sets of standards for sustainability reporting in different jurisdictions would lead to a de facto double reporting for preparers and, consequently, unnecessary additional costs and reduced validity and comparability for users. We therefore strongly encourage jurisdictions around the globe, including the EU, to take on board the ISSB standards and to integrate them into their own regulatory framework.”
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