The ISSB’s release of the IFRS S1 and IFRS S2

Context

On 26th June 2023, the International Sustainability Standards Board (ISSB) published their  inaugural global sustainability disclosure standards: The IFRS S1 and IFRS S2. This publication marks an important milestone as the standards aim to improve clarity in sustainability financial reporting by creating a “common language” for disclosure and “a global baseline”. 

The IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information sets out the details for completing sustainability-related disclosures, whilst the IFRS S2 Climate-related Disclosures details the requirements for the measurement and disclosure of climate-related risks.

The ISSB has also fully incorporated the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD) into the new standards.

ESG360°’s 10 Key Takeaways:

1. TCFD Integrated:

   As the TCFD has been fully integrated into the ISSB, the ISSB acts as the world’s first ever ESG standard.

2. Further endorsement:

   Backing of the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB) is likely before the end of the year. The UK government has also committed to include the ISSB into the sustainability disclosure requirements within the next 12 months.

3. Assurance:

   The ISSB is working in tandem with the International Auditing and Assurance Standards Board (IAASB) to create audit standards for sustainability disclosures.

4. Industry specific metrics:

   Industry specific metrics will be mandatory, in addition to scope 3 disclosure and scenario planning but not prescriptive.

5. Data type:

   Qualitative information is allowed, where quantification is challenging and not cost-effective.

6. Climate risk quantification project:

   The International Accounting Standards Board (IASB) is embarking upon a climate risk quantification project, working with ISSB.

7. The role of IAS37:

   The International Accounting Standards Board (IASB) is also working on providing clarification on integrating a net zero plan for a company into International Accounting Standard 37 (IAS 37) (past events vs present obligations).

8. Transition relief:

   Companies will be allowed only to disclose IFRS S2 in the first year, as IFRS S1 and Scope 3 can be disclosed in the second year of adoption.

9. Transition plan disclosure:

   The ISSB is encouraging companies to disclose their transition plan if they have one and the Transition Plan Taskforce (TPT) is aligning with the ISSB.

10. Other sustainability matters:

    The consultation for other sustainability issues such as nature and biodiversity, just transition and human rights is open until September 2023.

IFRS S1 and S2 Timeline