ISSB: Climate-related Disclosures [Completed]
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An entity is required to apply IFRS S2 for annual reporting periods beginning on or after January 1, 2024. Earlier application is permitted. If an entity applies IFRS S2 earlier, it is required to disclose that fact and apply IFRS S1 at the same time. The following transitional provisions are available:
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Last updated: |
June 2023 |
Overview
On March 31, 2022, the International Sustainability Standards Board (ISSB) have published the Exposure Draft, “Climate-related Disclosures” that builds on the Technical Readiness Working Group (TRWG) prototype of the same name that was issued in November 2021. The resulting standard would be the first thematic standard of the ISSB.
The main proposals in the Exposure Draft reflect the proposals in the prototype and are structured around the four pillars of governance, strategy, risk management, and metrics and targets established by the Task Force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board. Some changes were made to improve specificity and clarity with some added disclosure requirements. One noticeable change regards the internationalization of metrics that referred to specific jurisdictions. The proposals cover the following aspects of climate-related disclosures:
Objective: The proposed objective of the standard is to require an entity to disclose information about its exposure to climate-related risks and opportunities that would enable users of an entity’s general purpose financial reporting to assess the effects of significant climate-related risks and opportunities on the entity’s enterprise value, to understand how the entity’s use of resources support the entity’s response to significant climate-related risks and opportunities, and to evaluate the entity’s ability to adapt to significant climate-related risks and opportunities.
Scope: The standard would apply to climate-related risks that the entity is exposed to, including physical risks and transitional risks, and to climate-related opportunities available to the entity. Governance: Under the proposed standard, an entity would disclose information that enables users of general purpose financial reporting to understand the governance processes, controls and procedures used to monitor and manage climate-related risks and opportunities. This would include information about the governance body or bodies with oversight of climate-related risks and opportunities, and a description of management’s role regarding climate-related risks and opportunities.
Strategy: An entity would disclose information that enables users of general purpose financial reporting to understand the strategy for addressing climate-related risks and opportunities. This would include information about: (i) the significant climate-related risks and opportunities that it reasonably expects could affect its business model, strategy and cash flows, its access to finance and its cost of capital, (ii) the effects of them on its business model, value chain, strategy and decision-making, financial position, financial performance and cash flows, and (iii) the climate resilience of its strategy to significant physical risks and significant transition risks.
Risk management: An entity would disclose information that enables users of general purpose financial reporting to understand how climate-related risks are identified, assessed, and managed. This would include information about: (i) the process, or processes, used to identify climate-related risks and opportunities, and climate-related risks for risk management purposes, (ii) the process, or processes, used to identify, assess and prioritize climate-related opportunities; (iii) the process, or processes, it uses to monitor and manage the climate-related risks, and (iv) the extent to which and how the climate-related risk identification, assessment and management process, or processes, are integrated into the entity’s overall risk management process and the entity’s overall management process.
Metrics and targets: An entity would disclose information that enables users of general purpose financial reporting to understand the entity’s performance in measuring, monitoring and managing climate-related risks and opportunities. This would include information about cross-industry metric categories, industry-based metrics other metrics used by the board or management to measure progress towards its targets, and targets set by the entity to mitigate or adapt to climate-related risks or maximize climate-related opportunities so that users of general purpose financial reporting can understand how the entity assesses its performance and its progress towards the targets it has set.
The deadline for submitting comments on these proposals was July 29, 2022.
On June 26, 2023, the ISSB issued its inaugural standards—IFRS S1 and IFRS S2 — to help improving trust and confidence in company disclosures about sustainability to inform investment decisions.
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).
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.
Additional information is available on the IFRS Foundation website, including the following:
- the ISSB press release;
- the basis for conclusions on S2
- the effects analysis on IFRS S1 and IFRS S2
- the project summary of IFRS S1 and IFRS S2
- the feedback statement for IFRS S1 and IFRS S2
Other developments
June 2023
On June 26, 2023, the ISSB issued its inaugural standards—IFRS S1 and IFRS S2 — to help improving trust and confidence in company disclosures about sustainability to inform investment decisions.
April 2023
On April 29, 2023, the ISSB staff updated the work plan to indicate that the Board plans to issue the new standard in June 2023.
September 2022
On September 26, 2022, the ISSB staff updated the work plan to indicate that the Board plans to review the Exposure Draft feedback in December 2022.
June 2022
On June 27, 2022, the IASB staff updated the work plan to indicate that the Board plans to review the Exposure Draft feedback in Q4/2022.
At its meeting on June 6-8, 2022, the IESBA unanimously resolved to take timely action to develop fit-for-purpose, globally applicable ethics and independence standards as a critical part of the infrastructure needed to support transparent, relevant and trustworthy sustainability reporting. In this regard, the IESBA approved the Terms of Reference for its recently established Sustainability Working Group. The IESBA plans to coordinate this work closely with others, in particular the International Auditing and Assurance Standards Board (IAASB) and the International Sustainability Standards Board (ISSB).
On June 1, 2022, Financial Reporting & Assurance Standards (FRAS) Canada issued a consultation project to solicit feedback from Canadians on the International Sustainability Standards Board’s (ISSB) Exposure Draft IFRS S2 “Climate-related Disclosures.”
March 2022
On March 31, 2022, the ISSB published the Exposure Draft, “Climate-related Disclosures”. The deadline for submitting comments on these proposals is July 29, 2022.
