General Sustainability-related Disclosures and Climate-related Disclosures

Date recorded:

Reasonable and supportable information that is available at the reporting date without undue cost or effort (Agenda Paper 3C/4D)

This paper introduced the concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’ and its potential applicability to IFRS Sustainability Disclosure Standards.

The objectives of this paper was:

  • To discuss the concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’, including its use in IFRS Accounting Standards
  • To seek the ISSB’s feedback on the staff’s analysis and recommendations regarding the application of this concept in specific areas of [draft] S1 and [draft] S2
  • To seek decisions from the ISSB on the staff’s recommendations

Staff recommendation

Preparers may be challenged to apply disclosure requirements that involve a high level of outcome or measurement uncertainty including where forward-looking information is required to be considered or disclosed. The staff recommended that the ISSB introduce the concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’—which is used in similar circumstances in some IFRS Accounting Standards—as a mechanism to facilitate application of particular requirements of IFRS S1 and IFRS S2, specifically:

  • The identification of risks and opportunities ([draft] S1 and [draft] S2)
  • Applying value chain-related requirements, specifically in relation to:
    • The scope of the value chain ([draft] S1 and [draft] S2)
    • Measurement of Scope 3 greenhouse gas (GHG) emissions ([draft] S2)
  • The determination of anticipated financial effects on an entity’s financial performance, financial position and cash flows ([draft] S1 and [draft] S2)
  • Applying climate-related scenario analysis ([draft] S2)
  • The calculation of metrics in particular cross-industry metric categories ([draft] S2)

The staff emphasised that the introduction of this concept would not exempt entities from providing required disclosure and that these recommendations do not propose additional disclosure requirements. Rather, these recommendations would provide clarity about the information that entities would use in the preparation of disclosures.

ISSB discussion

ISSB members considered the paper the staff had prepared as very helpful and were very supportive of the staff recommendation to introduce the concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’ to provide clarity to entities in the application of certain ISSB standards.

The Chair emphasised that ISSB standards will require transparency on the full value chain and this will inevitably lead to costs and effort required. Hence, the introduction of this concept would not exempt entities from providing required disclosure. Based on the relationship between costs and the usefulness of information, the standards should embed more in terms of understanding the meaning of “undue cost or effort”. Some ISSB members also suggested that more resources explaining “undue cost or effort” should be provided.

In conclusion, all ISSB members agreed with the staff recommendations related to the areas described above where the concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’ should be introduced. The staff recommendation to require an entity to use an approach to climate-related scenario analysis that enables the entity to consider all reasonable and supportable information that is available without undue cost or effort, at the reporting date, including information about past events, current conditions and forecasts of future economic conditions, was part of the discussion of Agenda Paper 4A (Using scenario analysis to assess climate resilience).

Current and anticipated financial effects and connected information (Agenda Paper 3E/4E)

Following the ISSB discussion in November 2022, this agenda paper informed the ISSB’s redeliberations of:

  • The proposed requirements in paragraph 22 of [draft] S1 and equivalent requirements in paragraph 14 of [draft] S2 for an entity to disclose the effects of its sustainability-related risks and opportunities on its financial position, financial performance and cash flows for the reporting period and the anticipated effects over the short, medium and long term. It was proposed that an entity shall disclose quantitative information, either single amounts or a range, unless it is unable to do so. If an entity is unable to provide quantitative information, it shall provide qualitative information. These proposed requirements were referred to as the ‘current and anticipated financial effects requirements’ in this paper
  • The proposed requirements in paragraphs 42–44 of [draft] S1 for an entity to provide information that enables users of general-purpose financial reporting to assess the connections between various sustainability-related risks and opportunities, and to assess how information about these risks and opportunities is linked to information in the general-purpose financial statements. These proposed requirements were referred to as the ‘connected information requirements’ in this paper

Staff recommendation

The staff was seeking decisions from the ISSB on its recommendations summarised below:

  • Clarify that when sustainability-related risks and opportunities have affected or are expected to affect the information in an entity’s financial statements, the entity is required to explain the connections between those current and anticipated financial effects and the sustainability-related risks and opportunities. In explaining these connections, the entity is required to avoid unnecessary duplication and is permitted to provide information by cross-reference subject to the specified conditions
  • Clarify that an entity is required to provide quantitative and qualitative information about the current and anticipated effects of sustainability-related risks and opportunities on the entity’s financial position, performance and cash flows unless the entity is unable to provide quantitative information. In the specified circumstances when the entity is unable to provide quantitative about the financial effects of a particular sustainability-related risk or opportunity the entity is required to provide qualitative information
  • Use consistent language to refer to the reporting period for which sustainability-related financial disclosures are prepared and to refer to the related financial statements for that reporting period. Additionally, use the phrase ‘short, medium and long term’ rather than the term ‘over time’ consistently in IFRS S1 and IFRS S2
  • Clarify the relationship between resilience assessment requirements and the requirements to disclose current and anticipated financial effects by emphasising those requirements can be applied independently but the resilience assessment can inform the disclosures of current and anticipated financial effects. Furthermore, clarifying that there is no requirement for an entity to perform a resilience assessment to determine current and anticipated financial effects of sustainability-related risks and opportunities.

ISSB discussion

The discussions relating to this agenda paper primarily focused on the first two of the four staff recommendations described above. All ISSB members agreed with the first recommendation to clarify that when sustainability-related risks and opportunities have affected or are expected to affect the information in an entity’s financial statements, the entity should be required to explain the connections between those current and anticipated financial effects and the sustainability-related risks and opportunities. Nevertheless, it was highlighted that with respect to the objective to avoid unnecessary duplication, the term “unnecessary” is the key word. In some cases, duplication, especially when connecting sustainability-related information to the information in entity’s financial statements, is inevitable and will be helpful. Parts of these discussions are planned to be included in the Basis for Conclusions of the ISSB Standards. 

The second staff recommendation was considered to be very helpful. The Chair of the ISSB emphasised that the clarification regarding quantitative and qualitative information should be even stronger. Even when quantitative information can be provided, it might be helpful to complement that information with qualitative information. Hence, the clarification should also emphasise that quantitative and qualitative information are not mutually exclusive. In conclusion, all ISSB members agreed with the staff recommendation to clarify that an entity is required to provide quantitative and qualitative information about the current and anticipated effects of sustainability-related risks and opportunities on the entity’s financial position, financial performance and cash flows unless the entity is unable to provide quantitative information.

With respect to determining whether an entity is able to provide quantitative information about the financial effects of a particular sustainability-related risk or opportunity or not, 13 of the 14 ISSB members (one ISSB member did not support this recommendation because of the criteria of separate identification) agreed with the staff recommendation that an entity should take into consideration:

  • Whether the financial effects of that sustainability-related risk or opportunity are separately identifiable
  • Whether a high level of outcome or measurement uncertainty is involved in quantifying the financial effects of that sustainability-related risk or opportunity
  • In case of the anticipated financial effects only, whether the entity has the skills, capabilities and resources to provide quantitative information about those effects (addressing the need of scalability and proportionality)

If an entity is unable to provide quantitative information about the financial effects of a particular sustainability-related risk or opportunity, the ISSB agreed with the staff recommendation that the entity should be required to:

  • Explain why it is unable to provide quantitative information about the financial effects of that sustainability-related risk or opportunity
  • Provide qualitative information about the financial effects of that sustainability-related risk or opportunity, including identifying line items, totals and subtotals within financial statements that are likely to be affected by that sustainability-related risk or opportunity
  • Provide quantitative information about sustainability-related risks and opportunities―including that particular sustainability-related risk or opportunity―at the lowest possible level of aggregation at which the entity is able to provide that information

In addition, the ISSB agreed that educational material would be helpful and should be developed.

With respect to the third and fourth recommendation, all ISSB members were very supportive and agreed with the staff recommendations.

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