Background

The ISSB was established in November 2021 to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. In March 2022, the ISSB launched a consultation on its first draft IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2). After a consultation period of 120 days, the ISSB redeliberated the proposals in the draft Standards and decided to finalise the proposals.

Key requirements

The main requirements in IFRS S2 broadly reflect the proposals in ED/2022/S2 ‘Climate-related Disclosures’ with changes introduced in the following areas:

• Strategy and decision-making, including transition planning
• Climate resilience
• Greenhouse gas emissions
• Industry-based requirements
• Proportionality of the requirements
• Current and anticipated financial effects of sustainability-related and climate-related risks and opportunities on an entity’s financial performance, financial position and cash flows

The key requirements are as follows:

• Objective: The objective of IFRS S2 is to require an entity to disclose information about its climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity. These are 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.
• Scope: IFRS S2 applies to climate-related risks to which the entity is exposed (climate-related physical risks and climate-related transition risks) and climate-related opportunities available to the entity.
• Governance: The objective of climate-related financial disclosures on governance is to enable users of general purpose financial reports to understand the governance processes, controls and procedures an entity uses to monitor, manage and oversee climate-related risks and opportunities. The standard sets out the disclosures required to achieve this objective.
• Strategy: The objective of climate-related financial disclosures on strategy is to enable users of general purpose financial reports to understand an entity’s strategy for managing climate-related risks and opportunities. The standard sets out the disclosures required to achieve this objective.
• Risk management: The objective of climate-related financial disclosures on risk management is to enable users of general purpose financial reports to understand an entity’s processes 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. The standard sets out the disclosures required to achieve this objective.
• Metrics and targets: The objective of climate-related financial disclosures on metrics and targets is to enable users of general purpose financial reports to understand an 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. The standard sets out the disclosures required to achieve this objective.

Effective date and transition

An entity is required to apply IFRS S2 for annual reporting periods beginning on or after 1 January 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:

• Comparative information: An entity is not required to disclose comparative information in the first annual reporting period in which it applies IFRS S2.
• Greenhouse Gas Protocol: If, in the annual reporting period immediately preceding the date of initial application, the entity used a method for measuring its greenhouse gas emissions other than the ‘Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004)’, the entity is permitted to continue using that other method in the first annual reporting period in which the entity applies IFRS S2.
• Scope 3 greenhouse gas emissions: In the first annual reporting period in which an entity applies IFRS S2, the entity is not required to disclose its Scope 3 greenhouse gas emissions which includes, if the entity participates in asset management, commercial banking or insurance activities, the additional information about its financed emissions.

Additional information

The following additional information is available on the IFRS Foundation (free registration required for some documents) website and on IAS Plus:

• ISSB press release (translations of the press release into eight other languages available)
• Access to the standard
• Access to the basis for conclusions on S2
• Effects analysis on IFRS S1 and IFRS S2
• Project summary of IFRS S1 and IFRS S2
• Feedback statement for IFRS S1 and IFRS S2
• Article Ten things to know about the first ISSB Standards
• Access to two short webcasts on the new standards
• Need to know newsletter explaining the new requirements
• Our UK Accounting Plus summary of IFRS S2
• Our UK Accounting Plus project page on Climate-related disclosures
• Statement of the IFRS Foundation Monitoring Board welcoming the finalisation of the first two standards

In May 2023, the ISSB issued its Request for Information Consultation on Agenda Priorities. This consultation document outlines the ISSB's intention to address teh information needs of investors and seeks feedback on four potential projects that are currently under consideration.

The first three research projects focus on exploring sustainability-related risks and opportunities associated with crucial aspects, namely biodiversity, ecosystems, and ecosystem services. Additionally, the ISSB aims to examine the impact of human capital and human rights.

The fourth research project aims to investigate integration in reporting. Its objective is to explore how to incorporate information in financial reporting that goes beyond the current requirements related to connected information in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

The Request for Information will remain open for comments until 1 September 2023.

View the webcast on the IFRS Foundation's website.

The Board will discuss the following:

• Primary financial statements
• Equity method
• Disclosure initiative — Subsidiaries without public accountability: Disclosures
• Rate-regulated activities
• Second comprehensive review of the IFRS for SMEs

The full agenda for the meeting can be found here. We will post any updates to the agenda, our comprehensive pre-meeting summaries, as well as observer notes from the meeting on this page as they become available.

The following topics were discussed:

Primary Financial Statements: The IASB discussed issues related to categories and subtotals, and issues related to IAS 29 and IAS 12. The IASB voted in favour of all staff recommendations on how to revise some of the proposals in the ED.

Equity Method: The IASB decided not to develop proposals on how an investor applies the equity method when an associate issues an equity-settled share-based payment or a share warrant. The IASB also decided to propose that on acquisition of an investment in an associate, an investor should recognise contingent consideration as part of the cost of the investment and measure that contingent consideration at fair value. Furthermore, the IASB will propose that after the acquisition date for contingent consideration classified as equity, an investor accounts for its subsequent settlement within equity, whereas for other contingent consideration, the investor measures contingent consideration at fair value at each reporting date and recognises changes in fair value in profit or loss.

Disclosure Initiative: Subsidiaries without Public Accountability—Disclosures: The IASB discussed feedback on proposed disclosure requirements in the Exposure Draft Third Edition of the IFRS for SMEs Accounting Standard (SMEs ED) and decided not to make further changes to the proposed disclosure requirements in the draft Standard based on comments received on the SMEs ED.

Rate-regulated Activities: The IASB continued redeliberating the proposals in the Exposure Draft Regulatory Assets and Regulatory Liabilities (ED), in particular proposals on the measurement basis, cash-flow-based measurement technique and estimating uncertain future cash flows. The IASB decided to make further changes to these proposals when finalising the Standard.

Second Comprehensive Review of the IFRS for SMEs Accounting Standard: The IASB discussed the feedback received from comment letters and outreach events on the SMEs ED and decided to make changes to the proposed amendments in the ED for the clarification of the definition of public accountability.

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

The first part of the guidance, 8 Steps to Enhance GHG Reporting: A Roadmap for Accounting and Finance Professionals, provides finance and accounting professionals with a roadmap to engage with others across their business to prepare for GHG emissions reporting requirements aligned to financial reporting processes.

The second part of the guidance, GHG Reporting Building Blocks for Accountants, equips accountants with the technical guidance necessary to collect and enhance the quality of data related to all scopes of GHG emissions at individual entity and group levels. 

A press release and the guidance are available on the IFAC website.

New item: IFRS 9 Financial Instruments—Application of the “Own Use” Exemption: The IFRS IC received a submission about the possibility of applying the own use exception in IFRS 9:2.4 to contracts for the procurement of renewable energy (power purchase agreements or “PPAs”) as part of an entity’s commitment to reduce the effects of climate change and to decarbonise their production and products for each of the three fact patterns. Based on the analysis, the staff were of the view that the principles and requirements in IFRS 9 do not provide an adequate basis for an entity to determine the appropriate accounting for PPAs and recommend that the IASB develop a narrow-scope amendment that addresses the application of IFRS 9:2.4 particularly to contracts for the purchase of a non-financial item that cannot be stored and has to be consumed within in a short time interval in accordance with the market structure in which the item is traded.

New item: IAS 27 Separate Financial Statements—Merger between a Parent and Its Subsidiary in the Separate Financial Statements: The IFRS IC received a submission about how an entity applies IAS 27 to account for a merger with its subsidiary in its separate financial statements and whether the parent should apply the business combination accounting requirements in IFRS 3. From the findings of the information request and additional research, the “carrying amount method” (i.e. the parent entity recognises the subsidiary’s assets and liabilities at their previous carrying amounts) is the predominate method in practice and the staff did not observe diversity in accounting. The staff recommend not to add a standard-setting project to the work plan but to publish a tentative agenda decision.

Follow-up discussion on previous matter: IAS 21 The Effects of Changes in Foreign Exchange Rates and IAS 29 Financial Reporting in Hyperinflationary Economies—Consolidation of a Non-hyperinflationary Subsidiary by a Hyperinflationary Parent: In its June 2022 meeting, the IFRS IC discussed a submission about the accounting applied by a parent, whose functional currency is the currency of a hyperinflationary economy, when it consolidates a subsidiary, whose functional currency is the currency of a non-hyperinflationary economy. The IFRS IC concluded that the parent could restate or not restate the subsidiary’s results and financial position in terms of the measuring unit current at the end of the reporting period. After conducting additional research, the staff recommended the IASB develop a narrow-scope amendment that addresses the submitted fact pattern and a related matter (a situation in which an entity with a non-hyperinflationary functional currency presents its financial statements in a hyperinflationary currency).

Input on IASB project: Climate-related Risks in the Financial Statements: The focus of the project is to explore whether and how financial statements can better communicate information about climate-related risks. The purpose of the discussion is to obtain IFRS IC members’ feedback on nature of concerns, causes of concern and courses of action and scope of the project.   

Input on IASB project: Business Combinations under Common Control (BCUCCs): After the analysis of feedback on selecting the measurement method to apply to a BCUCC, the IASB set out options for the project direction. The purpose of the discussion is to understand what problems are caused by the gap in guidance in IFRS Accounting Standards for reporting BCUCCs, whether there are specific examples where the reporting for a BCUCC resulted in financial statements that were misleading or failed to provide useful information about the BCUCC and ask IFRS IC members the preference of the project direction.  

Work in progress: The update from the March 2023 meeting will be presented to the IFRS IC.

The full agenda for the meeting and our comprehensive pre-meeting summaries can be found here.

The following topics are on the agenda:

Primary Financial Statements: The IASB will discuss issues related to categories and subtotals, and issues related to IAS 29 and IAS 12. The staff make specific recommendations as to how to revise some of the proposals in the ED.

Equity Method: The IASB will debate whether it should develop proposals on how an investor applies the equity method when an associate issues an equity-settled share-based payment or a share warrant, and how to, initially and subsequently, recognise and measure contingent consideration on acquisition of an investment in an associate applying IAS 28.

Disclosure Initiative: Subsidiaries without Public Accountability—Disclosures: The IASB will discuss feedback on proposed disclosure requirements in the Exposure Draft Third Edition of the IFRS for SMEs Accounting Standard (SMEs ED). The staff recommend that the IASB does not make further changes to the proposed disclosure requirements in the draft Standard based on comments received on the SMEs ED.

Rate-regulated Activities: The IASB will continue redeliberating the proposals in the Exposure Draft Regulatory Assets and Regulatory Liabilities, in particular proposals on the measurement basis, cash-flow-based measurement technique and estimating uncertain future cash flows.

Second Comprehensive Review of the IFRS for SMEs Accounting Standard: The IASB will discuss the feedback received from comment letters and outreach events on the SMEs ED and decide whether to make changes to the proposed amendments in the ED for the clarification of the definition of public accountability.

Our pre-meet­ing summaries is available on our June meeting notes page and will be sup­ple­mented with our popular meeting notes after the meeting.

As reported earlier, among the topics discussed was the connectivity between financial reporting and sustainability reporting — discussed by IASB/ISSB and discussed by AASB/UKEB/AcSB.

The full list of topics discussed at the meeting was:

• Presentation on connectivity (IASB, ISSB)
• IASB Update
• IFRS 9 Amendments to classification and measurement (IASB, break-out sessions)
• Public sector and not-for-profit updates (Australian NFP Financial Reporting Framework, CIPFA, IPSASB)
• Application of Malaysian Financial Reporting Standards to Islamic Social Finance Transactions
• Primary Financial Statements: Disaggregation of expenses (EFRAG, FASB, IASB)
• Australia's roadmap to sustainability reporting: climate-first approach (AASB)
• ISSB update
• ESRS update (EFRAG)
• GRI framework
• Sustainability reporting (CSSB, European Commission, KSSB, Sudanese Association of Chartered Accountants, XRB, ISSB)
• Connectivity between financial and sustainability reporting (AASB, AcSB, UKEB, EFRAG, FRC)
• Digital assets (AASB, AcSB, FASB)
• Jurisdictional financial reporting priorities and updates (AOSSG, PAFA, FRC, FASB, GLASS)
• Intangibles (AASB, EFRAG, GLASS, UKEB)

The next meeting will be held on 26-27 September 2023 in London.

Please click for the full report from the meeting.

The Sustainability Working Group (SWG) will advise the UKEB Secretariat on matters relating to the connectivity between IFRS Accounting Standards and IFRS Sustainability Disclosure Standards.

For more infornation see the UKEB website.

The Financial Instruments Working Group provides advice to the UKEB Secretariat on matters relating to financial instruments.

Further detail is available on the UKEB website.