General Sustainability-related Disclosures and Climate-related Disclosures
Current and anticipated financial effects and connected information (Agenda Paper 3A & 4B)
This paper was designed to inform the ISSB’s redeliberations of:
- The proposed requirements in paragraph 22 of Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information ([draft] S1) and equivalent requirements in paragraph 14 of Exposure Draft IFRS S2 Climate-Related Disclosures ([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 (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 (referred to as the ‘connected information requirements’ in the paper).
The ISSB was not asked to make any decisions in this session. Instead, the staff presented a summary of the feedback received and requested that the ISSB discuss a series of illustrative examples the staff had prepared for this paper. More specifically, the staff was interested in feedback as to whether the examples presented in this paper are consistent with the ISSB’s intent in relation to current and anticipated financial effects requirements and connected information requirements.
The disclosure examples the staff had prepared cover four parts and focus on the following:
- Part 1: the type of quantitative information required about the current and anticipated financial effects of sustainability-related risks and opportunities
- Part 2: the type of qualitative information required about the current and anticipated financial effects of sustainability-related risks and opportunities when unable to provide quantitative information
- Part 3: the type of information required when financial effects cannot be attributed to individual sustainability-related risks and opportunities
- Part 4: the type of information required about the connected information requirements
The feedback should enable the staff to prepare subsequent staff recommendations. More specifically, the staff expected to provide recommendations in a future paper, based on feedback from the ISSB on this paper and additional research and/or consultation, which may include one or more of the following: the development of guidance to support the application of the requirements; targeted drafting changes in [draft] S1 and [draft] S2; and/or other modifications to the disclosure requirements.
ISSB discussion
ISSB members considered the disclosure examples the staff had prepared as very useful, as they triggered a very helpful discussion. Within the discussion, which did not proceed chronologically along individual examples, a lot of helpful comments to improve the examples were raised.
One ISSB member suggested to develop more examples that provide guidance on the type of information required about current and anticipated financial effects for sustainability-related opportunities, because most of the examples the staff had prepared relate to sustainability-related risks. Another ISSB member suggested to develop an example that provides guidance on the type of information required when financial effects cannot be attributed to sustainability-related risks and opportunities.
Furthermore, one ISSB member emphasised that the examples are focusing too narrowly on the effects on the balance sheet or the profit or loss statement and should additionally consider other future implications such as cost changes.
Another important aspect the discussion also focused on related to the question of under which circumstances an entity should disclose qualitative instead of quantitative information. Paragraph 22 of [draft] S1 and paragraph 14 of [draft] S2 require an entity to disclose qualitative information about the current and anticipated financial effects of sustainability-related risks and opportunities only when the entity is unable to disclose quantitative information. Hereby, one of the ISSB Vice Chairs emphasised that the Prototypes used the term “feasible” instead of “unable to do so”, but the ISSB Chair decided to remove “feasible” as the feedback received indicated that primary users of general purpose financial reporting are not familiar with this term. However, the discussion raised the question whether “feasible” was a closer articulation of what the ISSB meant.
In conclusion, it was noted that the examples were very helpful in addressing open issues to clarify IFRS Sustainability Disclosure Standards. According to the Chair, the clear objective should be that there is enough clarity in the standards on a stand-alone basis with respect to the disclosure of information about the current and anticipated financial effects of sustainability-related risks and opportunities. Nevertheless, it should be considered to publish examples as guidelines for application as separate material in the future after the publication of the standards.