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 S1 broadly reflect the proposals in ED/2022/S1 General Requirements for Disclosure of Sustainability-Related Financial Information with changes introduced in the following areas:

• The concept of ‘enterprise value’
• The breadth of the reporting required
• The use of the term ‘significant’ for sustainability-related risks or opportunities
• Identifying material sustainability-related risks and opportunities and information to disclose (including using the work of other standard-setters)
• Application of the materiality assessment
• Connected information
• Frequency (or timing) of reporting
• Comparative information and updated estimates
• 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 S1 is to require an entity to disclose information about its sustainability-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. IFRS S1 requires an entity to disclose information about all sustainability-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: An entity is required to apply IFRS S1 in preparing and reporting sustainability-related financial disclosures in accordance with IFRS Sustainability Disclosure Standards. An entity may apply IFRS Sustainability Disclosure Standards irrespective of whether the entity’s related general purpose financial statements are prepared in accordance with IFRS Accounting Standards or other generally accepted accounting principles or practices (GAAP).
• Conceptual foundations: For sustainability-related financial information to be useful, it must be relevant and faithfully represent what it purports to represent. The usefulness of sustainability-related financial information is enhanced if the information is comparable, verifiable, timely and understandable.
• Fair presentation: A complete set of sustainability-related financial disclosures presents fairly all sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects.
• Materiality: An entity is required to disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. Information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports.
• Reporting entity: An entity’s sustainability-related financial disclosures are required to be for the same reporting entity as the related financial statements.
• Connected information: An entity is required to provide information in a manner that enables users of general purpose financial reports to understand the connections between the items to which the information relates and the connections between disclosures provided by the entity.
• Core content: An entity is required to provide disclosures about governance, strategy, risk management, and metrics and targets.
• Sources of guidance:
  • Identifying sustainability-related risks and opportunities: In identifying sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects, an entity is required to apply IFRS Sustainability Disclosure Standards and to refer to and consider the applicability of the disclosure topics in the SASB Standards. In addition an entity may refer to and consider the applicability of the CDSB Framework Application Guidance for Water- and Biodiversity-related Disclosures; the most recent pronouncements of other standard‑setting bodies whose requirements are designed to meet the information needs of users of general purpose financial reports; and the sustainability-related risks and opportunities identified by entities that operate in the same industry(s) or geographical region(s)
  • Identifying applicable disclosure requirements: In identifying applicable disclosure requirements about a sustainability-related risk or opportunity that could reasonably be expected to affect an entity’s prospects, an entity is required to apply the IFRS Sustainability Disclosure Standard that specifically applies to that sustainability-related risk or opportunity. In the absence of an IFRS Sustainability Disclosure Standard that specifically applies to a sustainability-related risk or opportunity, an entity is required to apply judgement to identify information that is relevant to the decision‑making of users of general purpose financial reports and faithfully represents that sustainability-related risk or opportunity. In making that judgement, an entity is required to refer to and consider the applicability of the metrics associated with the disclosure topics included in the SASB Standards; may—to the extent that these sources do not conflict with IFRS Sustainability Disclosure Standards—refer to and consider the applicability of the CDSB Framework Application Guidance for Water- and Biodiversity-related disclosures, the most recent pronouncements of other standard‑setting bodies whose requirements are designed to meet the information needs of users of general purpose financial reports, and the information, including metrics, disclosed by entities that operate in the same industry(s) or geographical region(s). In addition an entity may—to the extent that these sources assist the entity in meeting the objective of IFRS S1 and do not conflict with IFRS Sustainability Disclosure Standards—refer to and consider the applicability of the Global Reporting Initiative (GRI) Standards and the European Sustainability Reporting Standards (ESRS).
• Location of disclosures and timing of reporting: An entity is required to provide disclosures required by IFRS Sustainability Disclosure Standards as part of its general purpose financial reports. An entity is required to report its sustainability-related financial disclosures at the same time as its related financial statements. The entity’s sustainability-related financial disclosures are required to cover the same reporting period as the related financial statements.
• Comparative information: An entity is required to disclose comparative information in respect of the preceding period for all amounts disclosed in the reporting period. If such information would be useful for an understanding of the sustainability-related financial disclosures for the reporting period, the entity is also required to disclose comparative information for narrative and descriptive sustainability-related financial information.
• Statement of compliance: An entity whose sustainability-related financial disclosures comply with all the requirements of IFRS Sustainability Disclosure Standards is required to make an explicit and unreserved statement of compliance. An entity is not permitted to describe sustainability-related financial disclosures as complying with IFRS Sustainability Disclosure Standards unless they comply with all the requirements of IFRS Sustainability Disclosure Standards.
• Judgements: An entity is required to disclose information to enable users of general purpose financial reports to understand the judgements, apart from those involving estimations of amounts, that the entity has made in the process of preparing its sustainability-related financial disclosures and that have the most significant effect on the information included in those disclosures.
• Uncertainties: An entity is required to disclose information to enable users of general purpose financial reports to understand the most significant uncertainties affecting the amounts reported in the sustainability-related financial disclosures.
• Errors: An entity is required to correct material prior period errors by restating the comparative amounts for the prior period(s) disclosed unless it is impracticable to do so.

Effective date and transition

An entity is required to apply IFRS S1 for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted. If an entity applies IFRS S1 earlier, it is required to disclose that fact and apply IFRS S2 at the same time.

The following transitional reliefs are available:

• Comparative information: An entity is not required to disclose comparative information in the first annual reporting period in which it applies IFRS S1.
• Timing of reporting: In the first annual reporting period in which an entity applies IFRS S1, the entity is permitted to report its sustainability-related financial disclosures after it publishes its related financial statements (as specified in IFRS S1).
• Information on sustainability-related risks and opportunities other than climate: In the first annual reporting period in which an entity applies IFRS S1, the entity is permitted to disclose information on only climate-related risks and opportunities (in accordance with IFRS S2) and consequently apply the requirements in IFRS S1 only insofar as they relate to the disclosure of climate-related financial information.

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 S1
• 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
• iGAAP in Focus newsletter explaining the new requirements
• Our IAS Plus summary of IFRS S1
• Our IAS Plus project page on General requirements
• Statement of the IFRS Foundation Monitoring Board welcoming the finalisation of the first two standards