The Dawn of a New Era: IFRS Sustainability Disclosure Standards

The world of finance and business stands on the brink of a significant evolution as it welcomes the inaugural IFRS Sustainability Disclosure Standards. These disclosure standards, issued on 26 June 2023, promise to reshape the way companies report sustainability-related disclosures, pushing the global markets towards an era of greater transparency, consistency, and accountability.

IFRS S1 requires that organisations disclose the sustainability-related risks and opportunities they encounter across the short, medium, and long-term time horizons, while IFRS S2 outlines specific climate-related disclosures that complement IFRS S1. Both standards draw upon the recommendations set forth by the Task Force on Climate-related Financial Disclosures (TCFD), and can help equip investors with pertinent information relevant to their decision-making process.

As we navigate through this transformative phase, it becomes crucial to understand the implications of these standards and how they can potentially influence the global capital market landscape.

• Fostering Global Standardisation: These newly-issued ISSB standards bring about a much-needed global baseline for sustainability-related disclosures, simplifying the reporting process for businesses and investors. Companies worldwide can now align their disclosures with a universally-accepted benchmark, with the flexibility to incorporate additional jurisdiction-specific requirements, promoting a streamlined yet adaptable approach to sustainability disclosures. The introduction of these standards has also been met with a wave of international endorsement, from companies and investors, to policy makers and regulators, underscoring their importance and anticipated impact.
• Integration of Existing Frameworks: The IFRS S1 and IFRS S2 standards are a product of integrating multiple existing sustainability initiatives. By consolidating recommendations from several key entities like Global Reporting Initiative (GRI), TCFD, Sustainability Accounting Standards Board (SASB) Standards, Climate Disclosure Standards Board (CDSB) Framework, Integrated Reporting Framework, and the World Economic Forum metrics, the ISSB has significantly streamlined the sustainability disclosure process. This assimilation reduces complexity and allows businesses to make the most of their previous investments in sustainability. By integrating these initiatives, the ISSB ensures a broad coverage of sustainability aspects, leading to a comprehensive and insightful disclosure that can guide responsible investment decisions.
• Enhancing Reporting Effectiveness and Efficiency: The ISSB Standards play a vital role in promoting the delivery of credible and material information to investors, ensuring that the data provided is both proportionate and instrumental in decision-making processes. They introduce a universal baseline to facilitate companies in articulating their strategies for identifying and managing sustainability-related risks and opportunities across different time horizons. In doing so, the potential for duplicated reporting across jurisdictions is significantly reduced. This integrative approach not only enables companies to offer comparable financial data to global markets more efficiently, but it also allows jurisdictions to introduce additional, local-specific requirements as necessary. Moreover, to ensure compatibility with any accounting requirements and increase the ease of adoption, the ISSB Standards have been rigorously developed based on the principles of the IFRS Accounting Standards, which are in use in over 140 jurisdictions.
• Promoting Effective Communication and Transparency: The ISSB standards are designed to improve the quality and relevance of sustainability disclosures, intended to be read together with financial statements as part of a unified reporting package. This arrangement provides a more holistic view of a company's performance, revealing the intersection between financial outcomes and sustainability efforts, and serves as a robust tool for companies to effectively communicate their sustainability strategy. This transparency empowers investors and stakeholders to make well-informed decisions, reinforcing trust and driving sustainable corporate behaviour.

The introduction of these standards represents a seismic shift in how companies address sustainability. They reflect the evolving investor expectations and the increasing importance of sustainability-related risks and opportunities in financial decision-making. This development offers both challenges and opportunities - companies must now learn to navigate this new landscape, ensuring compliance with the new standards, while also capitalising on the opportunities they present.

In the face of these significant developments, companies will require expert guidance and support to adapt and thrive. Having closely followed the development of the IFRS Sustainability Disclosure Standards, our dedicated team from our Sustainability and Climate Change practice has substantial experience in sustainability practices, and is well-positioned to advise you on the disclosure requirements. We offer comprehensive solutions, from identifying sustainability-related risks and opportunities to integrating these standards into your reporting mechanisms and ensuring full compliance. With our help, your company can make this transition smoothly, leveraging new opportunities, and contributing effectively to the global sustainability agenda.