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The International Sustainability Standards Board (ISSB) has introduced the first set of IFRS Sustainability Disclosure Standards, setting a global benchmark that can be adapted to various regional requirements. These standards create a unified framework for businesses to report critical sustainability information, including their exposure to climate-related risks and opportunities.
On June 26, 2023, the ISSB, alongside partners such as CPA Canada, launched two key standards: General Requirements for Disclosure of Sustainability-related Information (IFRS S1) and Climate-related Disclosures (IFRS S2). Here’s what you need to know:
1.Focusing on Investors and Climate Disclosures
The new standards prioritize investors’ information needs, especially regarding climate-related disclosures. They are designed to be part of a company’s overall financial reporting. IFRS S1 sets the groundwork for reporting sustainability-related financial information, while IFRS S2 focuses specifically on the disclosure of climate-related risks and opportunities, including their effects on a company’s financial health, strategy, and business model. These standards are built around four key areas: governance, strategy, risk management, and metrics and targets, following the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
2. Effective Date and Adoption
The standards are set to take effect for annual reporting periods starting on or after January 1, 2024. While they establish a global baseline, their implementation is not yet mandatory. In Canada, the Canadian Securities Administrators (CSA) will decide on their mandatory adoption. The CSA is currently considering the ISSB’s standards alongside its own climate disclosure proposals and those from the U.S. The Canadian Sustainability Standards Board (CSSB) will also review these standards to determine their suitability for Canada.
3. Compliance with Various Requirements
Even though the ISSB standards are not compulsory, companies still need to comply with existing ESG disclosure requirements. For example, federally regulated financial institutions in Canada are already required to disclose climate-related information. Additionally, large emitters face specific regulatory reporting obligations. The cross-border implications are also notable, with EU and U.S. regulations potentially affecting Canadian companies.
4. Inclusion of Smaller Companies
The ISSB has considered the impact on smaller companies and included supporting provisions. These measures include scalability options and temporary relief on reporting timelines, comparative data, and Scope 3 greenhouse gas (GHG) emissions disclosures. Smaller companies within the supply chain might also be required to provide detailed information under the new standards, highlighting the need for private companies to be prepared.
5. Preparation for Future Reporting
Accurate implementation of these standards is crucial for their effectiveness. Organizations should not wait for the finalization of all rules to begin their preparations. CPAs can lead the way by forming cross-functional teams, establishing data collection and reporting processes, and ensuring alignment with overall financial disclosures. They also play a crucial role in providing independent assurance and enhancing the credibility of sustainability reports.
The Center for Sustainability and Excellence (CSE) is committed to providing top-tier sustainability education for board members and business leaders. Join us for our live online sessions on October 24-25 & 28, 2024, where we’ll explore global sustainability leadership and strategies to elevate decision-making in the boardroom.
For early bird and group discounts, contact us at [email protected].
