ISSB issues inaugural global sustainability disclosure standards.
Joint Report of the ESG and Capital Markets Departments | ISSB issues inaugural global sustainability disclosure standards
On June 26th, 2023, the International Sustainability Standards Board (ISSB) issued its inaugural standards — IFRS S1 and IFRS S2—, ushering in a new era of sustainability-related disclosures in capital markets worldwide.
IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium, and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1. Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures.
Now that IFRS S1 and IFRS S2 are issued, the ISSB will work with jurisdictions and companies to support adoption. The first steps will be creating a Transition Implementation Group to support companies that apply the Standards and launching capacity-building initiatives to support effective implementation.
The ISSB will also continue to work with jurisdictions wishing to require incremental disclosures beyond the global baseline and with GRI to support efficient and effective reporting when the ISSB Standards are applied in combination with other reporting standards.
A. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
The objective of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information 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.
Unless another IFRS Sustainability Disclosure Standard permits or requires otherwise in specified circumstances, an entity shall provide disclosures about:
— Governance: the governance processes, controls, and procedures the entity uses to monitor and manage sustainability-related risks and opportunities.
— Strategy: the approach the entity uses to manage sustainability-related risks and opportunities.
> Business model and value chain
> Strategy and decision-making
> Financial position, financial performance, and cash flows
> Resilience
— Risk management: the processes the entity uses to identify, assess, prioritize, and monitor sustainability-related risks and opportunities.
— Metrics and target: the entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.
General Requierments:
a. Sources of guidance:
i. Identifying sustainability-related risks and opportunities
ii. Identifying applicable disclosure requirements
iii. Disclosure of information about sources of guidance
b. Location of disclosures: An entity is required to provide disclosures required by IFRS Sustainability Disclosure Standards as part of its general purpose financial reports.
c. Timing of reporting: An entity shall report its sustainability-related financial disclosures at the same time as its related financial statements. The entity’s sustainability-related financial disclosures shall cover the same reporting period as the related financial statements.
i. Normally, an entity prepares sustainability-related financial disclosures for a 12-month period. However, for practical reasons, some entities prefer to report, for example, for a 52-week period. This Standard does not preclude the practice.
ii. This Standard does not mandate which entities would be required to provide interim sustainability-related financial disclosures, how frequently, or how soon after the end of an interim period.
d. Corporative information: An entity shall 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 shall also disclose comparative information for narrative and descriptive sustainability-related financial information.
e. Compliance statement:
i. This Standard relieves an entity from disclosing information otherwise required by an IFRS Sustainability Disclosure Standard if law or regulation prohibits the entity from disclosing that information.
ii. This Standard also relieves an entity from disclosing information about a sustainability-related opportunity otherwise required by an IFRS Sustainability Disclosure Standard if that information is commercially sensitive as described in this Standard.
Source: IFRS – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
B. IFRS S2 Climate-related Disclosures
The objective of IFRS S2 Climate-related Disclosures 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.
Scope:
a. Climate-related risks to which the entity is exposed, which are:
i. Climate-related physical risks; and
ii. Climate-related transition risks.
b. Climate-related opportunities available to the entity.
— Governance:
> 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.
> Management’s role in the governance processes, controls, and procedures used to monitor, manage and oversee climate-related risks and opportunities,
— Strategy: To enable users of general-purpose financial reports to understand an entity’s strategy for managing climate-related risks and opportunities.
> Business model and value chain
> Strategy and decision-making
> Financial position, financial performance, and cash flows
> Climate resilience
— Risk management: To enable users of general-purpose financial reports to understand an entity’s processes to identify, assess, prioritize, 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.
— Metrics and targets:
— Metrics
a. Greenhouse gases
i. Disclose its absolute gross greenhouse gas emissions generated during the reporting period, expressed as metric tonnes of CO2 equivalent, classified as:
1. Scope1 Greenhouse gas emissions;
2. Scope 2 Greenhouse gas emissions;
3. Scope 3 Greenhouse gas emissions;
ii. Measure its greenhouse gas emissions in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) unless required by a jurisdictional authority or an exchange on which the entity is listed to use a different method for measuring its greenhouse gas emissions.
iii. Disclose the approach it uses to measure its greenhouse gas emissions, including:
1. the measurement approach, inputs, and assumptions the entity uses to measure its greenhouse gas emissions;
2. the reason why the entity has chosen the measurement approach, inputs, and assumptions it uses to measure its greenhouse gas emissions; and
3. any changes the entity made to the measurement approach, inputs, and assumptions during the reporting period and the reasons for those changes.
b. Climate-related transition risks
c. Climate-related physical risks
d. Climate-related opportunities
e. Capital Deployment
f. Internal carbon prices
g. Remuneration
i. A description of whether and how climate-related considerations are factored into executive remuneration; and
ii. The percentage of executive management remuneration recognized in the current period that is linked to climate-related considerations.
— Targets
a. The metric used to set the target;
b. The objective of the target;
c. The part of the entity to which the target applies;
d. The period over which the target applies;
e. The base period from which progress is measured;
f. Any milestones and interim targets;
g. If the target is quantitative, whether it is an absolute target or an intensity target; and,
h. How the latest international agreement on climate change, including jurisdictional commitments that arise from that agreement, has informed the target.
Source: IFRS – IFRS S2 Climate-related Disclosures
Please, let us know should you require any further information on this matter.
Sincerely.
Luciana Denegri
Fernanda Mierez
Manuel Frávega