The International Sustainability Standards Board (ISSB) met for three days in January 2023 and focused on redeliberating some of its proposals in the Exposure Drafts IFRS S1 ‘General Requirements for Disclosure of Sustainability-related Financial Information’ and IFRS S2 ‘Climate-related Disclosures’.
Metrics and targets
- The ISSB decided to make minor changes which clarify that the objective is to require entities to disclose information about:
- The metrics the entity uses to measure, monitor, and manage sustainability-related risks and opportunities (even if those metrics aren’t currently required by IFRS Sustainability Disclosure Standards), and
- the metrics required by IFRS Sustainability Disclosure Standards (even if the entity does not use these metrics).
Financial effects of connected information
- Entities will need to disclose the current and anticipated financial effects of sustainability-related risks and opportunities of both a quantitative and qualitative nature using reasonable and supportable information. If they’re unable to provide the detail required, entities should explain why and disclose what information they have to the most granular level available.
- Entities will also need to assess how information about these risks and opportunities is linked to information in the general-purpose financial statements.
Disclosure of judgements, assumptions, and estimates
- The ISSB decided to require entities to disclose the judgements they’ve made that have had the most significant effects on their disclosures about their sustainability-related risks and opportunities. They also decided to require entities to identify the sources of guidance that was used to prepare their sustainability-related financial disclosures, including the industry or industries specified in IFRS Sustainability Disclosure Standards, SASB Standards, or other industry-based sources of guidance. These requirements should provide useful guidance to assist entities when disclosing their judgements, assumptions and estimates that they have made.
- In addition, the ISSB decided to clarify that the disclosure requirements on estimation uncertainty relating to metrics also apply to current and anticipated effects of sustainability-related risks and opportunities on the entity’s financial position, financial performance, and cash flows. This estimation uncertainty includes estimation uncertainty that has a significant risk of resulting in a material adjustment within the next financial year to the carrying amounts of assets and liabilities reported in the entity’s financial statements.
- The ISSB also decided to clarify that the words ‘to the extent possible’ in draft IFRS S1 mean ‘to the extent possible considering the requirements of IFRS Accounting Standards or other relevant generally accepted accounting principles’. The ISSB will also require entities to disclose information about any significant differences between the financial data and assumptions they used to prepare their sustainability-related financial disclosures and the financial data and assumptions used to prepare their financial statements.
Reasonable and supportable information
- The ISSB agreed to introduce the concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’ into IFRS S1 and IFRS S2, to assist entities when applying specific requirements in the Standards.
Commercially sensitive information about opportunities
- The ISSB approved an exemption in IFRS S1 permitting entities to exclude disclosing sustainability-related opportunities when that information is commercially sensitive. However, this exemption will only be able to be used in limited circumstances.
Using scenario analysis to assess climate resilience
- The ISSB also decided to require entities to prepare disclosures using a method of climate-related scenario analysis that after considering all reasonable and supportable information available at the reporting date can be obtained without undue cost or effort. This could include information about past events, current conditions, and forecasts of future economic conditions.
Greenhouse gas emissions—reporting period relief
- The ISSB opted to provide relief allowing entities to measure GHG emissions using information for reporting periods that are different from the entity’s own reporting period. This relief applies when that information arises from entities in its value chain that have reporting periods that are different from the entity’s own reporting period, on condition the reporting periods are the same length, it is based on the most recent data available without undue cost or effort, and the reporting entity discloses any effects of significant events and changes that occurred between the two reporting periods.
Climate-related targets—latest international agreement on climate change
- The ISSB opted to change the requirement for entities to disclose how any climate-related targets set have been informed by the latest international agreement on climate change, including disclosing the jurisdictional commitments that arise from that agreement. The ISSB signalled the basis for conclusions on IFRS S2 will explain why this requirement will assist the users of general-purpose financial reporting.
Anticipated release date
- The ISSB indicated they would make their final decisions on these two standards in its February meeting. Given the IFRS Foundation’s due processes it anticipates releasing IFRS S1 and IFRS S2 in their final form in June 2023.
Source: Grant Thornton International Ltd.
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