On June 26, 2023, the International Sustainability Standards Board (ISSB) issued its first two international sustainability standards (Standards)—IFRS S1 and IFRS S2—marking the start of a new era of sustainability-related disclosures in capital markets worldwide.
These new standards help create a framework for the global business community to disclose material information on sustainability and exposure to climate-related risks and opportunities.
The Standards were developed to meet the information needs of investors and the resulting disclosures are to be provided as part of an entity’s general purpose financial reporting. They’re designed to be applied together and include reporting across four pillars, based on the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD): governance, strategy, risk management, and metrics and targets.
General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) sets out the overall requirements for a reporting entity to disclose sustainability-related financial information about its sustainability-related risks and opportunities. This will help reporting entities communicate to investors about the sustainability-related risks and opportunities they face over the short, medium, and long term.
Climate-related Disclosures (IFRS S2) sets out specific requirements for the identification, measurement, and disclosure of climate-related financial information and is designed to be used in conjunction with IFRS S1.
These Standards create a common language for disclosing sustainability risks and opportunities, initially focusing on climate related risks and opportunities, to achieve global comparability. Together these Standards will provide decision-useful, sustainability related information for investors.
IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after January 1, 2024, meaning that investors can begin to see information in 2025 based on businesses applying the Standards for their 2024 reporting cycle.
The Standards are not yet mandated in Canada; therefore, adoption by Canadian businesses is voluntary at this time.
Canadian securities regulators determine the reporting requirements for Canadian Reporting Issuers, including sustainability standards. Proposed National Instrument 51-107 Disclosure of Climate Related Matters is not finalized as regulators consider ISSB and U.S. Securities and Exchange Commission (SEC) developments.
To claim compliance with IFRS Sustainability Disclosure Standards, reporting entities need to apply both Standards together. However, the ISSB has provided relief from some requirements in the first year the Standards are applied.
- Reporting information about sustainability-related risks and opportunities beyond those relating to climate-related risks and opportunities.
- Reporting sustainability-related financial disclosures, including climate-related financial disclosures, at the same time as the related financial statements. This means a reporting entity will be permitted to report its sustainability-related financial disclosures after its financial statements, allowing for more time to collate and report on sustainability.
- Disclosing Scope 3 greenhouse gas (GHG) emissions information and using the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (GHG Protocol Corporate Standard) to measure Scope 1, Scope 2, and Scope 3 GHG emissions if they are using a different approach.
- Disclosing any comparative information.
Now that IFRS S1 and IFRS S2 have been issued, the ISSB has indicated it will work closely with jurisdictions and reporting entities throughout the adoption process. One of its first steps will be creating a Transition Implementation Group to support reporting entities that apply the Standards. In addition, the ISSB will be launching capacity-building initiatives to support the effective adoption and implementation of these two Standards.
The ISSB has also indicated it will work closely with jurisdictions wanting incremental disclosures beyond the global baseline it has created to achieve greater interoperability of the Standards.
Given that reporting on sustainability will either be new to many reporting entities, or potentially different from what they have previously reported, we encourage all entities that may be affected by these Standards to start to consider the impact of them now. Navigating these new Standards can be complex—but we’re here to help.