On 26 June 2023, the International Sustainability Standards Board (the “ISSB”) issued its inaugural International Financial Reporting Standards (“IFRS”) Sustainability Disclosure Standards (the “Standards”), heralding progress in the development of a global baseline of sustainability-linked disclosures. The Standards build on the concepts that underpin the IFRS Accounting Standards, which are required in more than 140 jurisdictions, but notably not in the United States for domestic issuers subject to regulation by the Securities and Exchange Commission (“SEC”), which must apply US Generally Accepted Accounting Principles (“US GAAP”). Despite broad investor appetite for transparent, uniform and comparable disclosure rules, the scope of required sustainability disclosure and timing for adoption of the SEC’s pending climate disclosure rule remains unresolved.
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (“IFRS S1”) requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. The effect on the entity’s prospects refers to the effect on the entity’s cash flows, its access to finance, or cost of capital over the short, medium or long term.
- IFRS S2 Climate-related Disclosures (“IFRS S2”) requires an entity to provide information about its exposure to climate-related risks and opportunities. Information to be disclosed includes both physical risks—such as extreme weather events—as well as transition risks, such as changes in customer behaviour.
Both IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024. Accordingly, where the Standards have been adopted for a 2024 reporting cycle, relevant disclosures will begin to be published in 2025 in an entity’s general purpose financial reports (subject to transitional provisions), alongside an “explicit and unreserved statement of compliance” when disclosing against the Standards. Whilst the launch of the Standards has been a welcome step, seeking to provide greater uniformity in corporate reporting, individual jurisdictions will decide whether entities will be required to comply with the Standards.