The newly formed International Sustainability Standards Board released two new proposals on the first IFRS Sustainability Disclosure Standards for commenting on 31 March 2022. This marks the next step towards equal prominence for sustainability and financial reporting. The proposals aim to create a global baseline for investor-focused sustainability reporting that local jurisdictions can build on.
IFRS Sustainability Disclosure Standards proposals are:
ED IFRS S1 “General Requirements for Disclosure of Sustainability-related Financial Information” (general requirements proposal)
ED IFRS S2 “Climate-related Disclosures” (climate proposal)
They are designed to be applied together and alongside future topic- or industry-specific standards. They both propose reporting across four content areas:
Governance
Strategy
Risk Management
Metrics and Targets
Sustainability standards are being developed at a much faster pace than IFRS Accounting Standards. The first standards could be finalized this year. It is up to individual jurisdictions whether and when to adopt them. Some public and private companies may choose to adopt them voluntarily – e.g. in response to investor or societal pressure – and so reporting could be as soon as 2022 year ends.
Under the proposals, companies would provide forward-looking information about the impact of significant sustainability-related risks and opportunities on the company business model, strategy, and financial statements in the short, medium and long term. Companies would provide globally consistent disclosures that focus on how sustainability topics affect enterprise value.
The proposals also draw content from other existing sustainability standard organizations:
Climate Disclosure Standards Boards (CDSB) - was consolidated into IFRS Foundation on 31 January 2022
Value Reporting Foundation (VRF) - comprising Sustainability Accounting Standards Board and International Integrated Reporting Council
International Accounting Standards Board – announced plans to consolidate with VRF by June 2022
New sustainability reporting forms part of company’s general purpose financial reporting and is connected with and released at the same time with financial statements. Therefore, companies will need processes and controls in place so that they can provide sustainability information of the same quality, and at the same time, as their financial information.
The proposals are open for comment until 29 July 2022; the subsequent standards may be issued as soon as the second half of 2022.
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Diagram by KPMG
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