The IFRS Sustainability Disclosure Standards were created in 2022 by the International Sustainability Standards Board (ISSB), a new working group created by the International Financial Reporting Standards (IFRS) Foundation. IFRS Sustainability Disclosure Standards are intended to serve as a global format for sustainability and climate reporting and disclosure that meets the needs of CFOs, investors, and regulators. The standards aim to put sustainability reporting on equal footing with financial reporting, while helping to connect sustainability-related financial information and a company's financial statements
A transition to structured, internationally standardized sustainability reporting should help CFOs, ESG leaders, and sustainability teams better understand the carbon accounting process an organization needs to follow alongside their financial reporting to regulators and investors.
At a time when leaders and reporting companies are being asked to comply with an increasing number of mandatory sustainability reporting obligations set to take effect between 2023 and 2025 across the European Union (EU), United States, Canada, and other countries, IFRS Sustainability Disclosure Standards will enable companies to provide material sustainability-related information about their business that's clear, relevant, and comparable.
The IFRS Sustainability Disclosure Standards use the word 'standards' in plural because their intent is to create and represent multiple sets of standards. So far, the first two standards proposed are:
At a time when there are already plenty of sustainability reporting standards, the IFRS luckily does not completely reinvent the wheel. Initial ISSB guidance synthesizes existing sustainability reporting recommendations from already-popular TCFD (Task Force for Climate-Related Financial Disclosure), SASB, and Greenhouse Gas Protocol. Anyone already familiar with TCFD reporting will immediately notice the similarities.
In fact, rather than presenting a new method of sustainability reporting, IFRS is more focused on structure and standardization - how do we get ever company reporting the same metrics so investors can compare apples-to-apples?
At present, IFRS's initial proposal is potentially relevant for all companies, regardless of the framework applied in preparing their financial statements, and sustainability disclosures should be made by the same reporting entity issuing financial statements. The definition of 'materiality' in sustainability is the same as the one used in IFRS Accounting Standards.
Ultimately, a topic is material if it influence's investors' perception of the company's enterprise value.
For readers new to sustainability reporting who are coming from traditional financial accounting roles and backgrounds, there are a few important distinctions between sustainability and financial disclosure approaches - even within the IFRS's framework:
IFRS Sustainability Disclosure Standards were release on March 31, 2022 and are currently in proposal form and accepting comments until July 29th, 2022. The ISSB will then review comments, and has signaled the board aims to complete and issue full initial guidance by the end of 2022.
IFRS has announced plans to develop additional future standards and guidance, including likely future topic- and industry-specific requirements.
IFRS recommends that a company's board and executive leadership discuss, answer, and report annually on the company's climate risks and strategy. Like TCFD, ISSB divides its sustainability disclosure into four core sections:
Unlike other sustainability reporting frameworks like CDP or GRI, IFRS does not recommend universal sustainability KPIs beyond measuring and disclosing Scope 1, 2 and 3 greenhouse gas (GHG) emissions. How your organization measures the implementation and success of its climate governance, strategy, risk management, and transition plan is oriented around industry-specific, SASB-inspired metrics, at least for the time being.
One topic area IFRS does require in sections ED IFRS S2.13(b)(i)(ii) and ED IFRS S2.13(b)(iii) is the company's reliance on decarbonization vs. carbon offsets to achieve its climate targets. What percent of the target will be achieved through the company's direct operations, its value chains, or offsets? And, if offsets are being used, sufficient information to understand their origin, type, and integrity.
Within the outlined climate risk category - which we consider broadly representative - companies can assess risk across any of the following categories:
Note: This piece presents an executive summary overview of IFRS Sustainability Disclosure Standards. A full item-by-item content requirements breakdown of the standards is beyond the scope of this article. For more guidance, please consult the IFRS and ISSB's primary source material or please contact us to discuss IFRS reporting requirements in detail.
Brightest helps hundreds of companies measure Scope 1, 2, and 3 emissions and report climate performance
Within IFRS's metrics guidance, ISSB requests financial assessment and attribution related to the company's climate and sustainability materiality:
IFRS also requests disclosure around:
Consistent with other IFRS standards, ISSB requires sustainability reporting and disclosure information is:
For organizations in the earlier stages of their climate risk, ESG, and sustainability reporting journey, we have a few general recommendations, additional reading, and suggested next steps:
Materiality assessment - Before preparing your first IFRS disclosures, you need to conduct a “Materiality Assessment” to clarify your what your company's climate risks, opportunities, and reporting topics are. A materiality assessment is a project which determines and ranks the most material themes for your business based on market data, stakeholder interviews, surveys, and reference standards. For example, a manufacturing company might focus on climate-related risks to its facilities and supply chain. A technology company could focus on ClimateTech innovation opportunities and risks. A bank should look at portfolio and asset risk linked to fossil fuels and climate-related severe weather. Pick and rank the most relevant climate themes depending on your organization’s industry, business model, risk exposure, and innovation capacity.
Climate and sustainability data systems, workflows, and process - While this might go without saying, in order to report your organization's climate performance, you need to know what it is - with a high degree of accuracy. Your materiality process can help guide you toward the main climate risk and strategy themes to focus, but we recommend taking that further with dedicated carbon accounting software to measure your Scope 1, 2, and 3 GHG emissions and other key metrics required for IFRS disclosure.
Many organizations start their sustainability reporting with relatively simple spreadsheets, surveys, and documents, but things can get complex fast - particularly for larger companies - and it's important to have an enterprise sustainability reporting system like Brightest that provides full audit measures, activity logging, financial systems and ERP integration capability, and secure user access permissions to help organizations stay IFRS compliant. Ongoing report archiving, version control, and governance are also important to think about, since you'll be disclosing every year.
Manage IFRS sustainability reports directly inside Brightest's award-winning sustainability reporting software