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When are IFRS sustainability disclosure standards taking effect?

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The International Sustainability Standards Board (ISSB) has announced that its initial IFRS Sustainability Disclosure Standards will become effective in January 2024.

  • The ISSB said its standards will come into force in 2024 ahead of confirming the finalised text.
  • It means that companies, which can use ISSB guidance and training material, will be able to report against them from 2025.
  • While they are not mandatory, it is likely that many jurisdictions will impose them, therefore companies should look into early adoption to be better prepared.

The ISSB was launched by the International Financial Reporting Standards (IFRS) Foundation. It said that the decision on the effective date is answering “the strong demand” from investors for corporate sustainability disclosures that are comprehensive, consistent and comparable. 

The International Organization of Securities Commissions and governments around the world, including G20 leaders and others, have expressed the urgent need for standards that enable companies to disclose information about sustainability-related risks and opportunities, starting with climate, to support systemic financial stability and for investor protection.

What are the standards?

The initial standards are S1, on general sustainability, and S2, which is climate-specific. They are currently still draft versions.

S1 proposes overall requirements for an entity to disclose sustainability-related financial information about its significant sustainability-related risks and opportunities. It also proposes that an entity provide the market with a complete set of sustainability-related financial disclosures.

S2, instead, set out requirements for the disclosure of material information about a company’s significant sustainability-related risks and opportunities that is necessary for investors to assess a company’s enterprise value. It is built on the recommendations from the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures. Indeed, the ISSB itself was established as a result of the consolidation of the SASB and other entities.

When will they be finalised?

In February 2023, the ISSB took its final decisions on all the technical content of S1 and S2, informed by the feedback received during consultations in 2022. It will go through a balloting process, which is a drafting, review and approval process that completes the decision-making process. 

The standards will be issued at the end of the second quarter of 2023. 

In order to establish a uniform approach across jurisdictions, the ISSB is cooperating with the European Commission and the European Financial Reporting Advisory Group a shared objective to maximise the interoperability of their standards and align on key climate disclosures. Given the substantive decisions on the content of the ISSB Standards are now finalised, this joint work will now focus on detailed terminology within the standards, to be completed with the finalisation of both sets of standards.

Indeed, the ISSB has been focused more on enterprise value, so its standards are around the financial impact of climate, biodiversity and other risks on business operations, rather than looking at wider systemic risk. While including Scope 3 emissions was considered a shift, the European approach remains considerably different.

ISSB chair Emmanuel Faber said: “Now, we will work with regulators around the world as they play their part, creating the conditions within their markets for adoption, so that investors can use comparable information about sustainability-related risks and opportunities in their investment decisions without delay. We will also actively engage with the many preparers who are considering voluntary adoption of S1 and S2, to better answer their investor needs.”

What are companies expected to do?

Companies will start to publish disclosures against the standards in 2025. The ISSB acknowledged that sustainability disclosure is new for many companies globally, so it will introduce programmes that support those applying the standards as market infrastructure and capacity are built.

Ahead of the issuance in 2023, it will develop guidance and training material, and work with partners to deliver a core capacity-building programme across different economic settings, so that all market participants can access its benefits.

Considering the importance of considering the specific circumstances of emerging and developing economies and smaller companies, which is why the ISSB is introducing structured partnerships that leverage specialist expertise to build local understanding for implementing the standards. The board previously announced a package of reliefs and guidance to support the use of the standards, enabling companies to scale up their approach to using them over time.

Reporting against the standards is not mandatory, but the ISSB’s work is backed by the G7, the G20, IOSCO, the Financial Stability Board, African Finance Ministers and by Finance Ministers and Central Bank Governors from over 40 jurisdictions. As such, these authorities are likely to mandate their adoption or adapt the standards to local requirements.

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