ISSB concludes discussions on draft IFRS Sustainability Disclosure Standards

Keywords: Mazars, Thailand, Sustainability, ISSB, IFRS, IFRS S1, IFRS S2

12 April 2023 

In this issue, we present the decisions reached by the ISSB over the past month; they will remain tentative until the final vote on the two standards, which is scheduled to take place by the end of the second quarter of 2023.

The ISSB Update for the February 2023 meeting is available here. A press release has also been published (available here).

Draft IFRS S1 on general sustainability disclosure requirements

Regarding the sources of guidance that entities may use, the Board reached the following main decisions (which remain tentative at this stage):

• to amend the standard to permit (but not require) entities to use the most recent pronouncements on sustainability reporting from other standard-setting bodies when identifying sustainabilityrelated risks and opportunities and the required disclosures, if this would help them to meet users’ needs;
• to introduce the option (but not a requirement) for entities to draw on the Global Reporting Initiative Standards or European Sustainability Reporting Standards (ESRS), which will be listed in the appendices to IFRS S1, to help them identify relevant sustainability metrics to include in disclosures on sustainability-related risks and opportunities.

These sources of additional guidance may only be used if there is no relevant IFRS Sustainability Disclosure Standard on the topic in question. It is therefore not envisaged that the appendices to IFRS S1 will continue to exist in perpetuity. If such additional guidance is used, the entity must ensure that:

• material information is not obscured by immaterial information disclosed in accordance with these sources;
• the general requirements of IFRS S1 are met;
• investors’ information needs are met and the materiality principle is applied.

These key decisions on the content of sustainability reporting under IFRS standards are the culmination of several months of work by the ISSB in conjunction with the European Commission and the European Financial Reporting Advisory Group (EFRAG), to ensure maximum interoperability between their respective sets of standards and alignment of key climate-related disclosures. The finishing touches are now being put to the IFRS standards ready for publication, and the first 12 ESRS are at a similar stage (for the latter, adoption scheduled in June 2023 by means of delegated acts). The collaboration will thus now focus on the precise terminology to be used in each framework.

The ISSB will also continue to collaborate with other bodies in other jurisdictions to improve interoperability of its standards and thus facilitate widespread adoption.

Tentative decisions relating to both IFRS S1 and IFRS S2

Regarding the schedule for initial application and transition provisions, the Board (tentatively) decided:

• that the two draft standards will be effective for financial periods commencing on or after 1 January 2024;

• to permit early application provided that (i) the entity applies both IFRS S1 and IFRS S2 at the same time and (ii) the entity discloses that fact;
• to permit the following reliefs for the first annual report:
  • an additional grace period after the publication of the financial statements before disclosures on the financial impacts of sustainability issues are required;
  • relief from the requirement to measure Scopes 1, 2 and 3 greenhouse gas (GHG) emissions in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard if the entity uses a different measurement basis for the period immediately preceding initial application of IFRS S2;
  • relief from the requirement to publish Scope 3 GHG emissions.

Next steps before final vote on IFRS S1 and S2, and upcoming public consultation on ISSB’s future priorities

Following several months of redeliberations to finalise the content of the draft IFRS S1 and S2 standards, the Board unanimously voted to move forward to the final balloting phase, in accordance with its due process, with a view to publishing the final versions of the two standards by the end of the second quarter of 2023. This decision was particularly welcomed by IOSCO (the International Organization of Securities Commissions) in a press release available here).

In the meantime, the ISSB will focus on developing additional guidance and training materials, as well as supporting implementation of the new standards. In particular, support needs have been identified for emerging and developing economies, as well as for smaller companies.

Finally, the ISSB will launch a public consultation on its future work plan in the second quarter of 2023. Some research projects have already been (tentatively) added to the work plan and stakeholders will be consulted on whether to retain these.