IFRS S1 AND IFRS S2, ISSB’s Sustainability Disclosure Standards
The global landscape of environmental, social, and governance (ESG) reporting is undergoing a significant transformation. The International Sustainability Standards Board (ISSB) has recently finalised the first two IFRS Sustainability Disclosure Standards, namely IFRS S1 and IFRS S2. These standards, which address disclosure requirements related to an entity's governance, strategy, risk management, and sustainability-related metrics, mark a crucial milestone in the standardisation of global corporate sustainability reporting.
Application Timeline
Entities are required to apply both IFRS S1 and IFRS S2 for annual reporting periods beginning on or after January 1, 2024. However, the specific application dates may vary as jurisdictions adopt the standards. Early application is permitted, provided that the entity discloses its early adoption and applies both standards simultaneously. Alternatively, entities can elect to apply transition relief for sustainability-related disclosures (IFRS S1). This relief allows entities to align their reporting with financial statements and exempts them from disclosing comparative information in the first annual reporting period.
Transition Relief Measures
To support entities in their transition to the new standards, the ISSB has introduced relief measures. Entities are not required to provide disclosures specified in IFRS S1 or IFRS S2 for any period before the date of initial application. In the first annual reporting period of applying IFRS S1, entities can report sustainability-related financial disclosures after publishing their general purpose financial statements. The timing of these disclosures can coincide with the second-quarter or half-year interim general purpose financial reports, within nine months of the end of the annual reporting period, or based on the entity's reporting obligations.
Climate-related Disclosures
In the first annual reporting period of applying IFRS S1 and IFRS S2, entities are permitted to disclose information solely on climate-related risks and opportunities in accordance with IFRS S2. The requirements of IFRS S1 related to sustainability-related information are to be applied only insofar as they pertain to climate-related disclosures. Entities utilising this transition relief must disclose the fact and are not obliged to provide comparative information about sustainability-related risks and opportunities, except for climate-related aspects. In the second annual reporting period, comparative information on sustainability-related risks and opportunities, other than climate-related aspects, is not required.
These global ESG disclosure standards provide a common baseline for sustainability reporting, facilitating alignment and interoperability. As jurisdictions endorse and implement the standards, companies must prepare for their application and consider the relief measures provided. By adopting these standards, companies can enhance transparency, improve decision-making, and contribute to global sustainability goals.
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