In June 2023, the newly formed International Sustainability Standards Board (ISSB) of the IASB published two standards for disclosure of information about an entity's sustainability performance, IFRS S1 and IFRS S2. The standards will be effective for annual periods beginning on or after 01.01.2024. Early adoption is permitted, but only for both standards at the same time.
REQUIREMENTS OF IFRS S1
IFRS S1 sets out the general requirements for disclosure of financial information related to sustainability. This requires disclosures about sustainability-related risks and opportunities that are useful to the primary users of general purpose financial statements in making decisions about the provision of resources to an entity.
IFRS S1 requires disclosure of all sustainability risks and opportunities that could reasonably be expected to affect cash flows, access to finance or the cost of capital in the short, medium or long term. The standard also prescribes the preparation and presentation of financial statements related to sustainable development.
An entity is required to disclose the information required by IFRS in relation to sustainability disclosures as part of its general purpose financial statements. Sustainability-related disclosures must be disclosed at the same time as the related financial statements. The disclosure of sustainability-related financial information shall cover the same reporting period as the related financial statements.
An entity whose sustainability-related financial statements comply with all the requirements of IFRSs for sustainability disclosures shall make a clear and unambiguous statement of such compliance. An entity shall not describe sustainability-related financial statements as compliant with IFRS for sustainability disclosures if they do not comply with all the requirements of such standards.
Disclosures are also required that enable users of general purpose financial statements to understand judgements, other than those involving estimations of amounts, made in preparing the sustainability- related disclosures that have the most significant effect on the disclosures. Disclosures are required to enable users of financial statements to understand the most significant uncertainties affecting the amounts recognised in the sustainability-related disclosures. Required to correct material prior period errors by restating comparative amounts for disclosed prior periods, unless it is impracticable to do so.
IFRS S2 REQUIREMENTS
IFRS S2 Climate-related Disclosures requires disclosures about climate-related risks and opportunities that are useful to the primary users of general purpose financial statements in making decisions about resources to be provided to an entity. IFRS S2 requires an entity to disclose information about those climate-related risks and opportunities that can reasonably be expected to affect its cash flows, access to finance or cost of capital in the short, medium or long term. IFRS S2 divides climate risks into:
- physical climate-related risks;
- climate-related transition risks
Climate-related risks and opportunities that are not reasonably expected to affect an entity's prospects are outside the scope of IFRS S2. The objective of the financial disclosures about climate-related management is to enable users of general purpose financial statements to understand the management processes, controls and procedures used to monitor, manage and exercise oversight over climate-related risks and opportunities.
The purpose of the financial disclosure on climate risk management is to enable users of general purpose financial statements to understand the entity's processes for identifying, assessing, prioritising and monitoring climate-related risks and opportunities, including whether these processes are integrated into the entity's overall risk management process, and to inform users of the overall risk management process.
The purpose of financial disclosure of climate-related indicators and targets is to enable users of general purpose financial statements to understand the performance of the entity in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set and any targets required by law.