Key takeaways of the new IFRS Sustainability Reporting Standards

The Sustainability Disclosure Standards, launched by the IFRS' ISSB on Monday 26 June and effective as of January 2024, are expected to be used by companies around the world to disclose their sustainability-related risks and opportunities.

If widely adopted as anticipated, the standards will improve the overall quality and comparability of sustainability information available to investors and markets, potentially reshaping the capital allocations and pricing of equity, debt and resources. While the standards have been introduced as voluntary, some countries may opt for mandatory disclosures over time.

I have summarised the key takeaways of the launch of the standards:

• A 'global baseline' for sustainability disclosure requirements: The standards consolidate and build from several existing sustainability reporting frameworks such as the Taskforce on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) Standards. The standards are also expected to be "interoperable" with the EU's own upcoming sustainability standards, while there is a lack of clarity as to how they will interact with the SEC's equivalent standards. The standards are built on the concepts that underpin the IFRS Accounting Standards, which are required by more than 140 jurisdictions and are generally suitable for application around the world, potentially creating a global sustainability accounting baseline. However, it is up to individual countries to decide whether to require listed companies to apply such standards and some countries, such as the UK, have already signalled endorsement of the standards.
• Simultaneous reporting requirement with financial reporting: The standards are designed to ensure that corporates provide sustainability-related information alongside the delivery of their financial statements (in the same reporting package and in compliance with any existing accounting requirements). Once the standards come into effect in January 2024, companies will have a one-year relief period from the simultaneous reporting requirement. The idea behind this requirement is that sustainability performance is fundamentally linked to financial performance, so they should be go hand in hand and demonstrate a full picture to investors.
• Two sets of standards: IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the material sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific and more detailed climate-related disclosures and is designed to be used with IFRS S1. Both sets of standards fully incorporate the recommendations of TCFD.
• Incorporates transitional reliefs: The standards include some temporary concessions after the consultation period, where more than 1,400 submissions were received, that are intended to help companies adapt to the new standards and to make sure the reporting is not overly burdensome. These reliefs include, as noted above, a one-year relief from simultaneous reporting and a one-year relief from reporting on a wider range of sustainability issues such as Scope 3 emissions (beyond climate-related risks and opportunities).