ISSB completes redeliberations, aims to finalise initial sustainability reporting standards by the end of June
Why does it matter? The finalisation of the ‘global baseline’ of sustainability disclosures for capital markets will represent a significant step forward in the development of globally consistent sustainability reporting, tying into Federal Government plans for mandatory climate-related financial disclosure in Australia.
The ISSB’s February 2023 meeting saw the board finalise its redeliberations on its exposure drafts of IFRS S1 General Sustainability-related Disclosures and IFRS S2 Climate-related Disclosures, making some important decisions:
Balloting to commence. The ISSB confirmed that they were satisfied that the board has complied with all applicable due process requirements and has completed sufficient consultation and analysis to begin the balloting process for IFRS S1 and IFRS S2. As a result, the ISSB expected to issue IFRS S1 and IFRS S2 towards the end of the second quarter of 2023, most likely in June 2023
Effective date. The board decided that IFRS S1 and IFRS S2 will be effective for annual reporting periods beginning on or after 1 January 2024, with early adoption permitted
Transitional relief. Initial reporting would be subject to short-term transitional relief in terms of timing of delivery of initial reports (in other words, to provide relief from the requirement to report sustainability-related financial disclosures at the same time as the related financial statements for a 12 month period)
Broadened guidance. The board decided to broaden the sources of guidance to identify sustainability-related risks and opportunities to permit, but not require, preparers to consider the most recent pronouncements of other standard-setting bodies, the Global Reporting Initiative (GRI) and European Sustainability Reporting Standards (ESRS), in identifying disclosures about sustainability-related risks and opportunities.
The International Organization of Securities Commissions (IOSCO) has welcomed the ISSB’s progress and is moving forward on its independent assessment with a view towards the potential endorsement of IFRS S1 and IFRS S2 in readiness for global adoption. The G20 Finance Ministers and Central Bank Governors have also continued to support the finalisation of the standards.
What does this mean for climate-related disclosures in Australia?
The finalisation of IFRS S1 and IFRS S2 will provide more certainty to the process of implementation of the Federal Government’s plans to introduce mandatory climate-related financial disclosure in Australia.
Treasury’s initial consultation on mandatory sustainability reporting closed on 17 February 2023 and the consultation paper signals that further consultation is expected once the ISSB standards have been issued.
In the meantime, the AASB is progressing its climate-related financial disclosure project, with the latest project plan considered at the March 2023 meeting now working toward finalisation of a voluntary standard on climate-related financial disclosure in February-March 2024 (pending Treasury’s finalisation of legislation to allow mandatory reporting).
In addition, the AASB has decided that references to Sustainability Accounting Standards Board (SASB) Standards should be removed from the baseline of IFRS Sustainability Disclosure Standards (as discussed in this board paper), a decision which will benefit from the ISSB’s decisions on treating SASB Standards as non-mandatory illustrative examples and broadened sources of guidance to sustainability-related risks and opportunities, particularly as GRI standards are often applied in Australia.
In terms of timing, although the initial Treasury consultation is not definitive, it suggests initial mandatory reporting by large listed and financial institutions could commence from the 2024-2025 financial year (i.e. in line with the ISSB standards). Whilst it remains unclear whether this timeframe will ultimately be implemented, entities should ensure they are aware of these developments and are preparing for mandatory sustainability disclosure reporting in the short to medium term.
We have made a submission on the Treasury consultation on climate-related financial disclosure. Our submission:
Supports the alignment of Australia with international practice on climate-related financial disclosure, including the implementation of IFRS S1 and IFRS S2 in full without amendment
Supports the initial adoption to climate-related financial disclosure for the 2024-25 financial year. This aligns to the expectations of the International Organization of Securities Commissions (IOSCO). We believe that a phased approach should be considered, given the costs associated with adoption and the need for businesses to prepare, upskill and adequately resource their teams. This would firstly focus on larger listed entities, financial institutions, and government business enterprises. Followed by smaller listed entities and large private entities, and in time, smaller private companies, not-for-profits, and general government entities. Furthermore, there is an opportunity to drive iterative improvements through learnings obtained from a phased approach
Puts forward the view that there is an opportunity for the Clean Energy Regulator (CER) to harmonise Australia’s Greenhouse Gas (GHG) disclosure requirements with the proposed ISSB Standards including reporting requirements, terminology, methodology, industry classifications and boundaries
Supports that climate-related financial disclosures in companies’ annual reports should be reviewed by independent assurance practitioners to ensure that they are materially consistent with the financial statements as well as provide confidence to investors and stakeholders, in a phased over time approach.
The short publication provides directors with a high level snapshot of what they need to know about forthcoming regulatory obligations. It will be followed by a report due for release later in 2023 that will provide more detailed guidance for directors on how to oversee high quality disclosure.
IFRS sustainability symposium
More than 1,000 people from 45 countries convened in Montreal and online for the IFRS Foundation’s inaugural sustainability symposium.
The symposium was opened by a keynote speech by Emmanuel Faber and the IFRS Foundation has released seven key takeaways from the symposium:
ISSB Standards are nearing issuance
SASB Standards are a practical tool to implement IFRS S1 and IFRS S2 (although, note the AASB’s decision above)
Global comparability remains paramount
Jurisdictions are actively considering the ISSB Standards
Capacity building is critical to the ISSB’s success
Work to advance integrated reporting remains underway
Many stakeholders have enabled the ISSB to make significant progress.