Setting the new standard: an introduction to the new IFRS sustainability and climate reporting standards
Discover new, more uniform sustainability and climate reporting standards.
The number of sustainability reporting standards has never been greater. And yet, investors are still not getting the clarity they need to make informed decisions. Instead, they are confronted with a sea of inconsistently presented information. Just over the horizon, though, a new set of sustainability and climate reporting standards published by the International Financial Reporting Standards (IFRS) organization promises greater uniformity.
The new IFRS voluntary sustainability and climate reporting standards provide a much-needed structure for globally consistent investment information. They also present an opportunity for some organizations to get ahead of current – State of California, European Union – and anticipated – United States Securities and Exchange Commission (SEC) – regulatory reporting requirements.
So then, what exactly sets these standards apart? And how are they changing sustainability and climate-related reporting?
The two new standards – IFRS S1 for sustainability and IFRS S2 for climate – consolidate resources from several existing reporting initiatives, including the Task Force on Climate-related Financial Disclosures (TCFD), Sustainability Standards Accounting Board (SASB), International Integrated Reporting Council (IIRC), and the Climate Disclosure Standards Board (CDSB) to create a unified global standard.
IFRS S1 and S2 work with any accounting requirements and build on the IFRS accounting standards already required in more than 140 jurisdictions. In July 2023, the International Organization of Securities Commissions (IOSCO) endorsed them and urged its 130 member jurisdictions, including the United States, to incorporate them. These standards have integrated well with their existing counterparts. The International Sustainability Standards Board (ISSB), which the IFRS formed in 2021 to create these new standards, has been working with the Global Reporting Initiative(GRI) to reduce the reporting burden for more than 10,000 companies already reporting to GRI. IFRS also acquired SASB, fully integrating them into the new standards. Additionally, IFRS S2 requirements are fully consistent with TCFD.
Integrated reporting
While the new IFRS sustainability and climate reporting standards provide a stronger framework for reporting data, the ultimate challenge for companies is to capture and then integrate that data into existing financial reporting. And that means finding the right talent and tools. IFRS requires sustainability and climate disclosures to be in the financial reports or included by cross-reference in another report available at the same time. Financial quality sustainability and climate data are needed for such reporting and the data tools used to collect and track this data must be verified. As companies move in this direction, new accounting roles are increasingly popping up with titles such as “Controller, Environmental, Social and Governance (ESG) Accounting and Reporting” and “Director of ESG Accounting.”
Making it work: operationalizing the new standards
For companies already reporting some sustainability and climate-related data, there are practical steps to consider : The first is to determine if you are ready to report in your financial statements the following verified information required by the new IFRS reporting standards: Scope 3 emissions, TCFD forecasts of potential future impacts, SASB disclosures, carbon credits usage, and enterprise risk management (ERM) processes which encompass sustainability and climate risks and opportunities. Just as important as meeting the new standards is integrating them into existing organizational processes and tools. Working with organizational management, it is essential to understand adoption processes and how organizations can benefit from new disclosures. For instance, how might one save time and money by integrating sustainability and climate risks into existing ERM practices? And how might the marketing department benefit from proactively meeting customer requests for sustainability and climate performance? With standards selected and integration mapped, the next step is planning for implementation. Assess readiness to disclose and verify sustainability and climate-related data and share impact forecasts. That will inform the development of a transition plan for implementing the new standards.
A new, ascendant standard
The IFRS standards continue to gain traction internationally. . Australia, Canada, Japan, Hong Kong, Malaysia, New Zealand, Nigeria, Singapore, and the United Kingdom are all preparing to implement them as soon as 2024. The standards have gained stature among the press and public, with The Wall Street Journal declaring them a “global baseline” and predicting that U.S.-based multinational companies will use them despite being more demanding than the SEC’s draft climate reporting rules.
Though brand new in 2023, the IFRS standards are already redefining sustainability and climate-risk disclosures. By adopting them now, companies can provide investors with greater clarity, while staying ahead of disclosure regulations – and a changing climate.
Find out more about the two new International Financial Reporting Standards and how they can help your organisation by downloading our report.
The report contains a detailed explanation of the standards and a practitioner’s guide to the key sections.
IFRS voluntary sustainability and climate reporting standards contains a detailed explanation of the standards and a practitioner’s guide to the key sections.