Ask a 3R Expert: IFRS Sustainability Disclosure Standards

Sara Diamond

Q: What is IFRS?

A: The IFRS Foundation developed two standard-setting boards: the International Sustainability Standards Board (ISSB) and the International Accounting Standards Board (IASB). The goal of these two boards is to improve the quality of sustainability reporting across the globe by matching the importance of reporting with the current regulations around financial reporting.

The ISSB brings together the Climate Disclosure Standards Board (CDSB), the Value Reporting Foundation (VRF), and the Sustainability Accounting Standards Board (SASB) standards.

Under ISSB are two sustainability disclosure standards:

• IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
• IFRS S2: Climate-related Disclosures

These two frameworks have been a hot topic lately because IFRS S1 and S2 have already replaced TCFD and will likely replace SASB disclosures in the coming years (1).

While voluntary still for most, some countries are adopting/considering IFRS for regulatory reporting. For example, beginning January 1, 2025, Australia is mandating climate-related reporting for relevant entities using the Australian Accounting Standards Board (AASB) S2 standard. Australia also released an AASB S1 voluntary standard for reporting on general sustainability-related financial information. AASB S1 and AASB S2 are aligned to IFRS S1 and IFRS S2, respectively. Malaysia’s National Sustainability Reporting Framework (NSRF) is likewise aligned with the ISSB standards and mandates climate-related reporting for entities in scope starting in 2025. Other countries, such as Canada, have developed voluntary disclosure standards aligned with ISSB and are still considering regulatory requirements. The IFRS Foundation maintains this list of ongoing and completed jurisdictional sustainability consultations at the national and supra-national levels.

(1) Please note, as of August 2022, the IFRS Foundation assumed responsibility for the SASB Standards. At this time, the ISSB encourages preparers and investors to continue to use the SASB Standards.

Q: What are IFRS S1 and S2’s core content?

A: The frameworks were designed to mirror the approach of TCFD, so the four pillars of IFRS S1 and S2 remain the same:

• Governance: the governance processes, controls, and procedures the entity uses to monitor and manage sustainability and climate-related risks and opportunities
• Strategy: the approach the entity uses to manage sustainability and climate-related risks and opportunities
• Risk Management: the processes the entity uses to identify, assess, prioritize, and monitor sustainability and climate-related risks and opportunities
• Metrics and Targets: the entity’s performance in relation to sustainability and climate-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation

Q: What are some of the main differences between TCFD and IFRS S2?

A: The 4 pillars remain the same, but IFRS S2 requires more disclosure criteria for quantitative and qualitative information.

• Governance:
  • Disclosing how responsibilities regarding climate risks and opportunities are reflected in terms of reference mandates, role descriptions, etc.
• Strategy:
  • Requires a company to refer to and consider industry-based disclosure guidance and topics
  • Disclosure of current and anticipated changes to the company business model including its resource allocation to address risks and opportunities (ex: plans to manage or decommission carbon- energy- or water-intensive operations, supply chain changes, R&D, etc.)
  • Disclosing the status or future plans for a climate transition plan
• Risk Management:
  • Requires more specific information surrounding climate scenario analyses
  • Requires detailed information on how the risk identification process informs overall risk management
  • Disclosing of data sources used to identify risks
• Metrics and Targets:
  • Requires disclosure of industry-based metrics (if applicable)
  • Requires more detailed information surrounding GHG emissions
  • Requires more detailed information for emission reduction targets

Q: If my company already reported under TCFD, what do we do now?

A: Companies who have reported to TCFD in the past can now shift to reporting under IFRS S1 and S2 and must follow the requirements for each. The 3R team can support with a gap assessment and roadmap towards aligning with IFRS S2 if your company needs direction.

Q: What does the first year of reporting require?

A: Companies have the option to report only on climate-related risks and opportunities in their first year of reporting, allowing them to take a “climate-first” approach. Using this approach, a company reports on:

• The requirements in IFRS S1 only to the extent that they relate to the disclosure of information about climate-related risks and opportunities
• IFRS S2 – with the climate-first approach, there are other applicable reliefs during the first year of reporting including those that exempt a company from:
  • Presenting comparative information
  • Disclosing scope 3 emissions
  • Using the GHG Protocol when using other calculation methodologies
  • Reporting at the same time as a company reports their financial statements

Q: Are there any assurance requirements for IFRS? 

A: For IFRS, assurance is not (yet) mandatory, but regulators may choose to require assurance. Some of the countries that have or are expected to adopt assurance standards are:

• UK
• Australia
• Canada
• China
• Japan
• New Zealand
• Singapore
• Brazil