August 21, 2023
The release of the final versions of the International Financial Reporting Standards (IFRS) S1 and S2 means that they can be used to provide a reporting framework for voluntary sustainability disclosures. IFRS S1 and S2 can help you manage your business’s voluntary environment, social and governance (ESG) reporting.
Setting the groundwork for corporate sustainability
The International Sustainability Standards Board (ISSB), created by the IFRS Board of Trustees, adopted the IFRS standards to establish a baseline for sustainability disclosures to address the demands of investors and financial stakeholders. The preliminary versions of these standards were announced in November 2021 at the United Nations Climate Change Conference in Glasgow COP26 after the establishment of the ISSB, according to IFRS Standards. The standards were published on June 26, 2023.
The IFRS S1 and S2 contain complex requirements for clear reporting. Emmanuel Faber, chair of the ISSB, explained that the IFRS exist to support bankers, investors and others when they are deciding whether to provide resources to applicant companies.
“We're broadening the horizons of the financial statements. We're broadening it in scope by going into the entire value chains of companies, because this is where most of the sustainability risks and opportunities are found,” Faber said at a June 26 meeting to launch ISSB Standards IFRS S1 and S2.
What do you need to disclose?
The material covered within IFRS S1 enables companies to communicate their sustainability-related positions via data through a standardized scenario and financial qualification. IFRS S2 narrows the focus to climate-related disclosures, according to IFRS.org.
For organizations new to disclosing their ESG metrics in 2023, the ISSB recommends that you can prepare by:
- Making the material collection process simpler by planning to evaluate internal systems and processes for the sustainability information throughout your company and supply chain.
- Looking to the future for what risks and opportunities may affect your business.
- Familiarizing your company with the ISSB’s proposed standards.
- Reviewing and using the Sustainability Accounting Standards Board (SASB) Standards, Climate Disclosure Standards Board (CDSB) framework and the Integrated Reporting Framework to be better prepared to support IFRS S1 and S2.
The ISSB has been working on a jurisdictional basis to get more covered under S1 and S2. In July 2023, great gains were made as the International Organization for Securities Commissions (IOSCO) endorsed the IFRS standards, showing they are fit for use in most capital markets internationally. This represents a potentially widespread application of the standard of sustainability, as IOSCO’s membership includes more than 95% of the world’s securities markets.
The UL Solutions approach
Accelerate your ESG management and performance through the use of our advisory and software services, which can help you disclose your sustainability risks and opportunities to financial stakeholders:
- Mobilize – Establish and optimize your ESG programs.
- Measure – Implement robust systems for measuring ESG performance.
- Manage – Drive continuous improvements on your ESG key performance indicators (KPIs) and goals.
- Report – Streamline and enhance your ESG disclosure and reporting.
- Verification – Independent verification of key ESG KPIs.
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