IFRS General Requirements for Disclosure of Sustainability-related Financial Information
International Financial Reporting Standards (IFRS) releases the General Requirements for Disclosure of Sustainability related Financial Information (IFRS S1).
In November 2021, IFRS established the International Sustainability Standards Board (ISSB) and began developing sustainable disclosure standards. In March 2022, ISSB released a solicitation draft for IFRS S1. After more than a year of revisions, IFRS S1 was officially released, marking a new stage in international sustainable disclosure.
Main Contents of IFRS S1
IFRS S1 requires enterprises to disclose risks and opportunities related to their sustainable development, which can affect their short-term, medium-term, and long-term development. IFRS S1 applies to enterprises that are profit oriented entities, and sustainability related matters can affect the prospects of these entities.
IFRS S1 requires enterprises to provide sustainable financial information disclosure from four perspective: governance, strategy, risk management and metrics.
- Governance: Enterprises need to develop a governance process, control, and procedure that can monitor, manage, and supervise sustainability related processes. Enterprises should disclose their governance institutions (such as boards of directors and management committees) and explain how these institutions formulate policies for sustainable risks and opportunities.
- Strategy: Enterprises need to understand strategies related to sustainability, such as the impact of sustainable risks and opportunities on business models and value chains, as well as their impact on the financial condition, operating performance, and cash flow of the enterprise. Strategic disclosure needs to consider short-term, medium-term, and long-term time horizons, combined with investment cycle and business cycle planning.
- Risk management: Enterprises need to incorporate these processes into their risk management procedures when identifying, evaluating, and addressing sustainable issues. The enterprise shall disclose the monitoring method for sustainable risk, measure the sustainable risk, and assess the nature, possibility and impact of the risk through scenario analysis and other methods.
- Metrics: Enterprises should set goals to understand their sustainable performance. The definition, measurement standards, and calculation methods of goals should be disclosed together with sustainable information, and appropriate benchmarks and third-party verification should be adopted to increase credibility.
General Requirements for Sustainable Financial Information Disclosure
IFRS S1 requires enterprises to consider sustainability disclosure standards when identifying risks and opportunities that affect sustainability, and to reasonably expect these risks and opportunities to have material impact. Enterprises can also refer to other sustainable disclosure standards in their jurisdiction and meet regulatory requirements without confliction.
IFRS S1 requires enterprises to include sustainability related financial information disclosures in their financial reports, such as management discussions and analyses, or operational and financial reviews. Usually, these disclosures need to belong to the same reporting period as the financial information in order to enhance comparability and consistency in the same fiscal year.
When a company’s sustainable disclosure meets all the requirements of IFRS S1, it can clearly state it in the report. Disclosure that does not meet all requirements cannot be authenticated using IFRS S1. When some disclosures involve commercially sensitive information, enterprises do not need to disclose this information.
For information with uncertain characteristics, enterprises need to disclose the sources of uncertainty, as well as the assumptions and judgments involved in the estimation. Enterprises can revise the approximate values in subsequent disclosures. If the previously disclosed information is incorrect, these issues need to be announced in subsequent disclosures.
IFRS requires enterprises to comply with the requirements of IFRS S1 starting from 2024 and to disclose sustainable information along with financial reports. In addition, during the first annual reporting period, enterprises can disclose later and can only disclose climate related risk and opportunity. Starting from 2025, enterprises are required to disclose comparative information with the previous year.