IFRS issues two new global sustainability standards

On Monday, the International Sustainability Standards Board (ISSB) of the International Financial Reporting Standards Foundation (IFRS) released two new sustainability disclosure standards, IFRS S1 and IFRS S2, which will go into effect for annual reporting periods starting on or after January 1, 2024.

The standards require public companies to report on sustainability-related risks and opportunities that could “reasonably be expected” to affect their “prospects,” which the IFRS defines as their cash flow, access to finance, and cost of capital.

IFRS reporting standards are required in more than 140 jurisdictions, but not in the US, where companies use GAAP. US companies may opt to voluntarily adopt the IFRS standards.

IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, pertains to sustainability in general. IFRS S2, Climate-related Disclosures, is more narrowly focused on climate change.

IFRS S2 will require companies to disclose their Scope 1, 2, and 3 emissions, according to ESG Today. Companies will have an extra year to report Scope 3 emissions.

The new standards are intended to serve as a “global baseline” for sustainability disclosures and improve investors’ confidence around sustainability, the IFRS said in a press release. They “have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner,” ISSB Chair Emmanuel Faber said in a press release. “We have consulted closely with the market to ensure the Standards are proportionate and will result in disclosures that are relevant for investment decision-making.”

The IFRS standards are “in line with how US investors look at ESG reporting,” KPMG ESG Audit Leader Maura Hodge said in an email to CFO Brew, because they are partly based on SASB standards, which emphasize “financial materiality and industry-specific considerations.”

There’s still an open question as to the “interoperability” of the IFRS standards with those the EU and SEC plan to release, Hodge said. “Three reporting bodies can require the same disclosures, but if the underlying metrics, inputs, and methodologies are wholly distinct, preparers will be working overtime.”