IFRS Issues Guide for Climate-First Sustainability Reporting

The IFRS Foundation has made known the release of a new guide to support companies in embracing the ISSB standards for sustainability reporting, specifically with regard to climate-related disclosures. The new guidance is an attempt by the foundation to promote transition to complete sustainability reporting by companies, with initial climate-first disclosures, according to the climate-focused transition relief given by the ISSB.

Launched in November 2021, the International Sustainability Standards Board (ISSB) will develop IFRS Sustainability Disclosure Standards. Such standards are expected to provide investors with essential information on companies' sustainability risks and opportunities. In June 2023, the ISSB issued its first two general-purpose (IFRS S1) and climate-related (IFRS S2) reporting standards that represent a major milestone for defining and creating consistent, comprehensive frameworks for reporting about sustainability.

The ISSB recognized the problems companies may encounter in terms of data availability and readiness to respond to these new reporting requirements and introduced several relief measures. Of these, climate-first transition relief was one of the most prominent provisions. The provision allows a company to begin reporting under IFRS S1 by reporting only on climate-related information, with disclosures about other sustainability topics to be added in subsequent years. The new guidance is intended to clarify this process, providing an organization with guidance on how best to prepare and present its disclosures related to climate.

The climate-first transition relief was introduced in response to investor demands for immediate and reliable climate-related information. While comprehensive sustainability-related disclosures are critical for informed decision-making, investors have emphasized that understanding climate-related risks and opportunities is particularly urgent. Therefore, the ISSB prioritized the development of guidance to ensure that companies could deliver this critical information sooner rather than later.

The new guide includes topics essential to companies that will be making their first climate-first disclosures. Definitions and explanations about materiality considerations are provided, allowing organizations to determine which climate-related information is most relevant to investors. It also sets out factors for considering and disclosing climate-related risks and opportunities. It guides companies on the right metrics and targets to adopt in their disclosures, making them meaningful about their climate strategies and performance.

The guide has also considered technical aspects of climate-related reporting. These are the timing of disclosures and the appropriate places in company reports about the climate information. Companies are also encouraged to disclose the sources of any guidance on which they relied in identifying any climate risks and opportunities, as well as the judgments they made when preparing their disclosures. The stipulation for transparency is made to increase investor confidence and enhance the decision-usefulness of the information disclosed.

A salient feature emphasized in the guidelines is the proper linkage of climate-related disclosures to international sustainability standards. This ensures that companies better harmonize the reportability with that of global frameworks, enabling investors to take informed decisions on the basis of reliable and comparable information. This, according to ISSB's guidelines, further underlines best practices and complete transparency about the methodology and assumption involved.

In its statement accompanying the launch of the new guide, the IFRS Foundation emphasized its commitment to supporting the successful implementation of ISSB Standards. To that end, the guidance prepared seeks to assist companies to prepare accurate and reliable climate-related information for investors, which, in turn, should help them receive the said decision-useful insights. Thus, the ISSB hopes to accelerate the adoption of comprehensive sustainability reporting standards.

The climate-first approach is expected to ease the reporting burden for companies as they adopt broader sustainability reporting requirements gradually. By prioritizing climate disclosures, organizations can build their capacity to collect and analyze sustainability data, laying the groundwork for more comprehensive reporting in the future.

The publication of the guide further underlines the ISSB as a global leader in sustainability reporting. This would likely be done through offering practical tools and resources for companies so that it creates a robust, standardized framework that better matches the evolving demands of investors and stakeholders. The new guidance is an important step in this process, helping companies navigate climate-first reporting's complexities and further paving the path toward a more transparent and sustainable corporate reporting landscape.

As companies start embracing the ISSB Standards, the climate-first approach will provide a very practical and focused starting point. The new guidance will assist organizations in building confidence to prepare climate-related disclosures, contributing to the broader goal of transparent and effective sustainability reporting. By focusing on both the technical and strategic aspects of climate disclosures, the ISSB's guidance will no doubt play a critical role in shaping the future of corporate sustainability reporting.