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ISSB transition respite will provide 'more consistency'

May 16, 2023

The ISSB revealed that it will offer transitional aid to companies as they implement S1 (general requirements) and S2 (climate)

The IFRS’ newly-announced transitional reliefs may reduce the burden on companies preparing for the rollout of enhanced sustainability disclosures in January 2024, according Richard Singleton, finance and sustainability director at Menzies.

In April 2023, the International Sustainability Standards Board (ISSB) revealed that it will offer transitional aid to companies as they implement S1 (general requirements) and S2 (climate).

This assistance is intended to allow companies to focus on disclosing information related to climate risks and opportunities during their initial reporting year. Starting from the second year, companies will be required to provide comprehensive reports on sustainability-related risks and opportunities, which go beyond climate.

According to Singleton, this indicates that the ISSB is anticipating a lack of readiness among businesses.

“A lot of firms will not have the systems or expertise in place yet to meet the requirements, giving them a longer time frame to work towards,” he said.

“The Scope 3 element is extremely complex, and so this allows entities to spend some time understanding the full extent.”

Scope 3 emissions refer to greenhouse gas emissions that are caused by activities associated with the value chain of a reporting organisation, but occur from sources that the organisation does not own or directly control.

Singleton views are echoed by Laura Tibbetts, associate director of financial accounting advisory services at Grant Thornton. She stated the relief will assist the firms that need it the most without preventing others from reporting.

“We shouldn’t underestimate the challenges this may bring for many organisations who haven’t reported on a broader range of sustainability topics historically. It will take time for organisations to prepare and evolve their current systems and processes.”

Similarly, Singleton noted that he hopes this will allow the reporting to be more consistent throughout the first year, and he believes it is still a “big step forward overall”.

The full package of reliefs companies won’t be required to complete include offering disclosures that encompass risks and opportunities related to sustainability, extending beyond those connected solely to climate.

Firms that decided to use the relief will need to adhere to all requirements of both standards in the second year of application.

IFRS S1 and S2 issue date
The expected issue date for the ISSB’s first two Standards—S1 (general requirements) and S2 (climate) is at the end of Q2, 2023.

Tibbetts said the development of climate-related reporting has looked to be most firms’ current area of focus, adding that once the requirements are released, firms can really begin to prepare for its implementation.

“We are however seeing organisations start to think about their wider sustainability agenda and refresh materiality assessments to enable them to start to identify potential gaps within their existing process and systems. For many organisations, this work will really kick start once the ISSB releases S1 and S2 within the coming months.”

In a statement accompanying the move offer transitional aid last month, Emmanuel Faber, Chair of the ISSB, said: “The upcoming introduction of the ISSB’s Standards establishing the global baseline is being welcomed by companies urgently looking for tools to meet the information needs of their investors.

“This transitional relief ensures companies can phase in their approach, initially focusing on the quality of the climate-related information they provide.”

[Accountancy Age]

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