Reading through the standards in detail there are some elements that should be noted for any organisation thinking of reporting to ISSB in the future:
Time and location of reporting: The reporting of these standards must be published as part of or at the same time as the entity’s financial reporting (i.e. at the same time) and as part of general purpose financial reports. This supports integrated reporting, in line with the Value Reporting Foundation and International Integrated Reporting Council guidance. However, IFRS S1 does not mandate that the entities financial statements be prepared in accordance with IFRS Accounting Standards (as long as they are aligned with a generally accepted accounting principles or practices - GAAP).
Materiality of risks and opportunities on financial performance: Like GRI, ISSB requires a materiality assessment to determine the prioritisation of sustainability related risks and opportunities. Unlike GRI:
- ISSB’s focus is the financial materiality of sustainability-related risks and opportunities by considering potential impacts on an organisation’s cashflow and the likelihood of these impacts.
- ISSB does not outline a specific methodology that reporting entities should follow, unlike the voluntary guidance outlined by GRI 3. The requirement from ISSB for organisations to assess the financial materiality of sustainability-related risks and opportunities implies that organisations will need to undertake financial analysis as part of double materiality approaches.
Strategy & Risk Management: This release has further expanded on the requirement to demonstrate that the reporting entity has strategies in place to manage and mitigate identified and emerging risks and realise opportunities within its management approach. Importantly, the requests about risk management have specifically called out the need for scenario analysis to inform identification of sustainability related risks. This sees ISSB applying the risk language and assessment framework used by TCFD.
Disclosure of impact on financial performance: The standard specifically requires reporting entities to disclose quantitative and qualitative information about how sustainability-related risks and opportunities have affected its financial position, financial performance, and cash flows for the reporting period. While we knew this would be required under TCFD, this now applies to all sustainability related topics, and is probably the single biggest disruptor of this framework.
Transparency on judgement, uncertainties and errors: The standard has been more specific on the requirement for organisations to provide transparency on assumptions and uncertainties that might be included in reporting, particularly emissions reporting. This essentially will require more rigour around emissions reporting and for organisations to be clear about any errors that might have been made in reporting in the past.
Requirement to report on scope 3: IFRS S2 incorporates the recommendations of TCFD and includes climate-related industry-specific topics from the Sustainability Accounting Standards Board (SASB). As per the TCFD, this includes disclosure of physical and transitional climate risks and mitigation of these over time. However, importantly it also requires disclosure of Scope 3 emissions in addition to Scope 1 and 2. The standard outlined the detail on the methodology to calculate this, broadly in line with the Greenhouse Gas Protocol.