First ISSB standards released 

Following consultation, the International Sustainability Standards Board (ISSB) has launched its initial two global sustainability reporting standards in final form, together with accompanying guidance: 

• General Requirements for Disclosure of Sustainability-related financial information (IFRS S1) which sets out the requirements disclosure of 'information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term' 
• Climate-related Disclosures (IFRS S2) which sets out the requirements for disclosure of 'climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term'.

While the IFRS are not binding on Australian reporting entities the new standards are expected to form the core of emerging (and mandatory) sustainability-related financial disclosure requirements globally, including in Australia.  As flagged, the government is currently conducting a second round of consultation on implementation of proposed mandatory standards (see: Introduction of mandatory climate reporting in Australia: Second round of consultation launched)

The standards have been developed with the aim of providing a common foundation for sustainability reporting with a focus on ensuring that the information reported is 'decision-useful for investors'.

What's in the new standards?

The new standards (which are similar to the consultation drafts) build on existing voluntary reporting frameworks, eg the Taskforce for Climate-related Financial Disclosure (TCFD) framework, but importantly go beyond existing requirements in both the scope of information required to be disclosed and the level of detail required.  

For example, the proposed requirements are more prescriptive than the TCFD guidelines and will mean firms need to disclose (among other things):

• quantitative information about the current financial effects of sustainability and climate-related risks/opportunities on their financial position, financial performance and cash flows as well as quantitative information (in so far as is possible) on the 'anticipated financial effects' over the short, medium and long term.  
• the quantitative impacts of their emissions reduction targets 
• the extent of their reliance on carbon credits (offsets) to achieve their net greenhouse gas emissions targets
• industry based metrics relevant to their industry and activities 
• their absolute gross Scope 1 and Scope 2 (operational) and Scope 3 (broader value chain) greenhouse gas emissions (though the ISSB has provided temporary relief from the requirement to disclose Scope 3 emissions for the first annual reporting period in which a company applies the IFRS S2 requirements)

Integrating sustainability reporting into the financial reporting cycle

Importantly, the standards have been designed with the intent to ensure timely disclosure of sustainability related information meaning that companies will need to provide sustainability related disclosure in the same 'reporting package'/alongside their existing financial reporting.

As such, they have been developed to be used in conjunction with existing accounting requirements.

Timing

• The new standards will begin applying for annual reporting periods beginning January 2024, with companies expected to issue disclosures against the standards in 2025.  
• However, temporary relief is in place to enable companies to focus for on providing disclosure of their climate-related risks and opportunities in the first year of reporting.
• The ISSB has signalled its intention to work with jurisdictions and companies to support adoption in line with this timeline.  
• In Australia Treasury has opened its second round of consultation on proposed mandatory disclosure requirements.  It's envisioned that the new requirements will be phased in, commencing with the largest entities, from 2024/25.  The due date for submissions is 21 July 2023.  

[Sources: ISSB media release 26/06/2023; ISSB: Ten things to know about the first ISSB standards; IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; IFRS S2 Climate-related Disclosures] 

Guidance for boards 

Ahead of the introduction of new mandatory ISSB-aligned sustainability reporting requirements in Australia, the AICD, in conjunction with Deloitte and MinterEllison released a guide to support boards to prepare.