ESG Reporting: IFRS S1 and S2 – What’s next?

In June 2023, the International Sustainability Standards Board (ISSB) introduced the IFRS S1 and S2 standards. These standards represent a significant leap forward in sustainability reporting. With these new standards in place, Australian entities must consider: What lies ahead?

Effective for annual reporting periods beginning on or after 1 January 2024, IFRS S1 establishes a global benchmark for consistent, comparable sustainability reporting. It focuses on double materiality, requiring disclosures that are relevant to investor decisions and impact both financial performance and sustainability factors.  

The standard aims to enhance investor decision-making by providing information on sustainability performance, promoting global consistency, and fostering transparency. It does so by establishing a four-pillar framework which encompasses governance, strategy, risk management, metrics and targets. Aligned with the Task Force on Climate-related Financial Disclosure (TCFD) recommendations, IFRS S1 provides a common language for sustainability-related disclosures.

Disclosures under IFRS S1 should be included in the entity’s annual general purpose financial statements, alongside other regulatory disclosures.

Effective for annual reporting periods beginning on or after 1 January 2024, IFRS S2 aligns closely with TCFD’s four core recommendations and eleven recommended disclosures, focusing on material climate-related disclosures. It requires comprehensive disclosure on governance, strategy, risk management, metrics and targets, scenario analysis, transition plans, and risks and opportunities, ensuring investors receive the necessary data to assess climate-related risks and opportunities.

Source: TCFD’s Final Report, Recommendations of the Task Force on Climate-related Financial Disclosures

As part of the climate-related disclosures within IFRS S2, entities must monitor and report key metrics and targets, including greenhouse gas (GHG) emissions, in line with the GHG protocol.

In October 2023, the Australian Accounting Standards Board (AASB) released Exposure Draft (ED) SR1, proposing climate-related financial disclosure requirements tailored to Australian entities. This draft incorporates IFRS S1 and S2 with modifications to reflect local regulations and priorities.

Following the latest AASB Board meeting, the draft accounting standards are expected to be finalised by the end of 2024 with applicability starting 1 January 2025 as outlined in the table below:

Source: The Treasury’s Mandatory climate-related financial disclosures, Policy statement

A few key differences in the Australian standards include:

Additionally, the Auditing and Assurance Standards Board (AUASB), which sets the standards for auditing and assurance services in Australia, will implement a phased approach to the assurance levels required for the climate-related disclosures. The following tables outline the phasing of the assurance levels:

Source: AUASB’s Consultation Paper, Assurance over Climate and Other Sustainability Information.

The introduction of IFRS S1, IFRS S2 and ED SR1 mark a significant shift towards standardised and transparent sustainability reporting. Entities should prioritise understanding these standards and integrating them into their existing reporting frameworks while developing their own ESG roadmap.

By taking a proactive approach, entities can ensure they are ready for the evolving landscape, fostering greater transparency and accountability around their sustainability efforts.

With the incoming changes to sustainability reporting requirements, entities will need to ensure they stay up to date with the unfolding landscape. Accru Felsers offers external audit and a range of other audit and assurances services for a huge diversity of organisations. To learn how we can help enhance your sustainability reporting through our audit services, please contact us to find out more.