Simplify Sustainability Disclosures and Improve Transparency with IFRS

When it comes to sustainability reporting, consistency and transparency are key in ensuring that an organization’s progress and achievements are communicated clearly to interested and affected groups while aligning with globally recognized standards.

That’s where the International Financial Reporting Standards (IFRS) S1 and S2 come into play. Issued by the International Sustainability Standards Board (ISSB), IFRS S1 and S2 are a set of sustainability disclosure standards intended to provide decision-useful information to investors and other users of general-purpose financial reports around a company’s ability to manage sustainability-related risks and opportunities that are considered financially material. When used in conjunction with other widely adopted standards that measure the societal and environmental impacts of operations and initiatives, such as the Global Reporting Initiative (GRI), IFRS S1 and S2 help to provide a complete picture of an organization’s overall sustainability priorities, management and performance.

What is the purpose of IFRS, and why should you take notice?

In addition to providing helpful information, IFRS S1 and S2 were introduced to simplify the sustainability disclosure landscape and improve “interoperability” between existing reporting standards and frameworks (i.e., how they work together). These standards integrate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and, for each financially material topic, require disclosure around the same core elements: a company’s governance processes and controls; its strategy in identifying, prioritizing, monitoring and managing sustainability-related risks and opportunities; and how it performs in relation to targets. Leveraging these standards in your organization’s reporting will allow you to transparently demonstrate the impacts of your efforts to those who are interested.

When do these new standards come into effect?

IFRS S1 and S2 come into effect for annual reporting periods beginning on or after January 1, 2024, meaning companies that align with the standards can report in 2025, covering information from the 2024 reporting cycle. These sustainability-related financial disclosures are expected to be released simultaneously with a company’s financial statements. Even though, according to our annual Trends research, 57% of companies integrated their financial and non-financial information by publishing a suite of reports released in unison, this will likely pose considerable challenges for many companies that stagger the release of their financial and sustainability reports.

While the standards are relevant and their use is beneficial to both private and public companies, applying IFRS is not currently mandated. Organizations can incorporate IFRS S1 and S2 regardless of whether their financial statements are prepared in accordance with IFRS Accounting Standards or other generally accepted accounting principles (GAAP).

How do you apply the new standards?

Companies can apply the new IFRS standards to financially material topics (i.e., those that impact the business). Information is considered material if omitting, misstating or obscuring that information could reasonably be expected to influence investors’ decisions. As a result, companies may consider updating their approach to assessing financial materiality or conducting a double materiality assessment that identifies financially material topics and evaluates current and potential environmental, social and financial impacts.

Our 2023 annual Trends research on sustainability reporting found that 24% of companies in our sample conducted a double materiality assessment, a considerable increase from 15% in 2022. While many organizations are still determining how to apply this lens, we expect this number to continue to rise as ESG/sustainability initiatives become increasingly important to stakeholders.

Need clarification? We can help!

This all may sound overwhelming, but Works Design is here to help! Whether you need assistance conducting robust materiality assessments or you’d like to leverage our in-house assessment capabilities to identify gaps between your current disclosures and the requirements of IFRS S1 and S2, our team can support your reporting journey by applying best practices when developing disclosures to make them comparable, verifiable, timely and comprehensive.

Our agency’s sustainability and content experts can write, design, produce and promote your reporting suite. Reach out to our team today and learn what we can do for you!