Climate and Environmental, Social and Governance (ESG) reporting – a way of the future

By Hayley Keagan, Hayley Keagan
Technical Director
17 June 2022

The International Sustainability Standards Board (ISSB) has been recently formed to set the standards for global reporting relating to sustainability disclosures for financial reporters. Welcomed at the UN Global Summit in Glasgow, the move to create the ISSB intends to fulfill the demand for formalised and consistent reporting in the sustainability space.

The ISSB sits alongside the International Accounting Standards Board (IASB) and will be operating in much the same manner, operated by a board tasked with developing and setting standards for reporting.

The ISSB did not take long to get into action, with two exposure draft standards already being released for consultation:

  1. International Financial Reporting Standards S1: General Requirements for Disclosure of Sustainability-related Financial Information
  2. International Financial Reporting Standards S2: Climate-related Disclosures

These standards are in their consultation phase, which means they are not yet mandatory as the ISSB is seeking to receive feedback on their appropriateness prior to the official release, conducting outreach to any interested or affected parties in order to receive feedback and adjust the new standards as necessary.

PKF is involved in this process and aims to keep you informed on its development.

Summary of standard requirements

  • IFRS S1

Sets out the overall requirements for reporting in the sustainability space, such as concepts and objectives for reporting. Also includes key definitions, clarity of what is and isn’t considered for reporting, and an explanation of materiality.

This standard provides a clear link back to governance, strategy, and risk management of the reporting entity, setting the theme for responsibility for sustainability reporting to enable primary users of the financial report in assessing the enterprises value.

  • IFRS S2

This standard is specifically concerned with identifying, measuring, and disclosing climate related risks. This standard will require the reporting entity to disclose information about climate risk exposures and how they are being managed.

IFRS S2 will be used in conjunction with IFRS S1 allowing for the use of materiality and also linking the responsibilities back to governance and risk management. 

Application

These standards are currently being created at an international level and are endorsed by the IASB which provides our accounting standards for financial reporting here in Australia. However, before they are officially applicable to our local businesses here in Australia more processes are needed by the Australian Accounting Standards Board (AASB) and Australian Securities and Investment Commission (ASIC) before any requirement for adoption occurs. 

The standards are currently in draft with no effective date set. There is no immediate impact for reporters here in Australia. However, the structure and advancement of this project by the IASB provide a likely indication of how climate and sustainability related disclosures will be dealt with here in Australia in the future and is a project worth following.

Have a question about your reporting obligations? Contact our technical team today.