What are the general requirements for disclosure of sustainability-related financial information?
The objective of IFRS S1 is to ‘require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity’. This encompasses information that could have an impact on cash flows, access to capital, or cost of capital over the short, medium or long term, collectively referred to as ‘sustainability related risks and opportunities that could reasonably be expected to affect the entity’s prospects’.15
The standard goes on to identify the underpinning conceptual foundations, including fair presentation, materiality, reporting entity, and connected information, noting that in addition to information being relevant and faithfully representing what it purports to represent, usefulness is enhanced if it is comparable, verifiable, timely, and understandable.
Core content
As noted previously, the ‘core content’ of IFRS S1 disclosure requirements follows the structure of the TCFD recommendations, summarised as follows:
Governance. The governance processes, controls, and procedures the entity uses to monitor and manage sustainability-related risks and opportunities. Governance disclosures encompass information about:
Governance body responsibilities, role descriptions, skills and competencies, and processes, including oversight of target setting and monitoring progress
Management’s role in the governance process, including supervision and oversight, and how controls and procedures are integrated with other internal functions16
Strategy. The approach the entity uses to manage sustainability-related risks and opportunities. Strategy disclosures are intended to provide an understanding of:
Risks and opportunities that could affect the entity’s prospects, and the current and anticipated effects on the entity’s business model or value chain; also, financial effects, and the impact or risks and opportunities on decision-making and financial planning
The capacity of the entity to adjust to sustainability risk uncertainty, including a qualitative and, if applicable, quantitative assessment of the resilience of its strategy and business model in relation to sustainability-related risks17
Risk management. The processes the entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities. Disclosures to enable understanding about the entity’s risk profile and risk management process include:
Information about inputs, parameters and sources of information the entity uses; whether and how scenario analysis is used, and whether qualitative factors, quantitative thresholds, or other criteria are used to assess the likelihood and magnitude of risk
The processes used to identify and monitor sustainability-related opportunities
The extent to which sustainability-related processes are integrated into the entity’s overall risk management process18
Metrics and targets. The entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation. Disclosures about the metrics and targets used to provide an understanding of the entity’s progress in relation to sustainability risks and disclosures include:
Metrics required by an IFRS Sustainability Disclosure Standard, or other existing sources, such as the SASB Standards, CDSB Application Guidance, pronouncements of other standard-setting bodies, or relevant industry or geographical metrics
Metrics developed by the entity, how they are defined, whether adapted from another source, and other characteristics about the metrics
An array of information about monitoring progress towards achieving strategic goals, including metrics used to set targets and monitor progress, base period, period covered, milestones and interim targets, trends or changes in performance, and any revisions to targets, along with explanation for those revisions19
General requirements
In addition to the core content, IFRS S1 contains the following general requirements:20
Sources of guidance. In addition to the general disclosure of sources, entities are specifically required to refer to, and consider, the applicability of the disclosure topics in the industry-specific SASB standards.
Location of disclosures. Disclosures are to be provided as part of an entity’s general-purpose financial statements, with flexibility allowed in terms of location. If information is included by cross-reference to another report provided by the entity, that information must be available on the same terms and at the same time, and the complete set of sustainability-related financial disclosures must not be less understandable by doing so.
Timing of reporting. Sustainability-related financial disclosures are to be reported at the same time, and for the same period, as the related financial statements.
Comparative information. Comparative information should be presented unless otherwise permitted or required; if useful for understanding, comparative information for narrative and descriptive information should also be disclosed.
Statement of compliance. An explicit and unreserved statement of compliance shall be made, insofar as the entity is in full compliance with all requirements of IFRS Sustainability Disclosure Standards. Relief is provided for disclosures that may be precluded by law or regulation and for commercial sensitivity. Entities that use these exemptions are not precluded from making a statement of compliance.
Judgements, uncertainties, and errors
Additional information required by IFRS S1 relates to judgements, uncertainties, and errors:21
Judgements. Apart from judgements involving the estimation of amounts, the entity must disclose the judgements made that have the most significant effect on the information included in its disclosures, for example, the identification of risks and opportunities, determining sources of guidance, and identifying material information to be included.
Measurement uncertainty. An entity must identify amounts it has disclosed that are subject to a high degree of uncertainty, the sources of uncertainty, and the assumptions, approximations, and judgements made in measuring the amounts.
Errors. Prior-period errors resulting from omissions or misstatements of information are to be restated by correcting the amounts and disclosing the nature of the errors.
Supporting guidance
Application guidance having the same authority as the other parts of IFRS S1 is provided in appendix B of the standard. This guidance covers a number of issues, including:22
Sustainability-related risks and opportunities, including identification, reasonable and supportable information, and reassessment throughout the value chain in the event of a significant event or change in circumstances
Materiality, identifying material information, aggregation and disaggregation, interaction with law or regulation, and commercially sensitive information
Other topics, including connected information, information included by cross reference, interim reporting and comparative information, metrics, and errors
In addition to the application guidance, IFRS S1 provides nonauthoritative accompanying guidance that illustrates aspects of applying the requirements of IFRS S1. This guidance includes additional information about meeting primary users’ needs and an example of using the CDSB Framework Application Guidance, which contains a particular reference to water or biodiversity-related risks that the entity has identified.23