Introduction to IFRS S1 and S2

Michelle Horsfield

25 years: Sustainable Finance

In this video, Michelle Horsfield delves into the IFRS’ International Sustainability Standards Board (ISSB) and its significance in the global financial landscape. Michelle starts by explaining the evolution of accounting standards from the 19th century to the standardisation efforts of the International Financial Reporting Standards (IFRS) Foundation. She then delves into the ISSB and covers the key components of the standards S1 (General sustainability requirements) and S2 (climate-specific requirements).

Regulation and Initiatives

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Introduction to IFRS S1 and S2

14 mins 9 secs

Key learning objectives:

Understand the historical context and evolution of accounting standards leading to the emergence of sustainability reporting
Understand the structure and key components of ISSB
Evaluate the implications of ISSB's standards on financial reporting and investment decisions
Outline the practical insights into implementing ISSB's sustainability standards within organisations

Overview:

Imagine a world where companies transparently disclose their sustainability performance alongside financial data. Such disclosure isn't just a trend; it's becoming essential for investors navigating a rapidly changing global economy. Delving into the intricacies of ISSB's standards, we question how companies can adapt, what resources are available, and why this shift towards transparency is imperative for sustainable investing. Join us to explore the intersection of finance and sustainability, where disclosure isn't just about compliance but about reshaping the future of investments and corporate accountability.

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Summary

How did the need for standardised accounting practices evolve historically?

The evolution of accounting standards dates back to the late 19th century when investors sought independent financial reviews due to distrust in company management. The IFRS Foundation established standardised accounting practices, now mandated in over 140 countries, fostering transparency in financial reporting.

What led to the establishment of the International Sustainability Standards Board (ISSB)?

ISSB emerged from the Glasgow climate conference to address the need for standardised sustainability disclosures alongside financial reporting. By aligning with existing frameworks like TCFD and focusing on the connection between sustainability and financial value, ISSB aims to provide investors with comprehensive information for informed decision-making.

What are the key components of ISSB's general sustainability standards S1 and S2?

S1 covers governance, strategy, risk management, and metrics/targets, aligning with the TCFD framework to provide clear and concise disclosure requirements. Organisations can navigate S1's requirements through a structured approach, focusing on governance processes, strategy alignment, risk management protocols, and measurable metrics/targets S2 focuses on climate-related risks and opportunities, including physical and transition risks, with specific requirements on governance, strategy, risk management, and target metrics.

Implementing S2 requires addressing climate resilience, disclosing scope 3 greenhouse gas emissions, and incorporating carbon pricing in decision-making processes, presenting new challenges for many organisations.

How can organisations navigate the implementation of ISSB's sustainability standards?

Organisations can prioritise disclosures based on materiality assessments and leverage available resources such as materiality matrices and existing reporting frameworks like GRI and ESRS. Organisations should ensure that disclosed information is financially material, readily available, and addresses the most significant uncertainties, fostering transparency and accountability. Most companies are expected to apply ISSB's standards for reporting periods beginning on or after January 1, 2024, with several governments and organisations planning adoption, signalling a global shift towards transparent and sustainable reporting practices.

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Michelle Horsfield

Michelle Horsfield, an environmental scientist with a climate change specialisation, transitioned into the financial sector four years ago to apply her knowledge to the largest reallocation of capital in history, as the economy moves towards a lower carbon future.

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