The International Standards Setting Board released two major documents on sustainability in June – IFRS1 and IFRS2.
IFRS1 set out the General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 sets out Climate-related Disclosures. Together the rules will clarify how organisations need to report sustainability-related disclosures in capital markets worldwide.
Building trust
“The ISSB Standards aim to help improve trust and confidence in company disclosures about sustainability to inform investment decisions,” said ISSB. “For the first time, the Standards create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.”
Both incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Listed UK companies already report under TCFD requirements, which have extensive risk management requirements. Those include, for example, how companies identify, assess and manage climate-related risks and opportunities; as well as how processes for identifying, assessing and managing climate-related risks are integrated into the entity’s overall risk management process.
European package
The European Commission has also issued a package of measures designed to extend the EU’s sustainable finance framework (the Sustainable Finance Package).
Much of the package focuses on technical issues concerning the EU Taxonomy Environmental Delegated Act, which sets out sustainable activities. In addition, the European Commission published a proposal for a regulation on the transparency and integrity of ESG rating activities. It said it had been concerned over the reliability, comparability and transparency of current ESG ratings.
“This proposal would bring new regulation to a previously unregulated market in Europe and require EU and third country market participants providing ESG ratings commercially to become authorised and supervised by ESMA,” it said.
The Commission said that it wanted company reporting on sustainability information to be both in line with European sustainability reporting standards (ESRS) and compliant with global standards. It has been working with ISSB and the Global Reporting Initiative to achieve those aims.
