IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information

Title: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information

Category: Part C—Bases for conclusions for IFRS S1 and IFRS S2

Source: IFRS Foundation (https://www.ifrs.org)

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PDF: https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards-issb/english/2023/issued/part-c/issb-2023-c-basis-for-conclusions-on-ifrs-s1-general-requirements-for-disclosure-of-sustainability-related-financial-information-part-c.pdf?bypass=on

Year: 2023

Type: Basis for Conclusions

Basis for Conclusions on

General Requirements for Disclosure of

Sustainability-related Financial Information

June 2023

IFRS S1

IFRS

® Sustainability Disclosure Standard

International Sustainability Standards Board

Basis for Conclusions on

IFRS S1

General Requirements for Disclosure of

Sustainability-related Financial

Information

This Basis for Conclusions accompanies IFRS S1 General Requirements for Disclosure of Sustainability-related

Financial Information (published June 2023; see separate booklet) and is issued by the International

Sustainability Standards Board (ISSB).

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CONTENTS

from paragraph

BASIS FOR CONCLUSIONS ON

IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF

SUSTAINABILITY-RELATED FINANCIAL INFORMATION

INTRODUCTION

BC1

OVERVIEW

BC2

Financial statements prepared under other GAAP

BC5

Relationship with other IFRS Sustainability Disclosure Standards

BC6

Proportionality

BC8

BACKGROUND

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GLOBAL BASELINE AND INTEROPERABILITY WITH JURISDICTIONAL AND

REGULATORY INITIATIVES

BC27

OBJECTIVE

BC35

Sustainability-related risks and opportunities

BC42

Identifying sustainability-related risks and opportunities

BC50

CONCEPTUAL FOUNDATIONS

BC63

Fair presentation

BC63

Materiality

BC67

Reporting entity

BC85

Connected information

BC86

CORE CONTENT

BC91

Governance

BC95

Strategy

BC100

Risk management

BC114

Metrics and targets

BC120

GENERAL REQUIREMENTS

BC123

Sources of guidance

BC125

Location of disclosures

BC142

Timing of reporting

BC145

Comparative information

BC147

Statement of compliance

BC156

JUDGEMENTS, UNCERTAINTIES AND ERRORS

BC158

Judgements

BC158

Measurement uncertainty

BC163

Errors

BC165

EFFECTIVE DATE

BC166

TRANSITION

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IFRS S1 BASIS FOR CONCLUSIONS

Basis for Conclusions on IFRS S1 General Requirements for

Disclosure of Sustainability-related Financial Information

This Basis for Conclusions accompanies, but is not part of, IFRS S1 General Requirements for

Disclosure of Sustainability-related Financial Information. It summarises the considerations of

the International Sustainability Standards Board (ISSB) in developing IFRS S1. Individual ISSB

members gave greater weight to some factors than to others. The ISSB also published an Effects

Analysis, which describes the likely costs and benefits of IFRS S1.

Introduction

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial

Information (IFRS S1) was developed in response to calls from users of general

purpose financial reports (users) for more consistent, complete, comparable

and verifiable sustainability-related financial information. Users told the ISSB

that this information would enable them to assess an entity’s exposure to and

management of sustainability-related risks and opportunities over the short,

medium and long term, and would inform their decisions relating to

providing resources to an entity. Such information supplements and

complements the information in the entity’s general purpose financial

statements (referred to as ‘financial statements’).

Overview

IFRS S1 sets out the overall requirements for providing users of general

purpose financial reports with a complete set of sustainability-related

financial disclosures. IFRS S1 applies to all sustainability-related risks and

opportunities that could reasonably be expected to affect an entity’s cash

flows, its access to finance or cost of capital over the short, medium or long

term. These risks and opportunities are collectively referred to as

‘sustainability-related risks and opportunities that could reasonably be

expected to affect the entity’s prospects’. Consistent with the Conceptual

Framework for Financial Reporting (Conceptual Framework) issued by the

International Accounting Standards Board (IASB), IFRS S1 is intended to result

in the disclosure of information that meets the information needs of users of

general purpose financial reports. In developing IFRS S1, the ISSB noted that

many users cannot require an entity to provide information directly to them

and must rely on general purpose financial reports for much of the

information they need.

IFRS S1 requires an entity to disclose information about its sustainability-

related risks and opportunities that is useful to users of general purpose

financial reports in making decisions relating to providing resources to the

entity. The information required by IFRS S1 relates to general aspects of how

an entity operates, in particular to its governance, strategy, risk management,

and metrics and targets associated with sustainability-related risks and

opportunities. IFRS S1 refers to these four aspects as the ‘core content’,

meaning the respective information is essential to users’ understanding of

how an entity identifies, assesses, prioritises, monitors and manages

BC1

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IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

sustainability-related risks and opportunities. This focus on core content

reflects feedback on the 2020 consultation on sustainability reporting held by

the IFRS Foundation Trustees (the Trustees) and builds on the widely accepted

recommendations of the Financial Stability Board’s Task Force on Climate-

related Financial Disclosures (TCFD).

IFRS Sustainability Disclosure Standards use terminology suitable for profit-

oriented entities, including public-sector business entities. IFRS S1 specifies

that if entities with not-for-profit activities in the private sector or public

sector apply this Standard, they might need to amend the descriptions used

for particular items of information when applying IFRS Sustainability

Disclosure Standards. The ISSB noted interest in IFRS Sustainability Disclosure

Standards among the public sector and entities other than profit-oriented

entities. For example, the ISSB noted the ongoing work by the International

Public Sector Accounting Standards Board (IPSASB) on public sector

sustainability reporting guidance that is related to IFRS S1 and IFRS S2 Climate-

related Disclosures (IFRS S2). The ISSB also noted national measurement

schemes, and interest expressed by regulators and other organisations that

oversee financial market stability.

Financial statements prepared under other GAAP

IFRS S1 applies to sustainability-related financial disclosures provided as part

of an entity’s general purpose financial reports. IFRS S1 is designed to require

the disclosure of information that complements an entity’s financial

statements, regardless of which generally accepted accounting principles or

practices (GAAP) the entity uses in preparing those financial statements. IFRS

S1 establishes a base for decision-useful and comparable reporting of

sustainability-related financial information by requiring the application of

some established practices from financial reporting. IFRS S1 uses definitions

and requirements that are consistent, if applicable, with the IASB’s Conceptual

Framework, IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies,

Changes in Accounting Estimates and Errors. The ISSB intends that such an

approach does not, in any way, limit the suitability of IFRS Sustainability

Disclosure Standards for entities applying other GAAP instead of IFRS

Accounting Standards.

Relationship with other IFRS Sustainability Disclosure

Standards

IFRS S1 sets out the general requirements that an entity is required to apply to

assert compliance with IFRS Sustainability Disclosure Standards. IFRS S1

identifies the essential elements of a complete set of sustainability-related

financial disclosures and sets out the qualitative characteristics of useful

sustainability-related

financial

information.

entity

applying

IFRS

Sustainability Disclosure Standards would apply the requirements in IFRS S1

in conjunction with other Standards (for example, an entity applying IFRS S2

would refer to IFRS S1 to decide how to aggregate or disaggregate

information). As a result, IFRS S1 will establish the basis for further

BC4

BC5

BC6

IFRS S1 BASIS FOR CONCLUSIONS

development of IFRS Sustainability Disclosure Standards by the ISSB in the

future.

The purpose of IFRS S1 for sustainability-related financial disclosures is

similar to that of the IASB’s Conceptual Framework, IAS 1 and IAS 8, which are

applicable to financial statements prepared in accordance with IFRS

Accounting Standards.

Proportionality

Although most respondents to the consultation on Exposure Draft IFRS S1

General Requirements for Disclosure of Sustainability-related Financial Information

(Exposure Draft) agreed with the proposed requirements, many of these

respondents suggested that the ISSB give more consideration to the range of

capabilities and preparedness of entities around the world to apply the

proposals. The reasons that some entities might be unable to comply fully

with the proposals include:

(a)

resource constraints—the costs of investing in and operating the systems

and processes necessary to enable disclosure are proportionately

higher for some entities;

(b)

data availability—high-quality external data is less available in some

markets, industries and parts of the value chain; and

(c)

specialist availability—skills or expertise are less available to some

entities and in some markets.

The ISSB discussed a range of mechanisms to respond to these

‘proportionality’ challenges. The ISSB made several proportionality-related

decisions intended to ease the burden of disclosure and assist entities in

applying IFRS Sustainability Disclosure Standards.

Table 1—Summary of ISSB decisions that assist with proportionality or in

the application of IFRS S1

Area

Mechanisms to address

proportionality challenges

Transition

relief

Additional clarifications/

mechanisms to facilitate

application

Concept of

‘reasonable

and

supportable

informa-

tion…

without

undue cost

or effort’

Considera-

tion of

skills,

capabilities

and resour-

ces

Concept of

‘unable to

do so’(a)

Guidance,

educational

material

and other

efforts to

facilitate

application

Identification

of risks and

opportunities

continued...

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IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

...continued

Area

Mechanisms to address

proportionality challenges

Transition

relief

Additional clarifications/

mechanisms to facilitate

application

Concept of

‘reasonable

and

supportable

informa-

tion…

without

undue cost

or effort’

Considera-

tion of

skills,

capabilities

and resour-

ces

Concept of

‘unable to

do so’(a)

Guidance,

educational

material

and other

efforts to

facilitate

application

Current

financial

effects

Anticipated

financial

effects

Determina-

tion of the

scope of the

value chain

Other areas

—for

example,

timing of

reporting

and provid-

ing compara-

tive informa-

tion in the

first annual

reporting

period

(a)

Although the term ‘unable to do so’ was used in the Exposure Draft, it is no longer

used in IFRS S1; however, this concept is articulated through whether the current

or anticipated financial effects are separately identifiable or whether the level of

measurement uncertainty involved in estimating those effects is so high that the

resulting quantitative information would not be useful.

Reasonable and supportable information

Requirements that involve a high level of judgement or uncertainty are not

unique to sustainability-related financial disclosures. IFRS Accounting

Standards require an entity to recognise and measure amounts that are

subject to high measurement uncertainty. For example, IFRS 9 Financial

Instruments requires an entity to account for expected credit losses by using

forward-looking information and apply its judgement in making estimations.

BC10

IFRS S1 BASIS FOR CONCLUSIONS

The IASB has, in several recent IFRS Accounting Standards, specified the type

of information that an entity is required to use, by referring to ‘all reasonable

and supportable information that is available at the reporting date without

undue cost or effort’. This concept is not used in IFRS Accounting Standards as

a broad principle, but the IASB has used it in specific circumstances to guide

an entity in applying requirements that involve a high level of measurement

uncertainty.

Determining what qualifies as reasonable and supportable information

involves an entity:

(a)

considering all information that is reasonably available, including

information it already has. An entity is prohibited from disregarding

known information.

(b)

having an appropriate basis for using the information, satisfying the

requirement in IFRS S1 for information to be supportable.

(c)

considering information that is available at the reporting date, such as

historical, current or forward-looking information (including forecasts

of future conditions).

An entity is not required to carry out an exhaustive search for such

information. The information should be available without undue cost or

effort.

The ISSB has introduced the concept of ‘all reasonable and supportable

information that is available to the entity at the reporting date without undue

cost or effort’ in IFRS S1 in regard to:

(a)

identifying sustainability-related risks and opportunities that could

reasonably be expected to affect the entity’s prospects (paragraph B6(a)

of IFRS S1);

(b)

determining the scope of the entity’s value chain, including its breadth

and composition, in relation to each of those sustainability-related

risks and opportunities (paragraph B6(b) of IFRS S1); and

(c)

preparing disclosures about the anticipated financial effects of

sustainability-related risks and opportunities on an entity’s financial

performance, financial position and cash flows (paragraph 37(a) of IFRS

S1).

The ISSB decided that referring to ‘all reasonable and supportable information

that is available to the entity at the reporting date without undue cost or

effort’ is beneficial if entities apply requirements that involve a high level of

judgement or uncertainty because the concept establishes parameters for the

type of information to consider, and for the effort required to obtain such

information.

Referring to ‘all reasonable and supportable information that is available to

the entity at the reporting date without undue cost or effort’ does not

introduce additional disclosure requirements. Nor does this reference exempt

an entity from providing a disclosure. It does not apply to all requirements in

BC11

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IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

IFRS S1. Instead, it provides clarity about the information that an entity uses

in the preparation of its sustainability-related financial disclosures, and

applies only to specific disclosure requirements. The concept of ‘all reasonable

and supportable information that is available to the entity at the reporting

date without undue cost or effort’ also emphasises that an entity is required to

use relevant and appropriate information.

The ISSB decided that the concept of ‘all reasonable and supportable

information that is available to the entity at the reporting date without undue

cost or effort’ will also assist those entities that would otherwise be unable to

comply fully with the requirements in IFRS Sustainability Disclosure

Standards. For example, an entity is permitted to carry out a less exhaustive

search for information if the cost of obtaining particular information is

proportionately higher for the entity than for other entities with more

resources. Although an entity is still required to comply with the disclosure

requirements, it is permitted to do so with information that is available

without undue cost or effort determined based on its circumstances. The ISSB

noted that an entity is prohibited from arguing that no effort is necessary,

because information about sustainability-related risks and opportunities that

could reasonably be expected to affect the entity’s prospects is useful to users

of general purpose financial reports. The greater the usefulness of information

about a sustainability-related risk or opportunity for users, the greater the

effort expected of an entity in obtaining that information. Overall, although

the concept of ‘all reasonable and supportable information that is available to

the entity at the reporting date without undue cost or effort’ is intended to

assist all entities in applying the requirements, it is particularly helpful to

those entities that would otherwise find the requirements in IFRS S1 and IFRS

S2 challenging to apply.

Background

In March 2021, the Trustees recruited members of various reporting initiatives

to create the Technical Readiness Working Group (TRWG), chaired by the IFRS

Foundation (Foundation), to provide recommendations to the ISSB. The TRWG

comprised representatives of:

(a)

the Climate Disclosure Standards Board (CDSB);

(b)

the Value Reporting Foundation, which included:

(i)

the Sustainability Accounting Standards Board (SASB); and

(ii)

the International Integrated Reporting Council;

(c)

the IASB;

(d)

the TCFD; and

(e)

the World Economic Forum, in particular its Stakeholder Capitalism

Metrics Initiative.

The International Organization of Securities Commissions (IOSCO) and IPSASB

participated as official observers.

BC17

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IFRS S1 BASIS FOR CONCLUSIONS

The TRWG’s work on general requirements for the disclosure of sustainability-

related financial information resulted in a prototype standard titled General

Requirements for Disclosure of Sustainability-related Financial Information, published

on the Foundation’s website in November 2021. The prototype standard was

not subject to the Foundation’s formal due process or that of any TRWG

member.

The establishment of the ISSB was announced by the Trustees in November

2021. In order to expedite the initial work of the ISSB, the Trustees granted

special powers to the ISSB Chair Emmanuel Faber and Vice-Chair Suzanne

Lloyd (as a transitional measure) to work with staff to issue an exposure draft,

based on the prototype standard, before the ISSB was quorate. This decision is

consistent with paragraph 56 of the IFRS Foundation Constitution published in

November 2021. The right of the ISSB Chair and Vice-Chair was made subject

to oversight by the Due Process Oversight Committee (DPOC) of the Trustees.

The DPOC confirmed in a meeting on 21 March 2022 that it had no objection

to the ISSB Chair and Vice-Chair publishing the Exposure Draft.

In March 2022, the ISSB Chair and Vice-Chair published the Exposure Draft,

which built on the prototype standard developed by the TRWG. Accordingly,

this Exposure Draft was based on the work of standard-setters and framework-

providers, which had been subject to extensive public consultation and

redeliberation, and had attracted significant interest in the market.

The ISSB received 735 comment letters and survey responses as feedback on

the Exposure Draft. The respondents represented a range of stakeholder

groups and geographies. The largest number of responses came from

preparers. Users of general purpose financial reports also demonstrated a high

level of interest in the Exposure Draft and accounted for a very high number

of responses, relative to response rates observed in similar consultations. The

user responses came from organisations such as investor associations, as well

as from individual users. The ISSB also conducted 328 individual and group

events before the consultation period ended in July 2022. A further 143

individual and group meetings with stakeholders took place from August to

December 2022.

Respondents welcomed the plan to consolidate several standards and

frameworks to develop a single set of high-quality sustainability disclosure

standards. The feedback also indicated that:

(a)

most respondents welcomed the timely publication of the Exposure

Draft. Many respondents encouraged the ISSB to continue moving at

pace in issuing IFRS S1 and IFRS S2, with some respondents

emphasising the importance of both timeliness and quality.

(b)

most respondents agreed with the use of the TCFD recommendations

as the structure of the requirements on core content in IFRS S1.

(c)

most respondents highlighted the necessity for interoperability with

jurisdictional initiatives and other sustainability-related standards.

Respondents mainly focused their comments about interoperability on

several proposals by other organisations that were open for comment

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IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

at the same time as the ISSB’s proposals. Almost all European

preparers stressed the importance of interoperability with the

sustainability reporting proposals of the European Financial Reporting

Advisory Group (EFRAG) to minimise reporting burden and complexity.

Almost all US preparers stressed the importance of interoperability

with the proposals of the United States Securities and Exchange

Commission (US SEC) in The Enhancement and Standardization of Climate-

Related Disclosures for Investors (the US SEC Climate Proposal). Many

preparers from jurisdictions outside Europe and the US expressed

concerns about potential duplication of requirements and ‘double

reporting’ if they were subject to the requirements in IFRS

Sustainability Disclosure Standards and to EFRAG or US SEC

requirements in the future. Many respondents emphasised the

importance of interoperability with multi-stakeholder standards,

particularly the Global Reporting Initiative (GRI) Standards. They

welcomed the Memorandum of Understanding (MoU) between the

Foundation and GRI and encouraged the ISSB to continue to work

closely with GRI.1

(d)

most respondents supported the positioning of IFRS S1, as proposed in

the Exposure Draft, as an overarching standard setting out the general

requirements designed to apply with all IFRS Sustainability Disclosure

Standards. They acknowledged the important role of the proposed

requirements, concepts and principles in providing consistent and

comparable sustainability-related financial information.

(e)

many respondents suggested that the ISSB give more consideration to

the range of capabilities and preparedness of entities around the world

to apply the proposals.

(f)

many respondents asked for more support, guidance and examples to

enable entities to apply the proposals effectively. Preparers of

sustainability-related financial disclosures also requested greater

clarity on some aspects of the proposed requirements in the Exposure

Draft.

(g)

many respondents emphasised the importance of close collaboration

between the ISSB and IASB. Respondents also stressed the importance

of improving the understandability, consistency and connectivity of

IFRS Sustainability Disclosure Standards by using the same definitions

and concepts as IFRS Accounting Standards where relevant. Some

respondents commented on the importance of promoting integrated

reporting, and welcomed the announcement from the Chairs of the

See IFRS Foundation, ‘IFRS Foundation and GRI to align capital market and multi-stakeholder

standards to create an interconnected approach for sustainability disclosures’, IFRS Foundation,

London,

IFRS

Foundation,

2022,

https://www.ifrs.org/news-and-events/news/2022/03/ifrs-

foundation-signs-agreement-with-gri/ (accessed 13 March 2023).

IFRS S1 BASIS FOR CONCLUSIONS

ISSB and IASB that the boards would work together to build on the

Integrated Reporting Framework.2

The ISSB considered the feedback in deciding its general approach to

redeliberation as well as the specific proposals and timetable for

redeliberation. From the feedback, the ISSB identified:

(a)

proposals that were well received;

(b)

proposals that received mixed feedback;

(c)

proposals that were seen as relatively well-established by previously

published sustainability standards and frameworks; and

(d)

proposals that might be better addressed through the future work plan

of the ISSB.

The ISSB decided to focus its work on proposals that received mixed feedback,

including suggestions to add to, remove or modify the proposed requirements.

The ISSB also considered proposals for which stakeholders provided new

information or emphasised different information from that relied on in

developing the proposals in the Exposure Draft. In relation to IFRS S1, the ISSB

decided to redeliberate:

(a)

‘enterprise value’;

(b)

breadth of reporting required;

(c)

‘significant’ sustainability-related risks or opportunities;

(d)

identifying ‘significant’ sustainability-related risks and opportunities

and information to disclose (including using the work of other

standard-setters, referred to later in this document as ‘sources of

guidance’);

(e)

application of the materiality assessment;

(f)

connected information;

(g)

frequency (or timing) of reporting; and

(h)

comparative information and updated estimates.

The ISSB also decided to redeliberate one topic and one proposal relating to

both IFRS S1 and IFRS S2:

(a)

proportionality of the proposals; and

(b)

current and anticipated financial effects of sustainability-related and

climate-related risks and opportunities on an entity’s financial

performance, financial position and cash flows.

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See IFRS Foundation, ‘Integrated Reporting—articulating a future path’, IFRS Foundation,

London, IFRS Foundation, 2022, https://www.ifrs.org/news-and-events/news/2022/05/integrated-

reporting-articulating-a-future-path/ (accessed 13 March 2023).

IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

Global baseline and interoperability with jurisdictional and

regulatory initiatives

IFRS Sustainability Disclosure Standards are intended to establish a

comprehensive global baseline of sustainability-related financial disclosures to

meet the needs of users of general purpose financial reports and, therefore, of

international capital markets. The global baseline is intended to serve as a

comprehensive

foundation

disclosure

requirements,

resulting

comparable, cost-effective and decision-useful sustainability-related financial

disclosures that are designed to meet the needs of users. Jurisdictions will be

able to build any necessary incremental disclosure requirements on this

common baseline.

IFRS S1 is intended to be compatible with law or regulation in the

jurisdictions in which entities operate, including law or regulation that

specifies the documents, formats and structures for disclosing information.

Entities are permitted to report additional information needed to meet

jurisdictional

requirements

alongside

information

required

IFRS

Sustainability Disclosure Standards. The ISSB observed that, for the purposes

of comparability, it is important for the global baseline to be visible in an

entity’s sustainability-related financial disclosures. IFRS S1 permits additional

disclosures if they do not obscure the information required by IFRS

Sustainability Disclosure Standards.

Almost all respondents to the Exposure Draft agreed with, and strongly

welcomed, the development of IFRS Sustainability Disclosure Standards to

establish a comprehensive global baseline of sustainability-related financial

disclosures for the capital markets.

A strong message from respondents to the Exposure Draft was the importance

achieving

high

degree

interoperability

with

jurisdictional

requirements, notably with proposals published by EFRAG and the US SEC. In

response to the strong and widely held views on interoperability, the

Foundation began several initiatives, including forming the Jurisdictional

Working Group (JWG) to discuss important strategic matters relating to IFRS

S1 and IFRS S2 and jurisdictional initiatives on sustainability reporting. When

established, the JWG included:

(a)

the Chinese Ministry of Finance;

(b)

the European Commission and EFRAG;

(c)

the Japanese Financial Services Agency and the Sustainability

Standards Board of Japan;

(d)

the UK’s Financial Conduct Authority;

(e)

the US SEC; and

(f)

IOSCO (as an observer).

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IFRS S1 BASIS FOR CONCLUSIONS

The JWG provided feedback on the urgency and importance of a global

baseline and of achieving interoperability between proposed sustainability

reporting standards. Participants in the JWG noted that interoperable global

standards are essential for capital markets, and suggested that a lack of

interoperability between sustainability-related reporting regimes in various

jurisdictions would be costly for entities and would risk undermining the

provision of clear and consistent information to users of general purpose

financial reports. Participants also emphasised the importance of enabling

users to clearly identify information relevant to them and information

relevant to a broader set of stakeholders, so that material information for

users is not obscured.

The ISSB works to collaborate with and learn from others. As part of this

collaboration, the Trustees announced the establishment of the Sustainability

Standards Advisory Forum (SSAF) in May 2022. Its membership was

announced in December 2022. The SSAF is a formal technical advisory body to

the ISSB. It provides an advisory forum in which members representing

jurisdictional and regional bodies contribute their technical input and

expertise to inform the ISSB’s standard-setting. The ISSB continues to

collaborate with others in the global sustainability reporting landscape,

including with GRI as part of the MoU.

Furthermore, during the redeliberation process for the Exposure Draft, the

ISSB made several decisions on matters related to IFRS S1 and IFRS S2 that are

important to achieving interoperability. The ISSB clarified some details of the

global baseline—in particular, that disclosures in accordance with IFRS

Sustainability Disclosure Standards are designed to meet the information

needs of investors, creditors and other lenders (that is, ‘primary users of

general purpose financial reports’); that the information to be provided in

such disclosures is based on a materiality assessment consistent with that

used in the application of IFRS Accounting Standards; and that the

information may be presented with information disclosed to meet other

requirements, such as specific jurisdictional requirements, but may not be

obscured by that additional information.

Other decisions made by the ISSB to achieve interoperability included:

(a)

confirming that the structure of the disclosure requirements proposed

in the Exposure Draft aligns with TCFD recommendations on

governance, strategy, risk management, and metrics and targets (see

paragraphs BC91–BC122)—referred to as ‘core content’;

(b)

removing the definition of ‘enterprise value’ and the words ‘to assess

enterprise value’ from the objective of IFRS S1 and the description of

the assessment of materiality (see paragraphs BC35–BC41 and BC67–

BC74);

(c)

confirming that information is required for short-, medium- and long-

term time horizons, but that those horizons are not defined (see

paragraph BC102);

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BC32

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(d)

confirming the definition of ‘value chain’ proposed in the Exposure

Draft (see paragraphs BC52–BC55); and

(e)

introducing a requirement to permit, but not require, entities to

consider the GRI Standards and the European Sustainability Reporting

Standards (ESRS) in identifying information to provide about

sustainability-related risks and opportunities (see paragraphs BC136–

BC139).

Objective

The objective of IFRS S1 is to require an entity to disclose information about

its sustainability-related risks and opportunities that is useful to users of

general purpose financial reports in making decisions relating to providing

resources to the entity. Most respondents to the Exposure Draft agreed with

the focus of IFRS Sustainability Disclosure Standards on users and their

information needs. However, respondents provided mixed feedback on the

application of some of the fundamental concepts in the Exposure Draft. This

feedback centred around the terms ‘enterprise value’, ‘materiality’ and

‘significant’, and how to apply these terms to identify and assess information

that is potentially useful for users’ decisions.

Some respondents requested more clarity about the concept of ‘enterprise

value’ and others questioned whether ‘enterprise value’ was an appropriate

term for anchoring sustainability-related financial disclosures and material

information. The ISSB included the term ‘enterprise value’ in the Exposure

Draft with the intention of broadening the scope of financial reporting and

disclosures to capture a wider set of information. This information would

extend beyond an entity’s current financial position and performance, and

might include, for example, the anticipated financial effects of sustainability-

related risks and opportunities. The term was also intended to narrow the

scope of disclosures to only include information about sustainability-related

risks and opportunities that is useful to users of general purpose financial

reports. However, contrary to the ISSB’s intention, the use of the term might

have constrained the objective of the Exposure Draft and created confusion for

some respondents. For example, some users stated that ‘enterprise value’ can

be defined or understood too narrowly, thereby creating a risk that the

sustainability-related financial information disclosed in accordance with IFRS

S1 would not be useful for their purposes. The definition of ‘enterprise value’

also gave rise to confusion, with many respondents believing that the

reference to market capitalisation meant that the term applied only to listed

entities. Some respondents stated that the use of this term could create

confusion because it has a particular and different meaning in European

legislation.

Some respondents expressed concerns about the adaptations made to the

wording from the IASB’s Conceptual Framework that was used to develop the

concept of materiality in the Exposure Draft. The Exposure Draft adapted the

definition of ‘material information’ from the Conceptual Framework to state in

paragraph 2 of the Exposure Draft that ‘the assessment of materiality shall be

BC35

BC36

BC37

IFRS S1 BASIS FOR CONCLUSIONS

made in the context of the information necessary for users of general purpose

financial reporting to assess enterprise value’. For further discussion on

materiality, see paragraphs BC67– BC84.

Respondents questioned the use of the term ‘significant’ to determine the

sustainability-related risks and opportunities included within the scope of the

Exposure Draft. Respondents expressed concerns about the use of the term

and were confused by its relationship with materiality. Most respondents said

the term lacked a clear definition, and some stated that the distinction

between the use of the terms ‘significant’ and ‘material’ was unclear in the

Exposure Draft.

In response to the feedback, the ISSB decided to change the wording of the

objective, and to better align the definition of materiality in IFRS S1 with that

used by the IASB. The ISSB also removed the definition of ‘enterprise value’

from the list of defined terms in Appendix A of IFRS S1 and removed the

terms ‘significant’ and ‘all significant’ when describing, in the Standard, the

sustainability-related risks and opportunities an entity is required to provide

information about.

Although the ISSB decided against using these terms, its approach and its

focus on users of general purpose financial reports remained unchanged. The

ISSB decided to continue using definitions of ‘material information’ and

‘primary users of general purpose financial reports’ that are consistent with

the IASB’s definitions. In addition, although the ISSB decided against routinely

using the term ‘significant’ in IFRS S1 to describe the sustainability-related

risks and opportunities that an entity is required to report on, the ISSB’s

intention remained consistent with the Exposure Draft. That is, the intention

is to require an entity to provide material information about sustainability-

related risks and opportunities, specifically about the sustainability-related

risks and opportunities that could reasonably be expected to affect the entity’s

prospects. The ISSB noted that the term ‘significant’ had been intended to

assist an entity in identifying the sustainability-related risks and opportunities

to report on and that ‘material’ was intended to be used in determining the

information to provide—to clarify this distinction, the ISSB decided to provide

guidance in Appendix B of IFRS S1.

In response to the feedback, the ISSB clarified the content in the ‘Objective’

section of IFRS S1. This section includes:

(a)

a description of sustainability-related risks and opportunities that IFRS

Sustainability Disclosure Standards address;

(b)

a general requirement for an entity to provide information about all

those risks and opportunities; and

(c)

a description of the role of IFRS S1 in setting out the general

requirements for the content and presentation of sustainability-related

financial disclosures.

The objective of IFRS S1 builds on the Integrated Reporting Framework, but in

some cases the Standard does not use identical terms.

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Sustainability-related risks and opportunities

The concept of sustainability is frequently linked to ‘sustainable development’,

which was defined in 1987 as ‘development that meets the needs of the

present without compromising the ability of future generations to meet their

own needs’.3 The United Nations (UN) released definitions of sustainability,

Sustainable Development Goals and international policy pronouncements

identifying matters that the UN has concluded are important in considering

sustainability, including:

(a)

climate change (the UN Framework Convention on Climate Change);

(b)

biodiversity (the Convention on Biological Diversity);

(c)

oceans (the UN Convention on the Law of the Sea);

(d)

desertification (the UN Convention to Combat Desertification in those

Countries Experiencing Serious Drought and/or Desertification,

Particularly in Africa); and

(e)

human rights (the Universal Declaration of Human Rights).

The terms ‘sustainability’ and ‘sustainable development’ therefore apply

widely across social and ecological communities, and apply to current and

future generations. The terms also encompass environmental and social

notions of justice, health, welfare and preservation, and acknowledgement of

planetary boundaries.

IFRS S1 focuses on sustainability-related financial information—information

about an entity’s sustainability-related risks and opportunities that could

reasonably be expected to affect the entity’s cash flows, its access to finance or

cost of capital over the short, medium or long term. This includes information

about an entity’s governance, strategy and risk management in relation to

those risks and opportunities, and related metrics and targets. Therefore,

understanding sustainability-related risks and opportunities, including their

relationship with the established notions of sustainability and sustainable

development, is pivotal to understanding the scope of IFRS S1 and IFRS

Sustainability Disclosure Standards more broadly.

IFRS S1 specifies that sustainability-related risks and opportunities arise out of

the interactions between an entity and its stakeholders, society, the economy

and the natural environment throughout the entity’s value chain. This

description is intentionally broad. Furthermore, an entity’s sustainability-

related risks and opportunities—and their effects, as well as expectations of

their effects, on an entity—will change over time and in relation to the

interdependent system in which an entity operates. IFRS S1 elaborates that an

entity both depends on resources and relationships throughout its value chain

and affects those resources and relationships, which contributes to their

preservation, regeneration and development, or to their degradation and

depletion.

BC42

BC43

BC44

BC45

World Commission on Environment and Development, The Brundtland Report: Our Common Future,

Oxford, Oxford University Press, 1987.

IFRS S1 BASIS FOR CONCLUSIONS

In describing the concepts underlying sustainability-related risks and

opportunities, the ISSB decided to build on concepts from the Integrated

Reporting Framework—a decision consistent with the ISSB’s aim to build on

the existing work of framework-providers and standard-setters. The

fundamental concepts in the Integrated Reporting Framework emphasise that

an entity’s ability to create, preserve and erode value for itself over time—and

hence to generate returns for the entity’s investors, lenders and other

creditors—is inextricably linked to value that the entity creates, preserves or

erodes for others.

These concepts that underlie sustainability-related risks and opportunities are

broadly consistent with the concepts and guidance in the IASB’s Exposure

Draft Management Commentary. For example, the Exposure Draft Management

Commentary explains that an entity’s activities create value for the entity if

they enhance or preserve the net present value of the entity’s future cash

flows. Conversely, the entity’s activities erode value if they reduce the net

present value of the entity’s future cash flows. It also explains that creating

value is a precursor to generating cash flows. Conversely, some activities

might increase cash inflows in the short term but can erode value in the long

term.

The ISSB decided to enhance the description of the concepts that underlie

sustainability-related risks and opportunities (and sustainability-related

financial information) in the ‘Objective’ section (see paragraphs 1–3 of IFRS S1)

and in the application guidance (see paragraphs B1–B12 of IFRS S1). The ISSB

also noted that related definitions, including definitions of ‘primary users’ and

‘material information’, help further reinforce the understanding of

sustainability-related risks and opportunities.

The ISSB emphasised that the focus of IFRS S1 on the information needs of

users of general purpose financial reports distinguishes sustainability-related

financial information from broader, multi-stakeholder reporting focused on

an entity’s contribution to sustainable development. The ISSB has not

broadened its scope beyond investor-focused disclosure. Disclosures made in

accordance with IFRS Sustainability Disclosure Standards are conceptually and

practically complementary to—but not a replacement for—reporting on an

entity’s significant impacts on people, the environment and the economy. IFRS

S1 focuses on information that is useful to users in making decisions relating

to providing resources to an entity.

Identifying sustainability-related risks and opportunities

The ISSB decided to enhance the description in IFRS S1 of concepts that

underlie sustainability-related risks and opportunities. This enhancement was

one of many approaches intended to assist preparers in identifying

sustainability-related risks and opportunities, including those risks and

opportunities that could reasonably be expected to affect an entity’s prospects.

The ISSB noted other approaches intended to assist entities, including:

(a)

the requirements and guidance in IFRS S2 specific to climate-related

risks and opportunities;

BC46

BC47

BC48

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(b)

the sources of guidance in IFRS S1 that provide practical guidance on

identifying sustainability-related risks and opportunities, including

risks and opportunities across a range of sustainability-related issues

and specific to industries; and

(c)

the ISSB’s ongoing and future work to continue developing IFRS

Sustainability Disclosure Standards and educational materials.

Paragraph 3 of IFRS S1 requires an entity to disclose information about all

sustainability-related risks and opportunities that could reasonably be

expected to affect the entity’s prospects. In feedback to the ISSB, preparers

described challenges in identifying risks and opportunities, such as the

breadth of assessments that would be necessary to cover all the sustainability-

related risks and opportunities that might affect the entity. In response, the

ISSB introduced the concept of an entity using ‘all reasonable and supportable

information that is available to the entity at the reporting date without undue

cost or effort’, including information about past events, current conditions

and forecasts of future conditions when identifying sustainability-related risks

and opportunities (see paragraphs BC10–BC17). The ISSB observed that

introducing this concept clarifies that an entity:

(a)

is prohibited from overstating or understating opportunities (or risks)

premised on information that is unsupportable or unreasonable;

(b)

is required to use all information that is available to the entity at the

reporting date (including information about past events, current

conditions and forecasts of future conditions);

(c)

is not required to use information that was unavailable at the

reporting date; and

(d)

is not expected to carry out an exhaustive search for information to

identify every sustainability-related risk or opportunity—because such

an exhaustive search would represent ‘undue cost or effort’.

Sustainability-related risks and opportunities that could reasonably be

expected to affect the entity’s prospects include those that arise throughout

the entity’s value chain. IFRS S1 requires an entity to disclose a description of

the current and anticipated effects of sustainability-related risks and

opportunities on the entity’s business model and value chain. An entity is also

required to disclose a description of where in the entity’s business model and

value chain sustainability-related risks and opportunities are concentrated.

Examples of the type of information an entity might provide include:

(a)

a beverage company might need to disclose risks associated with water

use, especially in areas where water is scarce. The entity might

describe how its use of water affects the supply available to meet its

operational needs. It might explain how its water consumption affects

communities close to the entity’s operations that rely on the same

source of water. It might also explain how over-consumption of water

in those locations could lead to risks of reputational damage and loss

of customers, or to the imposition of taxes or limits on the use of the

BC51

BC52

IFRS S1 BASIS FOR CONCLUSIONS

resource. It could describe how these risks have been assessed

throughout its supply chain.

(b)

a clothing brand company might describe the opportunity associated

with changing to use less resource-intensive materials in its products

and packaging. The potential effects might be driven by the entity’s

commitments to sustainable business practices, or consumer

preferences for more sustainable or recycled alternatives. The entity

might also disclose the areas of its value chain and operations that are

potentially most affected by this opportunity, and the processes in

place to assess and monitor the opportunity.

(c)

an electronics manufacturer might describe the risks of human rights

issues in its supply chain including reputational damage and supply

chain disruptions. In doing so, the entity might describe the effects on

its policies, actions it has taken to assess and monitor the risks, and

how it manages any identified abuses.

During its redeliberation process, the ISSB confirmed that the definition of

‘value chain’ would remain the same as the definition proposed in the

Exposure Draft. The ISSB made minor editorial changes to the definitions of

‘value chain’ and ‘business model’ to align those defined terms with the

‘Objective’ section of IFRS S1.

Joint ventures, associates and investments are not considered to be part of the

reporting entity that is presenting consolidated financial statements, although

these items are recognised in the financial statements. In the same way that

financial statements recognise these investments and report aspects of the

performance of associates and joint ventures, sustainability-related financial

information related to those investments is relevant to users of general

purpose financial reports in assessing the effects of sustainability-related risks

and opportunities on the entity’s cash flows, its access to finance and cost of

capital over the short, medium and long term.

IFRS S1 does not specify how to include sustainability-related financial

information about joint ventures, associates and investments. However,

specific IFRS Sustainability Disclosure Standards, including IFRS S2, will

provide requirements and guidance related to the disclosure of information

about the sustainability-related risks and opportunities arising throughout an

entity’s value chain.

An entity is required to disclose information about sustainability-related risks

and opportunities throughout its value chain. When doing so, the entity is

required to identify the sustainability-related risks and opportunities that

could reasonably be expected to affect the entity’s prospects and determine

the scope of its value chain, including its breadth and composition, in relation

to each of those sustainability-related risks and opportunities. An entity is also

required to disclose the current and anticipated effects of sustainability-

related risks and opportunities that could reasonably be expected to affect the

entity’s prospects throughout its business model and value chain and describe

where these risks and opportunities are concentrated. In feedback to the ISSB,

respondents described the challenges associated with obtaining the necessary

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information to determine the scope of an entity’s value chain, due to the

possible extent of the value chain, as well as potential complexities in

obtaining information to prepare the required disclosures.

Some respondents to the Exposure Draft stated that obtaining information

about the value chain might require a reporting entity to collect information

from parties that the entity does not control or in which it has no ownership

interest. Some of these respondents suggested that the ISSB limit the scope of

the value chain that an entity is required to consider. The ISSB decided not to

put limits on the scope of the value chain that an entity is required to

consider and confirmed that an entity is required to provide material

information about sustainability-related risks and opportunities arising

throughout its value chain. For example, the ultimate consumers of an

entity’s products might be the most important contributors to the entity’s

Scope 3 greenhouse gas emissions, or the employment practices of a supplier

in an entity’s supply chain could have a reputational effect on the entity even

if the supplier has no direct relationship with the reporting entity.

In response to concerns about the potential difficulties faced by an entity in

obtaining information when assessing the scope of its value chain, the ISSB

decided that an entity determining the scope of its value chain is required to

use ‘all reasonable and supportable information that is available to the entity

at the reporting date without undue cost or effort’, in relation to each

sustainability-related risk and opportunity identified that could reasonably be

expected to affect the entity’s prospects. The ISSB noted that the concept of ‘all

reasonable and supportable information that is available to the entity at the

reporting date without undue cost or effort’ assists entities by establishing

parameters for the type of information they consider when preparing

disclosures regarding the value chain, and the effort required to obtain such

information. Specifically, the ISSB noted that this concept clarifies that an

entity:

(a)

is required to use all information available to it at the reporting date

without undue cost or effort;

(b)

is not required to carry out an exhaustive search for information

associated with its value chain that would require undue cost or effort;

and

(c)

is required to determine the scope of its value chain using information

that is reasonable and supportable.

This also provides relief to entities that face challenges associated with

obtaining information from entities throughout their value chain.

Reassessing the scope of sustainability-related risks and

opportunities throughout the value chain

The ISSB noted that in the Exposure Draft it was implicit that an entity would

be required to reassess, at every reporting date, the scope of the sustainability-

related risks and opportunities arising throughout its value chain. For

example, an entity would be required to reassess, at every reporting date,

which Scope 3 greenhouse gas emissions categories and entities throughout its

BC57

BC58

BC59

IFRS S1 BASIS FOR CONCLUSIONS

value chain to include in the measurement of its Scope 3 greenhouse gas

emissions.

In discussing the feedback, the ISSB acknowledged this issue is not unique to

Scope 3 greenhouse gas emissions. The ISSB decided that the costs an entity

would incur to reassess the scope of each sustainability-related risk and

opportunity throughout its value chain at each reporting date would outweigh

the benefit to users of general purpose financial reports, who typically would

benefit from a reassessment only if a significant change had occurred.

Therefore, the ISSB decided that a requirement for an entity to reassess at

each reporting date was unnecessary.

Instead, in response to the feedback, the ISSB decided that an entity is

required to reassess the scope of all affected sustainability-related risks and

opportunities arising throughout its value chain only if a significant event or a

significant change in circumstances occurs. Such a significant event or

significant change in circumstances can occur without the entity being

involved in that event or change in circumstances, or as a result of a change in

what the entity assesses to be important to users of general purpose financial

reports. For example, if a regulation is introduced that an entity had not

anticipated for greenhouse gas emissions associated with employee travel, the

entity might be required to reassess which categories to include in the

measurement of its Scope 3 greenhouse gas emissions. However, if this

regulation does not affect the entity’s other sustainability-related risks and

opportunities, for example the entity’s identified risk of water scarcity in its

supply chain, then the entity would not be required to reassess the scope of

those other sustainability-related risks and opportunities. The ISSB observed

that a significant event or significant change in circumstances may not

necessarily arise from a change in an entity’s value chain and therefore, the

scope of a sustainability-related risk or opportunity may change even though

the entity’s value chain has not changed.

An entity could choose to reassess the scope of any sustainability-related risk

or opportunity throughout its value chain more frequently—for example,

each year.

Conceptual foundations

Fair presentation

Paragraph 11 of IFRS S1 requires that ‘a complete set of sustainability-related

financial disclosures shall present fairly all sustainability-related risks and

opportunities that could reasonably be expected to affect an entity’s

prospects’. Fair presentation requires disclosure of relevant information about

sustainability-related risks and opportunities that could reasonably be

expected to affect the entity’s prospects and their faithful representation in

accordance with the principles set out in IFRS S1. Fair presentation also

requires an entity ‘to disclose information that is comparable, verifiable,

timely and understandable’ and ‘to disclose additional information if

compliance

with

the

specifically

applicable

requirements

IFRS

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IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

Sustainability Disclosure Standards is insufficient to enable users of general

purpose financial reports to understand the effects of sustainability-related

risks and opportunities on the entity’s cash flows, its access to finance and

cost of capital over the short, medium and long term’ (see paragraph 15(a)–(b)

of IFRS S1). Fair presentation is a well-understood concept in IFRS Accounting

Standards—its characteristics are set out in IAS 1—and in other GAAP. The

concepts and language in IFRS S1 were derived from IAS 1 and adapted in the

context of sustainability-related financial disclosures.

The ISSB does not have a separate conceptual framework that applies directly

to sustainability-related financial information. IFRS S1 includes guidance on

the qualitative characteristics of useful sustainability-related financial

information, set out in Appendix D. This guidance is an integral part of IFRS

S1 and thus is required to be applied by an entity using IFRS S1. The

characteristics described in Appendix D are adapted from the IASB’s Conceptual

Framework and are intended to ensure that information in general purpose

financial reports—including both sustainability-related financial disclosures

and financial statements—is useful to users of those reports. The guidance is

also intended to provide information to assist an entity in the preparation of

sustainability-related financial disclosures.

As with the Conceptual Framework, the fundamental qualitative characteristics

of useful sustainability-related financial information are relevance and

faithful representation. The enhancing characteristics are comparability,

verifiability, timeliness and understandability. IFRS S1 explains how these

concepts apply to sustainability-related financial information. For example,

IFRS S1 explains that information in the form of explanations or forward-

looking statements is still verifiable.

Faithful representation is a component of the concept of ‘fair presentation’ in

IAS 1. According to the Conceptual Framework, to be a perfectly faithful

representation, a depiction would have three characteristics: it would be

complete, neutral and free from error. In developing the Exposure Draft, the

ISSB noted that individuals that prepare sustainability-related financial

disclosures may not be the same individuals involved in preparing financial

statements, and may not be familiar with IFRS Accounting Standards or the

Conceptual Framework. Therefore, paragraph 3 of the Exposure Draft used the

common label of ‘accurate’, instead of ‘free from error’, to describe a ‘complete

depiction’ of an entity’s sustainability-related financial information. The ISSB

has aligned the terms used in paragraph D10 of IFRS S1 with those used in

paragraph 13 of IFRS S1.

Materiality

The Exposure Draft proposed that materiality be assessed in relation to the

effects of sustainability-related risks and opportunities on an entity’s

enterprise value. In response to the feedback, the ISSB confirmed that the

materiality definition in IFRS Sustainability Disclosure Standards is aligned

with the IASB’s definitions of ‘material information’ and ‘material’ in its

Conceptual Framework and IAS 1 respectively, which do not refer to enterprise

value. To improve alignment, the ISSB removed ‘enterprise value’ from its

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BC65

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IFRS S1 BASIS FOR CONCLUSIONS

description of materiality and removed the definition of ‘enterprise value’

from IFRS S1.

The ISSB has clarified that IFRS S1 requires an entity to disclose material

information about the sustainability-related risks and opportunities that could

reasonably be expected to affect the entity’s prospects. The ISSB based its

definition of material information on the definitions of ‘material information’

and ‘material’ in the Conceptual Framework and IAS 1, respectively. All the

definitions highlight that materiality judgements are made in relation to a

specific reporting entity and focus on information that could reasonably be

expected to influence decisions of users of general purpose financial reports.

The definition in IFRS S1 is specific to sustainability-related financial

disclosures and states that materiality judgements are made in the context of

an entity’s sustainability-related financial disclosures. This approach is

consistent with how the definitions of ‘material information’ in IAS 1 and in

the IASB’s Exposure Draft Management Commentary are specific to financial

statements and management commentary, respectively. The definition in IFRS

S1 also acknowledges that users do not make their decisions on the basis of

just one form of general purpose financial reports published by the entity.

Using conceptually aligned definitions facilitates connectivity across an

entity’s general purpose financial report prepared applying IFRS Standards.

Materiality judgements for sustainability-related financial disclosures will

inevitably differ from those for financial statements. Different materiality

judgements are necessary because sustainability-related financial disclosures

and financial statements serve their specific objectives and provide different

types of information about a reporting entity. Sustainability-related financial

disclosures provide information about sustainability-related risks and

opportunities that could reasonably be expected to affect the entity’s

prospects, while financial statements provide information about the entity’s

assets, liabilities, equity, income and expenses. The ISSB noted that

information

about

sustainability-related

risks

and

opportunities

unconstrained by definitions of assets and liabilities and the criteria for

recognising them. Furthermore, the ISSB expects that in preparing

sustainability-related financial disclosures, entities will often have to consider

financial implications over longer time periods than the time periods

considered in preparing financial statements. In addition, in preparing

sustainability-related financial disclosures, entities will need to consider the

financial implications of interactions throughout their value chain. Finally,

the ISSB observed that sustainability-related financial information may have

different measurement bases compared to information included in financial

statements.

Risk severity is commonly expressed in terms of probability and impact.

Opportunities can also be expressed in the same terms. IFRS S1 states that

when making materiality judgements, an entity is required to consider risks

and opportunities that are unlikely to occur but have a potentially high

impact. An entity is required to consider:

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(a)

relationships between the impacts of its activities on the environment

and society, and the impacts of the environment and society on an

entity’s cash flows, cost of capital and access to finance;

(b)

changes in assumptions and conditions over time; and

(c)

potential changes in the information needs of users of general purpose

financial reports.

The definition of material information in IFRS S1 is aligned with the Conceptual

Framework and IAS 1. However, IFRS Sustainability Disclosure Standards are

designed to be applied with any GAAP, and the definition of materiality is not

the same in every GAAP. For example, the Financial Accounting Standards

Board (FASB), in its Statement of Financial Accounting Concepts No. 8, defines

materiality as follows:

The omission or misstatement of an item in a financial report is material if, in

light of surrounding circumstances, the magnitude of the item is such that it is

probable that the judgment of a reasonable person relying upon the report

would have been changed or influenced by the inclusion or correction of the

item.4

Furthermore, there is some variation in how the concept of materiality is

interpreted, applied and enforced in various jurisdictions. Therefore,

including a definition in IFRS S1 ensures entities that apply the requirements

in IFRS Sustainability Disclosure Standards are applying and interpreting the

same words. All entities applying these Standards are required to use the same

definition of material information.

In making decisions relating to materiality, the ISSB has reiterated that

material information must not be obscured by other information, including

information that is provided to satisfy law, regulation or other requirements

outside those of IFRS Sustainability Disclosure Standards. Because the ISSB is

using a definition of material information that is consistent with IAS 1, it

decided to include guidance in IFRS S1 with regards the obscuring of material

information based on guidance in IAS 1.

The ISSB emphasised that to avoid obscuring material information, an entity

is required to make material information required by IFRS Sustainability

Disclosure Standards prominent and distinguishable from immaterial

information provided to satisfy law, regulation or other requirements. Ways

in which this distinction might be achieved include:

(a)

using digital tagging to ensure that users of general purpose financial

reports could extract the information required by IFRS Sustainability

Disclosure Standards;

(b)

presenting the information required by IFRS Sustainability Disclosure

Standards together with immaterial information in a single report,

using formatting to distinguish the information required by IFRS

Sustainability Disclosure Standards (for example, using boxes or

BC71

BC72

BC73

BC74

See the section in the FASB Statement of Financial Accounting Concepts No. 8, Conceptual

Framework for Financial Reporting—Chapter 3 ‘Qualitative Characteristics of Useful Financial

Information’ (paragraph QC11) as amended August 2018.

IFRS S1 BASIS FOR CONCLUSIONS

shading to emphasise the information required by IFRS Sustainability

Disclosure Standards or to make the distinction clear);

(c)

presenting the information required by IFRS Sustainability Disclosure

Standards separately so that information is clearly distinguished from

immaterial information (for example, splitting the report into parts);

and

(d)

providing two sets of information—one that includes the entire

package of information without distinction (both the information

required by IFRS Sustainability Disclosure Standards and immaterial

information) and an accompanying report that only provides the

information required by IFRS Sustainability Disclosure Standards.

Aggregation and disaggregation

The concepts of aggregation and disaggregation in relation to the financial

statements in IAS 1 are equally important for sustainability-related financial

disclosures to ensure that users of general purpose financial reports are

provided with information at appropriately aggregated and disaggregated

levels. IFRS S1 requires an entity to consider all facts and circumstances when

deciding how to aggregate and disaggregate information in sustainability-

related financial disclosures. It also requires that the understandability of

disclosures is not reduced ‘by obscuring material information with immaterial

information or by aggregating material items of information that are

dissimilar to each other’ (see paragraph B29 of IFRS S1). These principles of

aggregation and disaggregation build on IAS 1.

Commercially sensitive information

In reviewing feedback on the Exposure Draft, a strong theme emerged

regarding stakeholder concerns about being required to disclose information

about opportunities that could be commercially sensitive. Respondents were

concerned that disclosure of such information could reveal too much detail

associated with an entity’s strategy and planned actions, which are integral to

competitive advantage.

Some preparers said they would be reluctant to disclose commercially

sensitive information about opportunities because it might reduce their

competitiveness in the market or otherwise be commercially harmful.

In response, the ISSB decided to introduce a targeted exemption, noting that

the circumstances in which an entity is exempt from providing material

information to users of general purpose financial reports would be limited.

The exemption in IFRS S1 permits an entity, in limited circumstances

described in paragraph B35 of IFRS S1, to omit information about a

sustainability-related opportunity from its sustainability-related financial

disclosures.

The ISSB decided that the exemption would be intentionally narrow and apply

only to the disclosure of information about opportunities. The ISSB

acknowledged that this decision might create asymmetry between the

disclosure of information about risks and the disclosure of information about

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opportunities. However, the ISSB observed that many entities already

voluntarily report on sustainability-related opportunities, despite no

requirement to report this information. As stated by a few respondents to the

ISSB’s Exposure Draft, entities are often in favour of sharing the opportunities

available to them. In contrast, it is typically necessary for a standard to

require disclosure of risks to ensure information is provided in a comparable

and neutral way.

In assessing the circumstances in which an entity would apply the exemption,

the ISSB agreed that the entity is required to first consider whether it is

possible to disclose the information about the opportunity at a sufficiently

aggregated level to resolve the entity’s concerns about commercial sensitivity,

while still meeting the objectives of the disclosure requirements in IFRS S1.

The ISSB explained that, in such circumstances, an entity would consider how

to disclose information without identifying specific information that might

cause a significant loss of competitive advantage. The ISSB emphasised that an

entity is required to ensure that aggregation does not obscure material

information.

The ISSB included additional requirements in IFRS S1 that an entity is

required to apply for each item of information omitted if it applies this

exemption. The ISSB discussed and agreed that:

(a)

an entity that applies the exemption is required to disclose that it has

done so. The ISSB decided that this disclosure would signal to users of

general purpose financial reports that specific information has been

omitted for reasons of commercial sensitivity, without requiring the

entity to disclose information about what has been omitted, thus

reducing the effect of the exemption.

(b)

an entity is required to have a specific reason for non-disclosure, but is

not required to disclose this reason. The ISSB considered whether to

require an entity to disclose the reason it has omitted information,

similar to the requirement in paragraph 92 of IAS 37 Provisions,

Contingent Liabilities and Contingent Assets. However, the ISSB decided that

an entity would be unable to provide a useful disclosure of its

reasoning without revealing the commercially sensitive information.

Instead, the ISSB decided to require an entity to disclose that it has

used the exemption to make users aware that information has been

excluded. The ISSB noted that a general risk that an entity’s

competitiveness could be weakened by disclosure would not, on its

own, be an adequate reason for the entity to avoid disclosure.

(c)

an entity is required to reassess, at each reporting date, whether the

information still qualifies for the exemption. If the entity is no longer

eligible for the exemption, it would be required to disclose that

information at that reporting date.

The approach taken by the ISSB is broadly consistent with the approach taken

in IFRS Accounting Standards; in specific circumstances in which an

exemption from disclosure has been considered appropriate, the IASB has

permitted non-disclosure of commercially sensitive information. The approach

BC80

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IFRS S1 BASIS FOR CONCLUSIONS

is also similar to that taken in the US SEC Climate Proposal and by EFRAG in

[Draft] ESRS 1 General requirements (November 2022). The disclosure of

commercially sensitive information in financial reporting is an area that

standard-setters and regulators other than the IASB have also examined. For

example, the Australian Securities and Investments Commission permits an

entity not to provide information likely to result in ‘unreasonable prejudice’ to

the entity.

The exemption in IFRS S1 from providing information about specific

opportunities does not apply to information that is already publicly available.

Disclosing information that is already contained in continuous disclosure

notices, investor presentations, briefings to analysts, or other publicly

available documents is unlikely to harm an entity’s advantage in pursuing the

opportunity (that is, the disclosure is unlikely to prejudice seriously the

economic benefits the entity could realise). The exemption is not intended to

permit broad non-disclosure of information about opportunities; neither is it

permitted to be applied for non-disclosure of information about risks.

The exemption in IFRS S1 applies to the disclosure of information about

sustainability-related opportunities in all circumstances, unless an IFRS

Sustainability Disclosure Standard states otherwise. Therefore, the exemption

is applicable to information about climate-related opportunities in IFRS S2.

Reporting entity

An entity is required to disclose sustainability-related financial information

for the same reporting entity as the related financial statements. For example,

if a parent prepares consolidated financial statements, the reporting entity is

the parent and its subsidiaries. The reporting entity’s sustainability-related

financial

disclosures

focus

the

sustainability-related

risks

and

opportunities that enable users of general purpose financial reports to assess

the effects of those risks and opportunities on the entity’s cash flows, its

access to finance and cost of capital over the short, medium and long term—

that is, in information presented with consolidated financial statements, the

effects on the parent and its subsidiaries. Requiring the same reporting entity

for both financial statements and sustainability-related financial disclosures is

designed to enable information disclosed in the financial statements to be

connected with sustainability-related financial information.

Connected information

IFRS S1 requires an entity to provide information in a manner that enables

users of general purpose financial reports to understand the following types of

connections:

(a)

the connections between the items to which the information relates—

such as connections between various sustainability-related risks and

opportunities that could reasonably be expected to affect the entity’s

prospects; and

(b)

the connections between disclosures provided by the entity:

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IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

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(i)

within its sustainability-related financial disclosures—such as

connections between disclosures on governance, strategy, risk

management, and metrics and targets; and

(ii)

across its sustainability-related financial disclosures and other

general purpose financial reports published by the entity—such

as its related financial statements.

The requirements in IFRS S1 on connected information are intended to

provide users of general purpose financial reports with a better understanding

of the connections between various disclosures in an entity’s general purpose

financial reports, as well insight into the connections between the items to

which the information relates (such as connections between various

sustainability-related risks and opportunities, or connections between those

risks and opportunities and the entity’s performance). Entities are also

required to explain the relationships and trade-offs that arise between various

sustainability-related risks and opportunities. For example, an entity could

explain how environmental risks affect its reputation or ability to operate, and

how developing new products to respond to those risks affects the workforce

composition or financial performance reported in the entity’s financial

statements.

Examples of the types of connections IFRS S1 is designed to elicit include:

(a)

a pharmaceutical company has been exposed to claims of unethical

testing. The entity might need to explain how its strategic response

has, or has not, led to the recognition of provisions and associated

operating costs in its financial statements.

(b)

an electronics manufacturer has publicly announced a target of net

zero for its corporate greenhouse gas emissions, which are primarily

created during its manufacturing process. Accordingly, the entity

adopts a new strategy that involves shifting its procurement of energy

to renewable sources and investing in more energy-efficient

machinery. The entity might need to explain how this strategy to

achieve the target led to an increase in capital expenditure and

possibly an impairment review of non-energy-efficient machinery, as

well as lower (and less volatile) energy prices, increased revenue due to

a related increased demand from its customers, and an increase in

margins on sales.

(c)

a supplier finds that demand for its goods has risen due to its

treatment of workers and its record on respecting workers’ rights,

especially because its approach in this area was better than many of its

peers. The entity might need to explain how its strategy and

performance in relation to the treatment of its workers has positioned

the entity favourably and has led to increases in revenue.

(d)

an entity has a net zero greenhouse gas emissions plan that relies on

replacing its fleet of diesel-powered vehicles with electric vehicles.

Shifting to electric vehicles will require much more capital investment

than was necessary for diesel vehicles. The transition plan is that each

BC87

BC88

IFRS S1 BASIS FOR CONCLUSIONS

vehicle will be replaced when it reaches the end of its useful economic

life. The entity concludes that the vehicles are not impaired and no

changes to depreciation rates or useful life estimates are required to be

reflected in the financial statements. The entity might need to explain

that the transition plan will have consequences for its future cash

flows and that its accounting, as reflected in the financial statements,

is consistent with its transition plan.

The

ISSB

acknowledges

that

some

sustainability-related

risks

and

opportunities are linked. For example, an entity might face decreasing

demand for its products because of changing consumer preferences for lower-

carbon alternatives, affecting its workforce and communities. IFRS S1 requires

disclosures that show the connections between sustainability-related risks and

opportunities, on the one hand, and financial position, financial performance

and cash flows in the related financial statements, on the other. For example,

such a connection could be demonstrated by a disclosure about the

anticipated financial effects of new or potential products that minimise

environmental impacts. IFRS S1 states that if an entity provides quantitative

information about anticipated financial effects, the entity is permitted to

disclose a single estimate or a range of possible outcomes. This acknowledges

that ranges of possible outcomes could be more useful in some cases than

single estimates. The requirements in paragraph 38 of IFRS S1 are drafted in a

way that acknowledges that the nature of the connections between various

sustainability-related risks and opportunities might make it difficult for an

entity to isolate the implications of individual risks and opportunities.

Respondents to the Exposure Draft asked for clarification on how users of

general purpose financial reports draw connections between items of

information if the entity uses different data and assumptions to prepare its

sustainability-related financial disclosures and its related financial statements.

The ISSB clarified in paragraph 23 of IFRS S1 that an entity is required to align

data and assumptions to the extent possible by taking into consideration the

requirements in IFRS Accounting Standards (or other GAAP) instead of

mandating full alignment. This requirement is intended to promote

connectivity

between

sustainability-related

financial

information

and

information included in an entity’s financial statements. The ISSB noted that

there could be legitimate reasons for data and assumptions to vary between an

entity’s

sustainability-related

financial

disclosures

and

its

financial

statements. Paragraph B42 of IFRS S1 requires an entity to disclose

information about significant differences between the data and assumptions

used preparing the entity’s sustainability-related financial disclosures and the

data and assumptions used in preparing the related financial statements.

Core content

Unless another IFRS Sustainability Disclosure Standard permits or requires

otherwise in specified circumstances, an entity is required to provide

disclosures about:

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IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

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(a)

governance—the governance processes, controls and procedures the

entity uses to monitor and manage sustainability-related risks and

opportunities;

(b)

strategy—the approach the entity uses to manage sustainability-related

risks and opportunities;

(c)

risk management—the processes the entity uses to identify, assess,

prioritise and monitor sustainability-related risks and opportunities;

and

(d)

metrics

and

targets—the

entity’s

performance

relation

sustainability-related risks and opportunities, including progress

towards any targets the entity has set or is required to meet by law or

regulation.

The information required includes general aspects of the way an entity

operates, referred to as ‘core content’. The core content is based on the TCFD

recommendations. The ISSB confirmed that this approach, which was

proposed in the Exposure Draft, is required. In the Trustees’ 2020 consultation

on sustainability reporting, the feedback on essential requirements for success

showed that stakeholders thought it was important to align with and build on

the work of the TCFD.

Accordingly, IFRS S1 requires that the disclosure of information about

sustainability-related risks and opportunities be built around consideration of

governance, strategy, risk management, and related metrics and targets.

Information focusing on this core content is necessary for users of general

purpose financial reports to assess the effects of sustainability-related risks

and opportunities on an entity’s cash flows, its access to finance and cost of

capital over the short, medium and long term. The disclosures about core

content require an explanation of what the entity is doing, instead of

prescribing how an entity governs, manages risks and opportunities, and sets

its strategy in managing its business. The ISSB noted that other jurisdictional

requirements (such as ESRS) have been developed based on the TCFD

recommendations, and these shared origins help facilitate interoperability for

entities applying IFRS Sustainability Disclosure Standards and other

jurisdictional requirements.

Entities are exposed to a range of sustainability-related risks and

opportunities. IFRS S1 permits an entity to integrate information in its

disclosures relating to the core content if appropriate, instead of having to

repeat information in disclosures. However, an entity is required to explain

any adaptations that have been made to its processes to take into account the

unique characteristics of those risks and opportunities if that information is

material. For example:

(a)

users of general purpose financial reports understand better how an

entity’s integrated risk management processes are applied to

sustainability-related risks and opportunities if the entity explains how

and why those processes have been adapted in response to the unique

BC92

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IFRS S1 BASIS FOR CONCLUSIONS

characteristics of sustainability-related risks and opportunities, such as

longer time frames.

(b)

an entity might disclose that it has an overall process, controls and

procedures for monitoring and managing sustainability-related risks

and opportunities. In applying other IFRS Sustainability Disclosures

Standards (for example, IFRS S2), it might explain that the monitoring

and managing of specific sustainability-related risks and opportunities

—in this example, climate-related risks and opportunities—is

integrated into its overall process, controls and procedures. The entity

might also highlight any aspects of the governance of those risks or

opportunities that is different from its overall approach to monitoring

and managing sustainability-related risks and opportunities.

Governance

Users of general purpose financial reports have expressed interest in

understanding the role of an entity’s governance bodies and their members in

overseeing sustainability-related risks and opportunities. Users are also

interested in understanding management’s role in assessing and managing

sustainability-related risks and opportunities. Such information could help

users evaluate whether sustainability-related risks and opportunities receive

attention from individual(s) or body(s) such as the board and management.

Paragraph 26 of IFRS S1 requires an entity to disclose information that enables

users of general purpose financial reports to understand the governance

processes, controls and procedures the entity uses to monitor, manage and

oversee sustainability-related risks and opportunities. To achieve this

objective, IFRS S1 requires an entity to disclose information about the

governance body(s) or individual(s) with oversight of sustainability-related

risks and opportunities, and to disclose information about management’s role

in the governance processes, controls and procedures used to monitor,

manage

and

oversee

sustainability-related

risks

and

opportunities.

‘Governance body(s)’ includes boards, committees or equivalent bodies charged

with governance who have oversight of sustainability-related risks and

opportunities. The responsibility for the oversight of sustainability-related

risks and opportunities in some entities might be held by an individual(s)

rather than a governance body(s). For example, an individual(s) might be

charged with the overall oversight of sustainability-related risks and

opportunities due to their specific expertise and experience.

These governance disclosure requirements are based mostly on the TCFD

recommendations, but with some additional requirements. For example, IFRS

S1 requires an entity to disclose how the responsibilities of a governance

body(s) or an individual(s) for sustainability-related risks and opportunities are

reflected in terms of reference, mandates, role descriptions and other related

policies. The disclosure requirements in IFRS S1 that supplement the TCFD

recommendations are included to meet the information needs of users of

general purpose financial reports.

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Some stakeholders said that information about the governance body(s) or

individual(s) responsible for the oversight of sustainability-related risks and

opportunities could be enhanced by an entity also providing information

about the specific expertise these bodies or their members possess on

sustainability-related matters. Accordingly, IFRS S1 requires the disclosure of

information about how the body(s) or individual(s) determines that the

appropriate skills and competencies are available, or will be developed, to

oversee strategies designed to respond to sustainability-related risks and

opportunities. This level of specificity in skills and competencies might be

challenging for some entities to reach—especially smaller corporate boards.

For many governance bodies, the expertise needed is likely to focus on a

specific sustainability-related risk or opportunity—for example, physical risks

associated with climate change for an entity with operations in flood-prone

regions. In such cases, industry experience is often the most relevant source of

expertise. IFRS S1 does not prescribe the approach an entity is required to

take, but requires an entity to explain the approach it has taken and why.

Accordingly, a smaller entity with a less complex governance structure than a

larger entity would explain that structure in applying IFRS S1.

IFRS S1 differentiates between the governance body(s) and the individual(s)

responsible for oversight of sustainability-related risks and opportunities, and

management-level positions or committees that are similarly responsible. This

distinction enables users of general purpose financial reports to understand

how responsibilities are delegated in relation to sustainability-related matters,

which might be similar in nature to how roles and responsibilities are

delegated as part of their existing management and governance processes. For

example, an entity’s board of directors (governance body) might provide

oversight on broader sustainability-related matters, whereas the executive

body (management) might make operational decisions about how specific

sustainability-related risks and opportunities are assessed and managed.

Strategy

The Exposure Draft proposed that an entity provide information about its

strategy for addressing sustainability-related risks and opportunities. The ISSB

decided to replace ‘addressing’ with ‘managing’ in the strategy disclosure

objective to be consistent with the requirements for disclosures on identifying,

assessing,

managing

and

monitoring

sustainability-related

risks

and

opportunities.

Sustainability-related risks and opportunities

IFRS S1 requires an entity to disclose information that enables users of general

purpose financial reports to understand the sustainability-related risks and

opportunities that could reasonably be expected to affect the entity’s

prospects. For further discussion of sustainability-related risks and

opportunities, see paragraphs BC42– BC62.

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IFRS S1 BASIS FOR CONCLUSIONS

The Exposure Draft proposed disclosures reflecting short-, medium- and long-

term perspectives without prescribing specific time frames to be used by

entities. Time horizons are an entity-specific concept. How an entity defines

and assesses what it considers to be short, medium and long term is a result of

many factors, including the industry it operates in and the associated business

and investment cycles. Entity- or industry-specific time horizons often

translate into management processes such as rolling forecast horizons, budget

periods and strategic planning cycles. The ISSB decided that relevant

information about an entity’s sustainability-related risks and opportunities is

best understood in the context of entity-specific assessments of short, medium

and long term. Although some jurisdictions define time horizons in their

requirements, the ISSB confirmed the approach used in the Exposure Draft

and did not define time horizons in IFRS S1. An entity is required by IFRS S1 to

provide information about the time horizon it has used for ‘short term’,

‘medium term’ and ‘long term’.

Current and anticipated financial effects

The Exposure Draft proposed that an entity be required to disclose the effects

of its sustainability-related risks and opportunities on its financial position,

financial performance and cash flows for the reporting period (current

financial effects). It also proposed requiring an entity to disclose the

anticipated effects of sustainability-related risks and opportunities on the

entity’s financial position, financial performance and cash flows over the

short, medium and long term, taking into consideration how sustainability-

related risks and opportunities are included in the entity’s financial planning

(anticipated financial effects). Feedback on the Exposure Draft showed

agreement with this proposal, but suggested that respondents did not share an

understanding of the type of quantitative or qualitative information an entity

is required to provide, or of the circumstances in which quantitative

information is required. Respondents said that the circumstances in which an

entity would be considered ‘unable’ to provide quantitative information were

unclear.

The requirements in paragraph 34 of IFRS S1 are designed to produce

information that supplements or expands upon information provided in the

related financial statements, identifying and explaining the connections

between sustainability-related risks and opportunities and the information

reported in the financial statements.

The ISSB observed that the connections between items of information can be

explained

without

duplicating

information.

For

example,

some

circumstances, information in the notes to the financial statements would

satisfy the requirement to disclose how sustainability-related risks and

opportunities have affected an entity’s current and anticipated financial

position, financial performance and cash flows. The ISSB noted that an entity

might consider providing that information in the sustainability-related

financial disclosures by cross-reference to the related financial statements

(provided the specific requirements for cross-referencing in paragraphs

B45–B47 of IFRS S1 are met).

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To assist entities in applying the requirements about anticipated financial

effects, the ISSB introduced the requirement to use ‘all reasonable and

supportable information that is available to the entity at the reporting date

without undue cost or effort’. This clarifies that an entity:

(a)

is prohibited from overstating or understating the anticipated financial

effects of opportunities or risks premised on information that is

unsupportable or unreasonable.

(b)

is not required to carry out an exhaustive search for information to

determine the anticipated financial effects of risks and opportunities.

The entity is permitted to carry out an information search that is

proportional to the cost and effort involved in obtaining that

information.

(c)

is not required to carry out an exhaustive search for information to

measure the anticipated financial effects. In measuring anticipated

financial effects of such risks and opportunities, the entity is required

to use all reasonable and supportable information that is available to

the entity at the reporting date without undue cost or effort.

(d)

is permitted to use only the information that is available to the entity

at the reporting date (including information about past events, current

conditions and forecasts of future conditions) and is not required to

use information that only becomes available after that date.

The ISSB decided that an entity is required to use an approach that is

commensurate with the skills, capabilities and resources that are available to

the entity in preparing disclosures about the anticipated financial effects of a

sustainability-related risk or opportunity. The ISSB noted that an entity cannot

avoid providing quantitative information for anticipated financial effects

because it does not have the skills or capabilities to do so if it has the

resources available to obtain or develop those skills or capabilities.

Feedback indicated that it is not always possible for an entity to provide

information about the current and anticipated financial effects of individual

sustainability-related risks and opportunities because financial effects might

arise from many risks or opportunities and affect many items in the financial

statements. It might be difficult to attribute financial effects to an individual

sustainability-related risk or opportunity. Therefore, the ISSB decided that an

entity is not required to provide quantitative information about the current or

anticipated financial effects of a sustainability-related risk or opportunity if

the entity determines that:

(a)

those effects are not separately identifiable; or

(b)

the level of measurement uncertainty involved in estimating those

effects is so high that the resulting quantitative information would not

be useful.

BC106

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IFRS S1 BASIS FOR CONCLUSIONS

In determining whether an entity is required to provide quantitative

information (as discussed in BC107–BC108), the ISSB referred to concepts in

IFRS Accounting Standards. The concept of ‘separately identifiable’ is found in

various IFRS Accounting Standards, in which the term has been used to

describe items that can be isolated in a manner that supports robust

measurement. The ISSB decided that the concept of measurement uncertainty

from the IASB’s Conceptual Framework could be adapted for IFRS S1 to clarify

that an entity might not be able to quantify current and anticipated financial

effects if quantifying the effects of individual sustainability-related risks and

opportunities would involve a high level of measurement uncertainty.

The ISSB decided that if an entity is not required to provide quantitative

information about the current or anticipated financial effects of a

sustainability-related risk or opportunity, the entity would be required to:

(a)

explain why it has not provided quantitative information;

(b)

provide qualitative information about those financial effects, including

identifying the line items, totals and subtotals within the related

financial statements that are likely to be affected, or have been

affected, by that sustainability-related risk or opportunity; and

(c)

provide quantitative information about the combined effects of that

sustainability-related risk or opportunity with other sustainability-

related risks or opportunities and other factors unless the entity

determines that quantitative information about the combined

financial effects would not be useful.

The ISSB noted that although an entity might not be in a position to provide

quantitative information about the current or anticipated financial effects of a

particular sustainability-related risk or opportunity, it is still required to

provide other quantitative and qualitative information that is useful to users

of general purpose financial reports. For example, if an entity does not provide

quantitative information for a particular sustainability-related risk or

opportunity, it is required to provide quantitative information about the

combined financial effects of that risk or opportunity and the other factors

affecting it, unless that information is not useful. The ISSB noted that the

requirements to disclose current and anticipated financial effects provide

users with an understanding of how the financial statements are currently

affected by or are anticipated to be affected by sustainability-related risks and

opportunities. The ISSB also noted that the requirement to identify affected

line items, subtotals and totals in the financial statements is useful in

situations in which an entity cannot provide quantitative information about

financial effects of individual sustainability-related risks and opportunities.

This requirement is useful because it highlights which area in the financial

statements is most likely to have been, or will be, affected by the

sustainability-related risk or opportunity.

The ISSB considered the feedback on some of the terms used in the

requirements relating to current and anticipated financial effects. The ISSB

decided to consistently use the term ‘reporting period’ to refer to the period

for which sustainability-related financial disclosures are prepared and to refer

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IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

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to the related financial statements for that reporting period. The ISSB also

decided to use the phrase ‘short, medium and long term’ consistently in IFRS

S1, replacing the term ‘over time’ used in the Exposure Draft.

The ISSB decided to clarify the relationship between the disclosure

requirements

for

information

about

resilience

and

the

disclosure

requirements for information about current and anticipated financial effects.

The ISSB noted that the two sets of requirements are distinct and are intended

to serve different information needs. The requirements on the resilience of an

entity’s strategy and business model are intended to inform users of general

purpose financial reports about the entity’s ability to cope with and withstand

the effects of sustainability-related risks and related uncertainties in different

scenarios. The requirements on the current and anticipated financial effects of

sustainability-related risks and opportunities are intended to provide

information about the effects of these risks and opportunities on an entity’s

financial performance, financial position and cash flows. The requirements

can be applied independently. An entity is not required to carry out a

resilience assessment to determine the anticipated financial effects of

sustainability-related risks and opportunities. However, if the entity does carry

out a resilience assessment, the entity might find that assessment useful and

relevant in determining the anticipated financial effects of sustainability-

related risks and opportunities.

Risk management

IFRS S1 requires an entity to disclose information about the processes it uses

to identify, assess, prioritise and monitor sustainability-related risks and

opportunities.

The risk management disclosure requirements are based on the TCFD

recommendations that were used to develop the four aspects of core content,

but with some changes. The TCFD recommendations focus only on processes

related to risks, whereas IFRS S1 extends disclosure to include opportunities.

This extension reflects the view that risks and opportunities could result from

or relate to the same source of uncertainty. It also reflects the evolution of

common practice in risk management, whereby processes for identification,

assessment, prioritisation and response are increasingly being extended to

cover opportunities as well.

A few respondents to the Exposure Draft misunderstood the proposed risk

management disclosure requirements as requiring an entity to disclose

information about the sustainability-related risks and opportunities to which

it is exposed. The risk management disclosure requirements focus on

providing information about the processes used to identify, assess, prioritise

and monitor sustainability-related risks and opportunities—in contrast to the

strategy disclosure objective of the core content requirements, which is to

enable users of general purpose financial reports to understand an entity’s

strategy for managing sustainability-related risks and opportunities.

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The requirements set out in IFRS S1 seek to capture the interrelated nature of

the core content areas (governance, strategy, risk management, and metrics

and targets) without duplicating disclosure requirements. Therefore, IFRS S1

requires disclosures on both:

(a)

risk management—the processes an entity uses to identify, assess,

prioritise and monitor sustainability-related risks and opportunities,

collectively referred to as an entity’s risk management processes, while

the management of those risks and opportunities is part of an entity’s

strategy; and

(b)

strategy—the sustainability-related risks and opportunities that could

reasonably be expected to affect an entity’s prospects; the current and

anticipated

effects

those

sustainability-related

risks

and

opportunities on the entity’s business model and value chain; the

effects of sustainability-related risks and opportunities on the entity’s

strategy and decision-making; the current and anticipated financial

effects of sustainability-related risks and opportunities on its financial

position, financial performance and cash flows; and the resilience of

the entity’s strategy and its business model to sustainability-related

risks.

To improve the clarity of the requirements in the risk management core

content, the ISSB clarified the disclosure requirements about the processes an

entity uses to identify, assess, prioritise and monitor sustainability-related

risks and opportunities, and the disclosure requirements about how these

processes are integrated into the entity’s overall processes for managing risks

and opportunities. An entity might, for example, disclose that climate-related

risks and opportunities are integrated into its overall process for managing

risks and opportunities, such as general strategic or operational risks and

opportunities, but that the identification, assessment, prioritisation and

monitoring of other sustainability-related risks and opportunities are not part

of its overall risk management process and occur separately.

Disclosure requirements for sustainability-related risks are more detailed than

those for opportunities, reflecting the relative maturity of risk management

processes and the necessity for users of general purpose financial reports to

have information about an entity’s processes for identifying, assessing,

prioritising and monitoring risks.

Metrics and targets

Some respondents to the Exposure Draft expressed concerns that the wording

of the objective of the ‘Metrics and targets’ section did not fully reflect the

intention of disclosures about metrics and targets. The feedback suggested

that some respondents interpreted the objective of these disclosures as being

limited to disclosures of the metrics and targets an entity already uses. The

ISSB concluded that this interpretation could lead to an entity excluding

metrics required by IFRS Sustainability Disclosure Standards that were not

used by the entity, even though information provided by disclosing those

metrics is material.

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The ISSB decided to clarify that the objective is to require an entity:

(a)

to disclose the metrics required by IFRS Sustainability Disclosure

Standards (even if the entity does not use these metrics);

(b)

to disclose information about the metrics the entity uses to measure

and monitor sustainability-related risks and opportunities that could

reasonably be expected to affect the entity’s prospects (even if those

metrics are not required by IFRS Sustainability Disclosure Standards);

and

(c)

to disclose information on its performance in relation to those risks

and opportunities, including progress towards any targets the entity

has set, or is required to meet by law or regulation.

The ISSB noted that these disclosures are subject to materiality. The ISSB

stated that its intention in clarifying the objective was not to prescribe how

entities manage their businesses, but instead to clarify the disclosure

requirements for metrics and targets, which set out the information that is

important for users of general purpose financial reports. Similarly, the ISSB

did not stipulate that an entity is required to set specific targets, but IFRS S1

requires an entity to disclose information about targets if they have been set

by the entity or if the entity is required by law or regulation to set specific

targets.

The ISSB also noted that paragraphs 49–50 of IFRS S1 require an entity to

disclose information about metrics taken from a source other than IFRS

Sustainability Disclosure Standards or developed by the entity. In doing so, the

ISSB observed that paragraph 59 of IFRS S1 requires an entity to disclose

information about the specific standards, pronouncements, industry practice

and other sources of guidance that the entity has applied in preparing its

sustainability-related financial disclosures, including the industries specified

in the IFRS Sustainability Disclosure Standards, the SASB Standards or other

sources of guidance. The ISSB noted that other IFRS Sustainability Disclosure

Standards will provide further disclosure requirements in relation to metrics

and targets.

General requirements

The ‘General requirements’ section of IFRS S1 sets out requirements related to

the location of disclosures, timing of reporting, comparative information,

sources of guidance, and the statement of compliance with IFRS Sustainability

Disclosure Standards.

Some of the requirements in IFRS S1 are based on principles in IFRS

Accounting Standards. The reason for this is that these principles will be

familiar to entities that prepare financial statements, and particularly to

entities that comply with IFRS Accounting Standards. This approach helps

ensure that all the information in the general purpose financial reports is

prepared consistently if appropriate and that entities make connections across

its related financial statements and its sustainability-related financial

disclosures.

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Sources of guidance

IFRS S1 includes requirements for entities on how to use sources of guidance

to identify the sustainability-related risks and opportunities that could

reasonably be expected to affect an entity’s prospects. These requirements are

necessary to facilitate reporting on a range of sustainability-related risks and

opportunities. The sources of guidance are particularly important at the time

of publication of IFRS S1 because the only specific requirements the ISSB has

issued for disclosing information about sustainability-related risks and

opportunities are in relation to climate-related risks and opportunities in IFRS

S2. Furthermore, the sources of guidance are important because IFRS S1

requires an entity to disclose industry-based metrics in relation to its

sustainability-related risks and opportunities—that is, metrics that are

associated with particular business models, activities or other common

features that characterise participation in an industry (see paragraph 48 of

IFRS S1). Although the sources of guidance are intended to assist entities in

applying IFRS S1 by reducing the costs of application, the guidance might be

particularly

useful

for

entities

that

have

not

previously

reported

sustainability-related financial disclosures focused on meeting the needs of

users of general purpose financial reports.

The Exposure Draft proposed that an entity be required to refer to (‘shall

consider’) sources of guidance in addition to applying IFRS Sustainability

Disclosure Standards to determine which sustainability-related risks and

opportunities to provide information about. The Exposure Draft also proposed

that an entity be required to refer to such guidance to identify appropriate

disclosure requirements and provide information to meet the needs of users of

general purpose financial reports in the absence of a specifically applicable

IFRS Sustainability Disclosure Standard. This approach was based on similar

requirements in IAS 8. To help entities identify sustainability-related risks and

opportunities to report on and identify the information to be provided about

those risks and opportunities, it was proposed that an entity be required to

refer to the SASB Standards, the CDSB Framework Application Guidance for Water-

related Disclosures and the CDSB Framework Application Guidance for Biodiversity-

related Disclosures (collectively referred to as ‘CDSB Framework Application

Guidance’). These standards and guidance were released by other

sustainability standard-setters focused on meeting users’ information needs

and on the sustainability-related risks and opportunities identified by entities

that operate in the same industries or geographical regions. The wording

‘shall consider’ was used in the Exposure Draft, requiring an entity to refer to

these sources of guidance.

In feedback on the Exposure Draft, many respondents agreed with the

proposed sources of guidance. Respondents stated that they agreed with the

ISSB’s approach of building on established standards and frameworks for

sustainability reporting, including the SASB Standards and the CDSB

Framework. However, some respondents noted that the wording ‘shall

consider’ would require consideration of all the sources of guidance listed in

the Exposure Draft, which led them to comment on the potentially large

burden these requirements would place on entities and assurance providers.

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Some respondents suggested that, instead of the ‘shall consider’ requirement,

the proposals could be modified to ‘may consider’ for some or all of the

sources of guidance listed. Some respondents asked what the instruction ‘shall

consider’ meant in practice and whether an entity could determine it was not

required to apply these sources of guidance.

The proposed reference to other sources of guidance was intended to provide a

clear range of sources of guidance for an entity to consider, thereby reducing

diversity in reporting in practice and improving comparability between

information provided by peer entities and information that might otherwise

result in the absence of further IFRS Sustainability Disclosure Standards. The

sources of guidance referenced were selected with the objective of identifying

sources that were likely to result in the provision of information that would

enable entities to meet the objective of IFRS S1. As the ISSB develops

additional IFRS Sustainability Disclosure Standards, entities will have less need

to rely on the sources of guidance referenced in IFRS S1 than they will initially

because forthcoming Standards will identify sustainability-related risks and

opportunities to report on and will set out requirements for disclosures

designed to meet the needs of users of general purpose financial reports.

However, even though more IFRS Sustainability Disclosure Standards will be

developed, the sources of guidance will still be useful to entities in identifying

sustainability-related risks and opportunities and information to provide

about those risks and opportunities.

In response to the feedback, the ISSB examined whether requiring an entity to

consider a long list of sources of guidance is warranted for incremental

benefit. The ISSB noted that limiting the sources of guidance in IFRS S1 that

an entity is required to refer to and consider—both in addition to IFRS

Sustainability Disclosure Standards in identifying sustainability-related risks

and opportunities and in the absence of a specifically applicable IFRS

Sustainability Disclosure Standard in identifying information to provide about

those risks and opportunities—would make the requirement less burdensome

to apply. The ISSB noted that this change would also help reduce the burden

on assurance providers.

Due to feedback that industry-specific disclosures are important to users of

general purpose financial reports, the ISSB decided to confirm that an entity is

required to refer to and consider the applicability of the SASB Standards in

identifying sustainability-related risks and opportunities and information to

report about those risks and opportunities. The rationale for the decision was

that the SASB Standards were developed with a similar objective to IFRS S1

and that the overall design of the SASB Standards—that is, disclosure topics

and associated metrics—generally matches the structure of the requirements

in IFRS S1—that is, requirements for identifying sustainability-related risks

and opportunities that could reasonably be expected to affect an entity’s

prospects and for providing information, including metrics, about those risks

and opportunities. The ISSB noted that using the SASB Standards is expected

to reduce application costs for entities and to yield useful and comparable

disclosures for users. The feedback, particularly from users, generally

favoured the use of the SASB Standards. In addition, the disclosure topics in

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the SASB Standards are useful in helping entities understand the range of

sustainability-related risks and opportunities that are within the scope of IFRS

S1, which is particularly important in assisting preparers in identifying

sustainability-related risks and opportunities.

In discussing the feedback on the Exposure Draft, the ISSB noted that the

proposal that an entity ‘shall consider’ particular sources of guidance was

intended to create a requirement to review and consider the use of those

sources of guidance in a systematic manner, but was not intended to require

the application of those sources of guidance. The Basis for Conclusions of the

Exposure Draft stated that:

Consistent with the proposals in the Exposure Draft, applying the SASB

Standards and CDSB pronouncements would be considered good practice for an

entity applying IFRS Sustainability Disclosure Standards, but applying those

pronouncements would not be a formal requirement for an entity. For example,

an entity could still assert compliance with IFRS Sustainability Disclosure

Standards in accordance with paragraph 91 if it did not apply the requirements

in these documents.

The ISSB decided that it would be helpful to clarify what it means to ‘consider’

the sources of guidance. It noted that the consideration of the sources of

guidance is generally expected to occur through a process that an entity has in

place. Although an entity is required to consider the SASB Standards, it is not

required to apply the SASB Standards. Instead, an entity is required to provide

information that is relevant to the decision-making needs of users of general

purpose financial reports and that faithfully represents the entity’s

sustainability-related risks and opportunities. If the entity determines that the

sources of guidance considered do not result in disclosures that meet those

requirements specified in paragraph 57 of IFRS S1, the entity is not required to

apply these sources of guidance. The ISSB agreed it was important to

distinguish between sources an entity is required to consider (‘shall consider’)

and sources that it is permitted but not required to consider (‘may consider’).

The ISSB noted that requiring an entity to consider the SASB Standards is

beneficial for users by helping to limit diversity in practice and improve

comparability, especially among peer companies. However, the ISSB also noted

that requiring an entity to ‘consider’ rather than ‘apply’ the sources of

guidance reduces that benefit.

In the SASB Standards, disclosure topics and metrics are organised by

industry, enabling an entity to identify sustainability-related risks and

opportunities that are applicable to its business model and associated

activities. The disclosure topics in the SASB Standards represent those

sustainability-related risks and opportunities that are likely to be applicable

for entities in that industry. The associated metrics are likely to be applicable

in assessing the effects of sustainability-related risks and opportunities on the

entity’s cash flows, its access to finance and cost of capital over the short,

medium and long term. The judgements about what sustainability-related

risks and opportunities could reasonably be expected to affect an entity’s

prospects and what information, including metrics, is material is entity-

specific. However, the ISSB expects that the disclosure topics in the SASB

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Standards and associated metrics are typically applicable for an entity with

the given business model and associated activities.

The ISSB noted a complementary relationship between IFRS S1, which

establishes general requirements that apply to all entities, and the guidance

provided by the SASB Standards, which is industry-based. Therefore, an entity

can expect the guidance provided by the SASB Standards to be tailored to the

activities of entities within a particular industry. SASB Standards include

disclosure topics focused on sustainability-related risks and opportunities that

arise in an industry throughout the value chain. Furthermore, the metrics

that accompany disclosure topics in the SASB Standards are commonly

tailored to the activities of entities within a particular industry. As a result,

the SASB Standards provide guidance that can complement or inform an

entity’s application of IFRS Sustainability Disclosure Standards, including the

requirements related to value chain. However, in applying the SASB Standards

to support the application of IFRS Sustainability Disclosure Standards, an

entity is required to comply with all the requirements in IFRS Sustainability

Disclosure Standards to assert compliance with these Standards.

In discussing the feedback, the ISSB decided that it is more appropriate to

permit the CDSB Framework Application Guidance to be considered rather

than to require it to be considered. The ISSB decided similarly to permit an

entity to refer to the most recent pronouncements of other standard-setting

bodies whose requirements are designed to meet the needs of users of general

purpose financial reports, and to also refer to the sustainability-related risks

and opportunities identified by entities that operate in the same industries or

geographical regions instead of requiring those sources to be considered. The

ISSB noted that not requiring entities to consider these sources avoids

requiring entities to consider an extensive list of open-ended sources of

guidance, which would increase the reporting burden for entities and increase

complexities for assurance providers. The ISSB also noted that permitting

entities to refer to these sources would facilitate transition to IFRS

Sustainability Disclosure Standards by enabling entities to use sources that

they might already be familiar with.

The ISSB noted that in referring in the Exposure Draft to the most recent

pronouncements of other standard-setting bodies whose requirements are

designed to meet the needs of users of general purpose financial reports, an

entity would not be permitted to refer to the materials of standard-setters

with a broader remit than the ISSB, even if particular disclosures required by

those standard-setters would have met the needs of those users. This

restriction was included in the Exposure Draft to reduce the risk of disclosures

being provided that would not meet users’ information needs. In discussing its

proposals on sources of guidance, the ISSB decided an entity is permitted to

consider the GRI Standards and ESRS to identify information to provide,

including metrics, about sustainability-related risks and opportunities.

However, an entity is permitted to consider these sources only to the extent

that the information identified assists the entity in meeting the objective of

IFRS S1 and that these sources do not conflict with IFRS Sustainability

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Disclosure Standards. The ISSB agreed that the references to the GRI Standards

and ESRS as sources of guidance would be located in an appendix in IFRS S1.

The ISSB noted that the Exposure Draft only permitted an entity to refer to

the most recent pronouncements of other standard-setting bodies whose

requirements are designed to meet the needs of ‘primary users’ of general

purpose financial reports. Therefore, the addition of references to the GRI

Standards and ESRS would be necessary to permit an entity to refer to these

sources of guidance. Under the revised approach, an entity is permitted to

refer to the GRI Standards and ESRS to identify information to provide once

the entity has identified sustainability-related risks and opportunities.

Allowing these standards to be referred to in identifying information to

provide but not to identify sustainability-related risks or opportunities, is

intended to ensure that any information disclosed by entities relates to a topic

that has been identified as of interest to users of general purpose financial

reports.

Thus,

entity

identifies

sustainability-related

risks

and

opportunities by using IFRS Sustainability Disclosure Standards, SASB

Standards, or the other sources of guidance listed in paragraph 55(b) of IFRS

S1, but not by using the GRI Standards or ESRS.

The ISSB noted that referencing the GRI Standards and ESRS in the sources of

guidance could help improve interoperability with other sustainability-

reporting requirements and reduce the burden for entities, especially entities

that are already using the GRI Standards to provide metrics or other

information or those who are mandated to comply with ESRS. The ISSB also

noted that it has an MoU with GRI and is working closely with the European

Commission and EFRAG to facilitate interoperability between ESRS and IFRS

Sustainability Disclosure Standards. Both these arrangements were an

important consideration in determining the appropriateness of referring to

these sources of guidance. However, unlike the SASB Standards and the CDSB

Framework Application Guidance, the GRI Standards and ESRS are intended to

meet the information needs of a broader audience than users of general

purpose financial reports. The ISSB noted that a subset of disclosures provided

in accordance with these standards could produce information that is useful

to users.

The ISSB emphasised that, if using the GRI Standards or ESRS, an entity is

prohibited

from

obscuring

material

information

required

IFRS

Sustainability Disclosure Standards with immaterial information. An entity is

prohibited from making an explicit and unreserved statement of compliance

with IFRS Sustainability Disclosure Standards if, in preparing its sustainability-

related financial disclosures, the entity applied those sources of guidance

without considering the requirements in IFRS Sustainability Disclosure

Standards. The ISSB noted that because an entity is required to ensure

information identified through using the GRI Standards or ESRS meets the

objective of IFRS S1, an entity would not be permitted to simply repurpose a

report prepared in accordance with the GRI Standards or ESRS to meet the

requirements in IFRS Sustainability Disclosure Standards.

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The Exposure Draft proposed that an entity be required to disclose the

industry or industries specified for the disclosures that it has provided. This

requirement was intended to provide greater transparency for users of general

purpose financial reports on how disclosures have been prepared. The

requirement was also intended to assist users in understanding the

materiality judgements made by an entity in applying the industry-based

disclosure requirements (for example, if an entity used the SASB Standards to

prepare disclosures in the absence of specifically applicable requirements in

IFRS Sustainability Disclosure Standards). In particular, once the industry has

been disclosed as required, users are able to see if an entity omitted a metric

that is applicable for an entity in that industry.

During its redeliberation, the ISSB decided to confirm the requirement in the

Exposure Draft for an entity to disclose the industry or industries specified in

the applicable IFRS Sustainability Disclosure Standards or the SASB Standards

that the entity has applied in preparing its sustainability-related financial

disclosures, including in identifying applicable metrics. The ISSB also decided

to broaden the requirement in the Exposure Draft to capture the disclosure of

the sources of guidance that the entity has applied in preparing its

sustainability-related financial disclosures including, if applicable, identifying

the disclosure topics in the SASB Standards. IFRS S1 also requires an entity to

disclose information about the judgements the entity has made in the process

of preparing its sustainability-related financial disclosures and that have the

most significant effect on the information included in those disclosures (see

paragraph 74 of IFRS S1). An example of such a judgement is an entity

determining which sources of guidance to apply in preparing its

sustainability-related financial disclosures. In applying the requirement, it

might be necessary for an entity to disclose that it applied particular sources

of guidance that it considered and also to disclose that it considered other

sources of guidance but did not apply those other sources of guidance.

Location of disclosures

Sustainability-related financial disclosures are required to be published as part

of a reporting entity’s general purpose financial reports. A consequence of this

requirement is that the entity is required to report its sustainability-related

financial disclosures at the same time as it issues its related financial

statements (subject to transition relief, as described in paragraph E4 of IFRS

S1). General purpose financial reports provide financial information about a

reporting entity that is useful to users in making decisions relating to

providing resources to the entity. The ISSB decided to require an entity to

publish its sustainability-related financial disclosures as part of the entity’s

general purpose financial reports to ensure users of general purpose financial

reports are provided with a comprehensive and connected package of reports.

This requirement is a change for entities that previously disclosed

sustainability-related financial information in a report intended for other

stakeholders and for entities that published a report later than their financial

statements.

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Though corporate reporting varies between jurisdictions, the term ‘general

purpose financial reports’ includes—but is not restricted to—an entity’s

financial statements and sustainability-related financial disclosures. IFRS S1

does not prescribe the exact location of sustainability-related financial

disclosures in general purpose financial reports. The ISSB acknowledges that

jurisdictions might specify the exact location in which an entity is required to

provide

its

sustainability-related

financial

disclosures.

Management

commentary—or a similar report if it forms part of an entity’s general

purpose financial reports—is a possible location for sustainability-related

financial disclosures. IFRS S1 states that management commentary might be

known by, or included in reports with, various names, such as ‘management

report’, ‘management’s discussion and analysis’, ‘operating and financial

review’, ‘integrated report’ or ‘strategic report’.

IFRS S1 permits an entity to cross-reference between reports to provide

sustainability-related financial disclosures, subject to the requirements being

met in paragraphs B45–B47 in IFRS S1. For example, if information is included

by cross-reference, that information must be available on the same terms and

at the same time as all other sustainability-related financial disclosures, and

the location of that information must be precisely specified. Most respondents

supported the proposal in the Exposure Draft, which permitted cross-

referencing. Many preparers commented on the cost-effectiveness, while many

users of general purpose financial reports commented on the importance of

the conditions in which cross-referencing is permitted, which were further

clarified in IFRS S1. The ISSB observed that information provided by cross-

reference is required to be available whenever an entity’s sustainability-related

financial disclosures are available. If the information is not part of the same

report as the entity’s sustainability-related financial disclosures, an entity

would explain how users can access the information.

Timing of reporting

The Exposure Draft proposed that an entity be required to report its

sustainability-related financial disclosures at the same time as its related

financial statements. Most respondents to the Exposure Draft agreed with the

proposed requirement for sustainability-related financial disclosures to be

published at the same time and for the same reporting period as the financial

statements; however, many respondents commented that entities would find

it challenging to meet the requirement, at least in the near term. Despite the

challenges involved, most respondents agreed that it makes sense to report

sustainability-related financial disclosures at the same time as the financial

statements. These respondents agreed because simultaneous publication

would provide users of general purpose financial reports with a coherent,

holistic and connected picture of an entity’s financial position and

performance, and provide users with a comprehensive set of sustainability-

related financial disclosures, which would enable them to make more

informed capital allocation decisions. In discussing this feedback, the ISSB

noted that many entities are new to reporting sustainability-related financial

information. As such, the ISSB agreed with respondents’ view that entities

would face challenges in meeting the proposed requirement, including:

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(a)

perceptions of an increased reporting burden and higher than usual

costs, especially in the first years of application;

(b)

reporting systems that are underdeveloped—meaning collating and

aggregating sustainability-related data could be time-consuming;

(c)

calculation of some metrics might be delayed by the need to wait for

information from, for example, finalised financial statements or third-

party data providers;

(d)

jurisdictional reporting requirements might be inconsistent with the

proposed requirement; and

(e)

additional reliance on assumptions and estimates might be necessary

to complete the data for the reporting period, which could affect the

quality of the data.

During its redeliberation process, the ISSB confirmed that an entity is required

to report its sustainability-related financial disclosures at the same time and

for the same reporting period as the related financial statements. However,

the ISSB also decided to introduce transition relief in response to preparers’

concerns (see paragraph E4 of IFRS S1).

Comparative information

IFRS S1 requires an entity to disclose comparative information in respect of

the preceding period for all amounts disclosed in the reporting period. The

wording used was adapted from and follows requirements in paragraph 38 of

IAS 1. The Exposure Draft proposed that an entity disclose comparative

information for all metrics. However, the ISSB noted that it would be more

useful to users of general purpose financial reports for IFRS S1 to require the

disclosure for ‘all amounts’ rather than limiting the disclosure to metrics. The

ISSB clarified that amounts reported in sustainability-related financial

disclosures might relate, for example, to the current and anticipated financial

effects of sustainability-related risks and opportunities or to metrics and

targets.

If the information would be useful for an understanding of the reporting

period’s disclosures, an entity is also required to disclose comparative

information for narrative and descriptive sustainability-related financial

disclosures. As a transition relief, comparative information is not required to

be disclosed in the first annual reporting period in which an entity applies

IFRS S1 (see paragraph E3 of IFRS S1).

Most respondents agreed with the principle of providing comparative

information. However, they gave mixed feedback on the proposals that an

entity be required to disclose comparative information that reflects updated

estimates. Most users of general purpose financial reports who provided

comments agreed with the proposal to require entities to disclose comparative

information that reflects updated estimates. However, many other

respondents, including preparers, audit firms and accounting standard-setters,

raised concerns about the proposed requirement. Some of their concerns were

that:

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(a)

the proposed requirement was inconsistent with the approach to

changes in estimates set out in IAS 8—this inconsistency might lead to

challenges in connecting sustainability-related financial disclosures

with the financial statements;

(b)

the costs and complexity associated with updating estimates might

outweigh the benefits in some situations;

(c)

the potential challenges for the assurance process; and

(d)

the proposals are unclear about whether and how to distinguish the

requirements for revising comparative information to reflect updated

estimates and correction of errors, respectively.

The requirement to revise comparative information differs from the approach

to changes in estimates in financial statements established in IFRS Accounting

Standards. Changes in estimates are recognised in the current and future

periods affected by the change according to the requirements in IFRS

Accounting Standards—that is, in the period of the change. Under this

approach, the comparative information is not changed and the change in

estimate is reflected in the reporting period profit or loss. This practice is

followed, for example, for changes in estimates of the useful life of an asset,

fair value, and expected credit losses. Changes in such estimates are also

reflected in reported equity because they are part of a double-entry model. In

sustainability-related financial disclosures, however, estimates and metrics

cannot affect equity—for example, a change in a Scope 3 greenhouse gas

emissions estimate affects only the estimate itself—which is a reason behind

the ISSB’s decision that IFRS S1 should require an entity to revise comparatives

for sustainability-related metrics. Another reason for requiring that an entity

revise comparatives to reflect updated estimates is so the entity provides users

of general purpose financial reports with the best information possible about

trends.

The nature of some sustainability-related metrics necessitates a significant

element of estimation, including estimation related to the entity’s value chain.

The ISSB decided that an entity would provide more useful information if the

entity revised comparatives to reflect changes in estimates that relate to the

preceding period rather than changing reporting period information.

An entity is required to revise the estimated amount disclosed for a metric,

but is not required to revise narrative or descriptive disclosures. This

requirement applies only if information about a change is material and if

updating the estimate is not impracticable. To clarify the meaning of

‘impracticable’, the ISSB decided to base the definition of ‘impracticable’ in

IFRS S1 on the definition in IAS 1, confirming that the term is used in a

manner consistent with IFRS Accounting Standards. Accordingly, IFRS S1 sets

a high threshold for how an entity determines whether it is ‘impracticable’ to

meet the requirements. Applying the requirement is ‘impracticable’ if the

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entity cannot do so after making every reasonable effort to do so. For the

avoidance of doubt, this threshold is higher than a cost-benefit threshold.5

In response to the feedback, the ISSB decided to clarify the requirements for

revising comparative information. It decided that if an entity identifies new

information in relation to the estimated amount disclosed for a metric in the

preceding period and that information provides evidence of circumstances

that existed in the preceding period, the entity is required to disclose a revised

comparative amount for the metric taking into account the new information.

In doing so, the entity is also required to disclose the difference between the

amount disclosed for the metric in the preceding period and the revised

comparative amount, and to explain why the comparative amount has been

revised.

The ISSB decided to exclude forward-looking metrics from the requirement to

revise comparative information to reflect updated estimates. However, an

entity is permitted to revise a comparative amount disclosed for a forward-

looking metric if doing so does not involve hindsight.

The ISSB confirmed what an entity is required to do if the entity redefines or

replaces a metric in the reporting period. In those circumstances, the entity is

required to disclose a revised comparative amount for the metric, unless it is

impracticable to do so. The entity is required to explain the changes in the

metric and the reasons for the changes, including why the redefined or

replaced metric provides more useful information than the previous metric.

Statement of compliance

An entity is permitted to include an explicit and unqualified statement of

compliance only if its sustainability-related financial disclosures comply with

all the requirements of IFRS Sustainability Disclosure Standards. Qualified

statements of compliance with IFRS Sustainability Disclosure Standards are

prohibited. This requirement reflects the importance of communicating to

users of general purpose financial reports whether the entity has been

selective in its approach to reporting sustainability-related financial

information or whether the entity has applied all the requirements.

IFRS S1 does not require an entity to implement strategic goals, such as

following a particular transition plan to a lower-carbon economy, but does

require the entity, for example, to disclose information about the targets it

has set or is required to set by law or regulation. Therefore, an entity that does

not manage some of its sustainability-related risks and opportunities, or that

has not established its own metrics and targets for them, could still assert

compliance with IFRS Sustainability Disclosure Standards if its disclosures

explain that fact. Similarly, an entity might not have governance processes,

controls or procedures in place to monitor and manage specific sustainability-

related risks or opportunities. The fact that an entity does not have such

processes, controls and procedures in place is itself likely to be material

information for users of general purpose financial reports.

BC153

BC154

BC155

BC156

BC157

The IASB considered ‘lowering the impracticability threshold to a cost-benefit threshold’ as part

of amending IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

IFRS S1 BASIS FOR CONCLUSIONS

Judgements, uncertainties and errors

Judgements

In preparing sustainability-related financial disclosures, an entity will need to

apply judgement and use assumptions and estimates specific to its

circumstances. The ISSB considered feedback asking for a requirement to be

introduced for an entity to disclose the judgements, assumptions and

estimates that it has made in preparing and presenting its sustainability-

related financial disclosures. Respondents indicated that such a requirement

would help users of general purpose financial reports understand how

sustainability-related financial disclosures have been prepared, and would

support assurance of the information and assessment of the completeness of

information.

IAS 1 includes a requirement to disclose the judgements an entity has made in

applying its accounting policies that have the most significant effects on the

amounts recognised in its financial statements (paragraphs 122–123 of IAS 1).

The ISSB decided to adapt the principle of this requirement in the

requirements in IFRS S1 related to disclosures about judgements an entity has

made in the process of preparing and disclosing its sustainability-related

financial information.

The ISSB decided to confirm a requirement for an entity to disclose the

judgements that it has made that have the most significant effects on the

information provided in its sustainability-related financial disclosures.

Judgements disclosed to meet this requirement would contribute to users’

understanding of information presented in the entity’s sustainability-related

financial disclosures. Furthermore, the ISSB noted that such a requirement

sets an overarching requirement for an entity to disclose significant

judgements that it has made in the absence of a specifically applicable

disclosure requirement about judgements in other IFRS Sustainability

Disclosure Standards.

The requirement to disclose information about significant judgements

complements the proposal in the Exposure Draft for an entity to disclose the

industry or industries specified in the relevant IFRS Sustainability Disclosure

Standard or industry-based SASB Standards that it used in preparing its

sustainability-related financial information. As discussed in paragraphs

BC140–BC141, the ISSB decided to expand that requirement to require an

entity to identify the specific sources of guidance that have been applied in

preparing its sustainability-related financial disclosures. The entity is required

to identify these sources in addition to disclosing the industry or industries

specified in IFRS Sustainability Disclosure Standards, SASB Standards or other

industry-based sources of guidance.

The ISSB noted that other IFRS Sustainability Disclosure Standards might also

require disclosures about judgements and estimates. In this case, the ISSB

noted that the requirements in IFRS S1 would complement those more

specific requirements in other IFRS Sustainability Disclosure Standards.

BC158

BC159

BC160

BC161

BC162

IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

Measurement uncertainty

The Exposure Draft proposed that an entity identifies metrics it has disclosed

that have significant estimation uncertainty. These requirements were

adapted from and are consistent with similar requirements in paragraph 125

of IAS 1. Following feedback from respondents, the ISSB acknowledged that

measurement uncertainty does not solely arise if metrics cannot be measured

directly and can only be estimated. Measurement uncertainty also arises, for

example, in providing information about the effects of sustainability-related

risks and opportunities on an entity’s financial position, financial

performance and cash flows for the reporting period, and the anticipated

financial effects over the short, medium and long term. For example, some of

an entity’s assets might be increasingly at risk from climate-related forest fire

events and, therefore, this risk would be considered as part of the impairment

analysis and measurement of those assets. If the frequency and severity of

these fires are highly uncertain, users would need information about this

uncertainty, including the fact that there is a significant risk of a material

adjustment within the next annual reporting period to the carrying amounts

of these assets.

The Exposure Draft referred to metrics in proposing disclosures about

uncertainty. However, the ISSB decided that the disclosure requirements

relating to measurement uncertainty would not be limited to metrics but

would also cover other amounts reported in sustainability-related financial

disclosures—for example, the requirements relating to current and

anticipated financial effects. Therefore, IFRS S1 requires an entity to disclose

information to enable users of general purpose financial reports to understand

the most significant uncertainties affecting the amounts reported in the

sustainability-related financial disclosures. In doing so, an entity identifies the

amounts it has disclosed that are subject to a high level of measurement

uncertainty, including information about assumptions, approximations and

judgements in measuring the amount. This requirement is consistent with

and based on paragraph 125 of IAS 1.

Errors

The ISSB decided to maintain the distinction between the requirements for an

entity that revises a comparative amount to, for example, update an estimate

for a metric or redefine a metric, and the requirements for restating an

amount due to an error. Prior period errors are omissions from and

misstatements in the entity’s sustainability-related financial disclosures for

one or more prior periods. Potential reporting period errors discovered in that

period are corrected before the sustainability-related financial disclosures are

authorised for issue. However, material errors are sometimes not discovered

until a subsequent period. The ISSB confirmed that if an entity identifies a

material error in the sustainability-related financial disclosures for its prior

periods, it is required to disclose:

(a)

the nature of the prior period error;

BC163

BC164

BC165

IFRS S1 BASIS FOR CONCLUSIONS

(b)

the correction, to the extent practicable, for each prior period

disclosed; and

(c)

if correction of the error is impracticable, the circumstances that led to

the existence of that condition, and a description of how and from

when the error has been corrected.

Effective date

In determining the effective date of IFRS S1, the ISSB considered feedback on

the Exposure Draft. Most respondents provided suggestions on the effective

date:

(a)

a few respondents suggested that IFRS S1 should become effective as

soon as possible or within one year of being issued;

(b)

most respondents suggested an effective date of two or more years

after issuance; and

(c)

a few respondents suggested an effective date of three or more years

after issuance.

A few users of general purpose financial reports asked for effective dates for

IFRS S1 and IFRS S2 of no more than 12 months after issuance, noting that the

proposed requirements build on well-established standards and frameworks.

Many respondents commented on the urgency of creating a global baseline of

sustainability-related financial disclosures given similar proposals developed

by EFRAG and the US SEC.

The IASB generally has had a practice of allowing a period of 12–18 months

between the issuance of a new Standard and its effective date. The ISSB

observed that in the IASB’s early standard-setting work the period between the

issuance of a new IFRS Accounting Standard and its effective date was 6–12

months. The IASB’s most recent IFRS Accounting Standards had periods of up

to three years between the issuance of a Standard and the effective date.

However, the ISSB’s situation is different from that of the IASB. If the IASB

sets an effective date for a new IFRS Accounting Standard, that date is relevant

to those entities already applying IFRS Accounting Standards. It is relevant

because, to continue to assert compliance with IFRS Accounting Standards, an

entity is required to apply the Standards in accordance with the effective date

requirements established by the IASB. Typically, jurisdictions applying IFRS

Accounting Standards use the same effective dates as those set by the IASB.

However, because the ISSB is issuing its first Standards, there will be a range

of dates over which jurisdictions will adopt the IFRS Sustainability Disclosure

Standards for the first time and regulators will subsequently require entities

to apply the Standards.

The ISSB understands the importance of taking into account the preparedness

of entities when setting the effective date for IFRS S1 and IFRS S2. The

requirements will be new, and entities will need time to create or adjust

internal systems, processes and controls to prepare the disclosures required by

IFRS Sustainability Disclosure Standards. The length of this adoption period

BC166

BC167

BC168

BC169

BC170

IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

will depend, among other things, on an entity’s current approach to

sustainability-related risks and opportunities and the reporting of these, as

well as on the entity’s circumstances—for example, its size and the

requirements or regulations that apply. The ISSB has made a number of

decisions to help preparers apply the requirements and comply with IFRS S1

and IFRS S2 at an earlier date than would otherwise be the case. The ISSB has

decided to introduce transition relief and, for example, requirements to

permit entities to consider other possibly familiar sources of guidance.

The ISSB decided that setting an effective date for annual reporting periods

beginning on or after 1 January 2024 is consistent with the ISSB’s current pace

in meeting users’ urgent need for sustainability-related and climate-related

financial disclosures. The ISSB also decided that early application of IFRS S1

and IFRS S2 is only permitted for entities applying both Standards at the same

time. The ISSB decided that if an entity applies the Standards early, it is

required to disclose that fact.

Transition

In reviewing the feedback on the Exposure Draft, the ISSB identified several

concerns about data availability and preparer readiness. In response to these

concerns, the ISSB noted that it would be helpful to provide transition relief to

give entities more time to prepare to align reporting of sustainability-related

financial disclosures and financial statements. The ISSB decided to permit an

entity not to report its sustainability-related financial disclosures at the same

time as its related financial statements (see paragraph E4 of IFRS S1). The

relief is available for one year from the date an entity first applies IFRS S1 and

IFRS S2. The ISSB decided that the relief permits the annual sustainability-

related financial disclosures to be provided with the following second-quarter

or half-year interim general purpose financial report rather than just

permitting a delay. The reason for specifying the timing of the reporting was

to enable users of general purpose financial reports to know when the

information would be provided, therefore ensuring that this information is

brought to their attention, given its importance. An entity taking advantage of

this relief is permitted to report its sustainability-related financial disclosures

for its first annual reporting period:

(a)

at the same time as its next second-quarter or half-year interim general

purpose financial report, if the entity is required to provide such an

interim report;

(b)

at the same time as its next second-quarter or half-year interim general

purpose financial report, but within nine months of the end of the

annual reporting period in which the entity first applies IFRS S1, if the

entity voluntarily provides such an interim report; or

(c)

within nine months of the end of the annual reporting period in which

the entity first applies IFRS S1, if the entity is not required to and does

not voluntarily provide an interim general purpose financial report.

BC171

BC172

IFRS S1 BASIS FOR CONCLUSIONS

The ISSB decided that this relief is a reasonable balance between providing

relief to entities while seeking to maintain the objective of timely reporting,

and enabling users of general purpose financial reports to have the

information necessary to inform investment decisions. In introducing this

relief, the ISSB is not suggesting that an entity is required to provide quarterly

or half-yearly reporting.

The ISSB decided to provide relief for an entity from the requirement to

disclose comparative information in the first annual reporting period in which

it applies IFRS S1. Permitting an entity to report on only that reporting period

enables it to provide users of general purpose financial reports with the

information they need sooner. Therefore, this relief allows the requirements

in IFRS S1 to become effective sooner than if comparative information were

required.

The ISSB also decided to introduce a transition relief that permits, in the first

annual reporting period in which an entity applies IFRS S1, the entity to

disclose information on only climate-related risks and opportunities (in

accordance with IFRS S2). Therefore, the entity would apply the requirements

in IFRS S1 only to the extent that they relate to the disclosure of information

about climate-related risks and opportunities. If an entity applies the relief in

paragraphs E5–E6 of IFRS S1, an entity applies IFRS S2 to identify climate-

related risks and opportunities to provide information about. That is, an entity

discloses information about climate-related risks and opportunities as set out

in IFRS S2.

If an entity uses this transition relief, then it is required to disclose that fact.

The ISSB decided that if an entity uses this transition relief in the first annual

reporting period in which the entity applies IFRS S1, the relief from providing

comparative information would be extended. So, an entity electing only to

report on climate-related risks and opportunities in the first annual reporting

period it applies IFRS S1 is not required to disclose comparative information

about its climate-related risks and opportunities (applying the relief described

in paragraph BC174). In the second annual reporting period in which the

entity applies IFRS S1, it is not required to disclose comparative information

about its sustainability-related risks and opportunities, other than its climate-

related risks and opportunities. Thus, in the second annual reporting period,

comparative information is only required to be provided in relation to climate-

related risks and opportunities.

The ISSB observed that an entity might want to disclose information about

sustainability-related risks and opportunities, in addition to climate-related

risks and opportunities, in the first annual reporting period in which the

entity applies IFRS S1 and IFRS S2. The entity might still apply the relief to the

extent that it does not disclose information about all sustainability-related

risks and opportunities that could be reasonably expected to affect the entity’s

prospects, in accordance with IFRS S1. In such circumstances, the intention of

this relief is not to restrict an entity from providing incremental information

to users of general purpose financial reports—that is, the entity is permitted

to disclose information about other sustainability-related risks and

opportunities, in addition to climate, in that first annual reporting period.

BC173

BC174

BC175

BC176

BC177

IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITY-

REALTED FINANCIAL INFORMATION—JUNE 2023

However, the ISSB emphasised that if an entity uses the relief, the entity must

disclose that it has used the relief and ensure that the information about

climate-related risks and opportunities provided in accordance with IFRS S1

and IFRS S2 is not obscured by the incremental information.

The ISSB noted that the transition relief in paragraphs E5–E6 of IFRS S1 would

provide entities with more time to prepare to report on all sustainability-

related risks and opportunities. The ISSB also noted that entities could benefit

from becoming more familiar with the language and concepts in IFRS S1 and

IFRS S2, and better understand their own value chain, while focusing their

efforts

providing

information

about

climate-related

risks

and

opportunities. Such an understanding would be beneficial to an entity’s

preparedness for broader reporting in accordance with IFRS S1.

BC178

IFRS S1 BASIS FOR CONCLUSIONS

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