The International Sustainability Standards Board (ISSB) has published a significant technical resource aimed at helping entities globally identify and disclose material sustainability-related financial information. The Guide on sustainability risks and material information for disclosure, released by the IFRS Foundation on 19 November 2024, provides practical support for implementing the requirements of IFRS S1.
Focus on Financial Materiality: The guide specifically addresses how companies can determine which sustainability-related risks and opportunities – and the associated information – are material for investor decision-making. Materiality hinges on whether these factors could reasonably affect the company’s short-, medium-, or long-term cash flows, access to finance, or cost of capital.
Leveraging Existing Frameworks: A core aspect of the guide is demonstrating how entities can integrate the assessment of sustainability-related materiality with established processes used for financial reporting under IFRS Accounting Standards. It introduces a methodology closely aligned with the 4-step approach outlined in the IASB’s IFRS Practice Statement 2: Making Materiality Judgements.
Key Technical Aspects Covered:
- IFRS S1 Application: Provides clarity on applying the definition and requirements concerning material sustainability-related risks and opportunities within IFRS S1.
- Value Chain Context: Explains how material risks and opportunities arise from a company’s dependencies on resources and relationships across its value chain, as well as its impacts on people, the environment, and the economy.
- Integration Pathway: Facilitates seamless adoption of ISSB Standards for the over 140 jurisdictions already applying IFRS Accounting Standards. It also notes the relevance for entities in jurisdictions like the US, where robust materiality concepts are similarly foundational.
- Linking Disclosures: Offers insights on effectively connecting disclosures made under the ISSB Standards (focused on investor needs) with related information in the financial statements.
- Interoperability: Outlines how ISSB Standards can be applied alongside other frameworks (e.g., European Sustainability Reporting Standards – ESRS, Global Reporting Initiative – GRI Standards), particularly for entities seeking to address broader stakeholder groups beyond investors.
This guide is a key implementation tool supporting the ISSB’s mission to foster global adoption of its Standards. It responds directly to the escalating demand from investors and capital markets for consistent, comparable, and decision-useful sustainability-related financial information.
Source: IFRS Foundation, 19 November 2024.