It’s no longer need that IFRS Sustainability Standard 1 has been issued and has already taken effect. In this article, we will take a look at the overview of this standard including the basics you need to know about it.
IFRS S1 Effective Date
IFRS S1 is effective for annual reporting periods beginning on or after 1 January 2024 with earlier application permitted as long as IFRS S2 Climate-related Disclosures is also applied.
IFRS SI Objective
The main 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.
Requirements Of IFRS S1
1. 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
i. cash flows,
ii. Its access to finance
iiii. Or cost of capital over the short, medium or long term.
(collectively referred to as ‘sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’).
2. IFRS S1 prescribes how an entity prepares and reports its sustainability-related financial disclosures.
3. It sets out general requirements for the content and presentation of those disclosures so that the information disclosed is useful to users in making decisions relating to providing resources to the entity.
4. IFRS S1 sets out the requirements for disclosing information about an entity’s sustainability-related risks and opportunities. In particular, an entity is required to provide disclosures about:
I . The governance processes,
ii. Controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities;
iii. The entity’s strategy for managing sustainability-related risks and opportunities;
iv. The processes the entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities;
v. The entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.
History Of IFRS Standard 1 ( IFRS S1)
In March 2022 the International Sustainability Standards Board (ISSB) published Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, proposing general requirements for an entity to disclose sustainability-related financial information about its sustainability-related risks and opportunities. The Exposure Draft also proposed that an entity provide a complete set of sustainability-related financial disclosures.
The ISSB redeliberated the proposals after considering the feedback on the Exposure Draft.
In June 2023 the ISSB issued IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.
For a more detailed information on the Sustainability standard, visit the IFRS website
Overview Of IFRS S1
IFRS S1 sets out overall requirements with the objective to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to the primary users of general purpose financial reports in making decisions relating to providing resources to the entity. Other significant provisions of the standard are:
1. Why Sustainability Information is important
Information about sustainability-related risks and opportunities is useful to primary users because an entity’s ability to generate cash flows over the short, medium and long term is inextricably linked to the interactions between the entity and its stakeholders, society, the economy and the natural environment throughout the entity’s value chain. Together, the entity and the resources and relationships throughout its value chain form an interdependent system in which the entity operates. The entity’s dependencies on those resources and relationships and its impacts on those resources and relationships give rise to sustainability-related risks and opportunities for the entity. [IFRS S1:2]
2. Value Chain In IFRS S1
The value chain is defined in IFRS S1 as the full range of interactions, resources and relationships related to a reporting entity’s business model and the external environment in which it operates. A value chain encompasses the interactions, resources and relationships an entity uses and depends on to create its products or services from conception to delivery, consumption and end-of-life, including interactions, resources and relationships in the entity’s operations, such as human resources; those along its supply, marketing and distribution channels, such as materials and service sourcing and product and service sale and delivery; and the financing, geographical, geopolitical and regulatory environments in which the entity operates. [IFRS S1:Appendix A]
3. IFRS S1 Requirements And Prescriptions
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 cash flows, its access to finance or cost of capital over the short, medium or long term. [IFRS S1:3]
IFRS S1 prescribes how an entity prepares and reports its sustainability-related financial disclosures. It sets out general requirements for the content and presentation of those disclosures so that the information disclosed is useful to primary users in making decisions about providing resources to the entity. [IFRS S1:4]
4. Scope Of IFRS S1
An entity is required to apply IFRS S1 in preparing and reporting sustainability-related financial disclosures in accordance with IFRS Sustainability Disclosure Standards. [IFRS S1:5] An entity may apply IFRS Sustainability Disclosure Standards irrespective of whether the entity’s related general purpose financial statements are prepared in accordance with IFRS Accounting Standards or other generally accepted accounting principles or practices (GAAP). [IFRS S1:8]
Conceptual Foundations Of IFRS S1
1. Relevance And Faithful Presentation:
For sustainability-related financial information to be useful, it must be relevant and faithfully represent what it purports to represent. These are fundamental qualitative characteristics of useful sustainability-related financial information. The usefulness of sustainability-related financial information is enhanced if the information is comparable, verifiable, timely and understandable. These are enhancing qualitative characteristics of useful sustainability-related financial information. [IFRS S1:10]
2.Fair presentation
A complete set of sustainability-related financial disclosures presents fairly all sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects. [IFRS S1:11]
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. To achieve faithful representation, an entity is required to provide a complete, neutral and accurate depiction of those sustainability-related risks and opportunities. [IFRS
General Requirements Of IFRS S1
IFRS S1 allows use of Sources of guidance as follows:
1. Identifying sustainability-related risks and opportunities
In identifying sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects, an entity is required to apply IFRS Sustainability Disclosure Standards [IFRS S1:54]
In addition to IFRS Sustainability Disclosure Standards: [IFRS S1:55]
(a) an entity is required to refer to and consider the applicability of the disclosure topics in the SASB Standards; and
(b) an entity may refer to and consider the applicability of:
(i) the CDSB Framework Application Guidance for Water- and Biodiversity-related Disclosures;
(ii) the most recent pronouncements of other standard‑setting bodies whose requirements are designed to meet the information needs of users of general purpose financial reports; and
(iii) the sustainability-related risks and opportunities identified by entities that operate in the same industry(s) or geographical region(s).
2. Identifying applicable disclosure requirements
In identifying applicable disclosure requirements about a sustainability-related risk or opportunity that could reasonably be expected to affect an entity’s prospects, an entity is required to apply the IFRS Sustainability Disclosure Standard that specifically applies to that sustainability-related risk or opportunity [IFRS S1:56]
In the absence of an IFRS Sustainability Disclosure Standard that specifically applies to a sustainability-related risk or opportunity, an entity is required to apply judgement to identify information that: [IFRS S1:57]
(a) is relevant to the decision‑making of users of general purpose financial reports; and
(b) faithfully represents that sustainability-related risk or opportunity.
In making that judgement, an entity: [IFRS S1:58]
(a) is required to refer to and consider the applicability of the metrics associated with the disclosure topics included in the SASB Standards
(b) may—to the extent that these sources do not conflict with IFRS Sustainability Disclosure Standards—refer to and consider the applicability of:
the CDSB Framework Application Guidance for Water- and Biodiversity-related disclosures; the most recent pronouncements of other standard‑setting bodies whose requirements are designed to meet the information needs of users of general purpose financial reports; and the information, including metrics, disclosed by entities that operate in the same industry(s) or geographical region(s).
(c) may—to the extent that these sources assist the entity in meeting the objective of IFRS S1 and do not conflict with IFRS Sustainability Disclosure Standards—refer to and consider the applicability of the Global Reporting Initiative (GRI) Standards and the European Sustainability Reporting Standards (ESRS)
An entity is required to identify: [IFRS S1:59]
(a) the specific standards, pronouncements, industry practice and other 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; and
(b) the industry(s) specified in the IFRS Sustainability Disclosure Standards, the SASB Standards or other sources of guidance relating to a particular industry(s) that the entity has applied in preparing its sustainability-related financial disclosures, including in identifying applicable metrics.
Additional information and analysis can be obtained from IAS Plus – Deloitte website
You can as well additional resources from Ernst and Young website.
It is believed that the above gives you an overview of the basics regarding IFRS S1.