Description of Characteristics:
- Global Baseline: Developed by the International Sustainability Standards Board (ISSB), these standards aim to establish a global baseline for sustainability-related disclosures in financial statements.
- Investor Focus: Primarily targeted towards investors and other providers of financial capital, emphasizing financially material ESG information.
- Mandatory Compliance (in some jurisdictions): While adoption is voluntary in many regions, some jurisdictions are mandating or planning to mandate compliance with ISSB standards for listed companies.
- Dual-Materiality: Considers both the impact of sustainability factors on the company (financial materiality) and the company’s impact on the environment and society (impact materiality).
- Building Blocks Approach: Built on the foundation of the TCFD recommendations and incorporates concepts from other established frameworks, ensuring consistency and interoperability.
Targeted Audience:
The primary audience for TCFD disclosures is investors and other providers of financial capital. However, the recommendations also consider a wider range of stakeholders, including:
- Lenders: Banks and other financial institutions that provide debt financing to companies.
- Insurance Underwriters: Insurance companies that assess and manage climate-related risks.
- Customers and Suppliers: Businesses that are part of a company’s value chain and may be impacted by its climate-related risks and opportunities.
- Regulators and policymakers: Government agencies that are responsible for overseeing and regulating corporate activities related to climate change.
- Civil society organizations: NGOs and other groups that are interested in corporate sustainability performance and climate action.
The TCFD recommendations aim to provide these stakeholders with the information they need to make informed decisions about their relationships with companies and to assess the potential financial impacts of climate change.
Specific Criteria:
- IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information: Sets out the overall requirements for sustainability-related financial disclosures, including the identification of material sustainability-related risks and opportunities and the disclosure of relevant metrics and targets.
- IFRS S2: Climate-related Disclosures: Sets out specific requirements for disclosing climate-related risks and opportunities, including information on governance, strategy, risk management, and metrics and targets.
- Additional Standards in Development: The ISSB is currently developing additional standards on other sustainability-related topics, such as biodiversity and human capital.
Reporting Principles:
- Transparency: Companies are expected to provide clear, concise, and understandable disclosures on sustainability-related risks and opportunities.
- Comparability: Standardized metrics and disclosure requirements facilitate comparison across companies and industries.
- Connectivity: Disclosed information should be connected to financial statements, highlighting the link between sustainability and financial performance.
- Reliability: Disclosed information should be based on robust data and subject to appropriate internal controls and assurance processes.
Reporting Process:
- Identify Material Sustainability-Related Risks and Opportunities: Companies should conduct a robust materiality assessment to identify the sustainability-related risks and opportunities that are most relevant to their business.
- Collect and Analyze Data: Gather and analyze data related to the identified material risks and opportunities using the ISSB metrics.
- Prepare Disclosure: Prepare sustainability-related financial disclosures in accordance with the ISSB Standards, providing evidence to support the reported data.
- Integrate with Financial Statements: Include the sustainability-related financial disclosures in the company’s management commentary or a separate sustainability report that is connected to the financial statements.
- Communicate with Stakeholders: Share the sustainability-related financial disclosures with investors and other relevant stakeholders.
Connections to Other Frameworks:
- Built on TCFD: IFRS S2 is based on the TCFD recommendations, providing a clear link to climate-related financial disclosures. Complementary to SASB: While SASB focuses on industry-specific financially material ESG topics, IFRS aims to provide a global baseline for sustainability disclosures across all sectors. Alignment with GRI: IFRS encourages companies to use the GRI Standards as a source of guidance for disclosures beyond the specific requirements of IFRS S1 and S2.
- Alignment with the SDGs: The ISSB encourages companies to consider the SDGs in their sustainability disclosures.
Challenges:
- Nascent Stage: IFRS Sustainability Disclosure Standards are relatively new, and implementation guidance and best practices are still evolving.
- Data Availability: Collecting and reporting on ISSB metrics may be challenging for companies that lack robust ESG data management systems.
- Interpretation and Implementation: There may be challenges in interpreting and implementing the standards consistently across different jurisdictions and industries.
- Assurance: Although optional in many jurisdictions, obtaining external assurance for sustainability disclosures can be resource-intensive.
Compliance Guidance:
- IFRS Foundation: The IFRS Foundation provides guidance and resources on implementing the IFRS Sustainability Disclosure Standards.
- ISSB Website: Offers access to the latest standards, exposure drafts, and educational materials.
- Jurisdictional Guidance: Local regulators may provide additional guidance on how to comply with the ISSB Standards.
Usability Evaluation:
- Level of Global Adoption: Adoption is increasing as jurisdictions mandate or encourage compliance with IFRS Sustainability Disclosure Standards.
- Ease of Use: Can be challenging due to the need to integrate sustainability disclosures with financial statements and the evolving nature of the standards.
- Focus Areas: Focuses on financially material ESG issues, with a strong emphasis on climate-related disclosures.
- Data Availability: Data availability can vary depending on the company and industry.
SyncFrame Compatibility:
- Strong Alignment: SyncFrame’s focus on materiality, impact measurement, and transparency aligns well with the ISSB Standards.
- Data Integration: SyncFrame’s data collection and reporting tools can be used to collect and analyze ISSB-specific metrics.
- Investor Focus: SyncFrame’s emphasis on providing decision-useful information to investors is consistent with the ISSB’s objectives.
- Expert Guidance: SyncFrame’s ESG experts can provide support in conducting materiality assessments, identifying relevant metrics, and preparing disclosures in accordance with IFRS.
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