The International Sustainability Standards Board (ISSB) has approved a staff proposal to introduce a one-year transitional relief for entities adopting International Financial Reporting Standard S-1, the General Requirements for Disclosure of Sustainability-related Financial Information.

The relief will allow companies to report solely on climate-related risks and opportunities in accordance with IFRS S-2, Climate-related Disclosures, in their first year of applying the board’s first two sustainability reporting standards.

In a post-meeting statement, ISSB chair Emmanuel Faber said: “This transitional relief ensures companies can phase in their approach, initially focusing on the quality of the climate-related information they provide.”

All 14 ISSB members agreed with the decision, which follows a board vote last December to exempt companies from disclosing their Scope 3 greenhouse gas emissions for at least one year.

The relief package, agreed at the 4 April board meeting, is aimed at supporting initial implementation efforts and does not change the effective date of IFRS S-1, which remains 1 January 2024.

Companies must apply IFRS S-1 in full from 2025

Companies that opt to use the relief will be required to comply with all requirements of both standards in the second year of application.

According to the official ISSB meeting summary, the board decided to introduce the one-year transition relief to prioritise implementation efforts on climate-related disclosures.

The board’s staff said it will also give entities more time to prepare for reporting on the full range of sustainability-related risks and opportunities required by IFRS S-1.

The relief will not have any implications on the application of, or requirements in, IFRS S-2.

Sustainability reporting compromise

Speaking in support of the measure, ISSB member Richard Barker argued it was better to have a well-executed standard rather than compromise its effectiveness by trying to cover too many aspects at once.

ISSB member Verity Chegar added the relief would allow companies that need extra time for implementation to have it without changing the effective dates for S-1 and S-2.

The former BlackRock sustainability leader and vice-president added, however, that investors “would still expect the companies that are well prepared and in a good position to continue to deliver that information that is useful to investors”.

Inconsistent sustainability reporting next year

The decision to approve the relief potentially opens the door to a patchwork of sustainability reporting next year, with some companies applying both IFRS S-

1 and S-2 in full and others applying just IFRS S-2 either with or without Scope 3 emissions.

Additionally, those not applying IFRS S-1 might still elect to follow their earlier reporting policy of disclosing sustainability information under other reporting frameworks.

Faber said: “We expect many of the companies that already disclose information beyond climate to continue to do so, including the 2,500 plus companies already applying the SASB Standards.”

The board’s vice-chair Sue Lloyd clarified, however, that where “there is some extra stuff that you want to provide information on, perhaps because you were reporting on it in the past, you could do that, but you’d need to say ‘I have used the relief’ so that investors are on notice.”

The ISSB remains on track to publish IFRS S-1 and S-2 by the end of June this year.

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