Publication of IFRS Guidance to Aid in Exposure of Climate Change Transition Blueprints
The International Financial Reporting Standards (IFRS) Foundation has issued new guidance to help companies disclose climate-related transition plans aligned with the International Sustainability Standards Board's (ISSB) IFRS S2 climate-related disclosure standard. This guidance aims to clarify how organizations can meet existing IFRS S2 disclosure requirements related to their climate-related transition efforts.
The ISSB was launched in November 2021, and the inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards were released in June 2023. The new guidance is built on the materials developed by the Transition Plan Taskforce (TPT), launched in 2022, and the TPT's Disclosure Framework, released in October 2023.
The guidance provides detailed explanations and practical examples on the information entities should disclose when they have strategies, targets, and actions addressing climate-related risks and opportunities. It clarifies the application of IFRS S2 requirements to transition plans without introducing new disclosure obligations.
The guidance notes that it is necessary under the standard to disclose if an entity has set a strategy for its transition to a lower-carbon or climate-resilient economy. It also provides sector-specific considerations for industries like banking, electric utilities, asset management, metals and mining, oil and gas, and food and beverage, to make disclosures more relevant and credible.
Though IFRS S2 does not mandate having a transition plan, this guidance supports preparers in providing material and decision-useful information about sustainability-related risks and opportunities embedded in their climate strategies and transitions, if such plans or actions exist.
Regarding harmonization, the guidance aids in reducing fragmentation in sustainability reporting by promoting consistency in how transition-related disclosures are presented globally. It establishes a global baseline aligned with the ISSB standards, helping entities and jurisdictions apply IFRS sustainability reporting requirements more uniformly and comparably.
In summary, the new IFRS Foundation guidance supports companies in applying the IFRS S2 climate-related disclosures specifically about transition plans. It enhances the quality and comparability of transition-related disclosures through clear practical direction and sector guidance. Furthermore, it facilitates harmonization of sustainability reporting by aligning global climate transition disclosure practices with the ISSB’s global baseline approach.
This makes sustainability reporting more decision-useful for investors and stakeholders while encouraging uptake and consistency in climate-related financial disclosures worldwide. To access the guidance, click the provided link. As of the release of the guidance, 36 jurisdictions have moved to adopt or otherwise use the new ISSB standards, with 17 of these jurisdictions having already finalized their approach to using the standards.
[1] IFRS Foundation, "New Guidance on Climate-related Transition Disclosures," October 2023, https://www.ifrs.org/news-and-events/press-releases-and-newsletters/press-releases/2023/new-guidance-on-climate-related-transition-disclosures/
[2] IFRS Foundation, "IFRS S1 and S2: General Sustainability and Climate-related Reporting Standards," June 2023, https://www.ifrs.org/standards-and-services/projects/general-sustainability-and-climate-related-reporting-standards/
[3] Transition Plan Taskforce, "Disclosure Framework," October 2023, https://www.ifrs.org/projects/transition-plan-task-force/disclosure-framework/
- The new guidance from the IFRS Foundation helps companies disclose transition plans in line with the International Sustainability Standards Board's (ISSB) IFRS S2 climate-related disclosure standard, utilizing science and environmental-science to address climate-change challenges.
- In the global financial arena, businesses can now integrate sustainability standards, such as those set by the ISSB, into their strategies, ensuring that their climate-transition efforts are financially viable and wallet-friendly.
- To enhance the credibility and relevance of sustainability reporting, the IFRS Foundation guidance offers sector-specific considerations for various industries, including banking, electric utilities, asset management, metals and mining, oil and gas, and food and beverage, facilitating a harmonized and consistent approach to climate-related financial disclosures worldwide.
