New Guidance for Climate-Related Transition Disclosures by ISSB
International Financial Reporting Standards (IFRS) Release Guidelines for Displaying Climate Change Transition Strategies in Financial Reports
The International Sustainability Standards Board (ISSB) has recently released a new guidance document, aimed at helping companies disclose information about their climate-related transitions. This guidance is specifically designed for entities adopting or using ISSB Standards.
Key Aspects of the Guidance
- Climate Transition Disclosures: The guidance provides guidance on disclosures about entities' climate-related transitions, focusing on the need for companies to report on their strategies and goals related to their climate-related transition [1].
- Transition Plan Disclosure: The ISSB encourages companies to disclose their transition plans, offering inspiration for entities applying IFRS S2 when making disclosures about their climate-related transition plans [2].
- Comply-or-Explain Approach: The guidance adopts a 'comply or explain' strategy, allowing companies flexibility by either adhering to disclosure requirements or providing a clear justification for any omissions [1].
- Transition Relief: Companies are allowed to initially disclose only IFRS S2 in the first year, with the option to include IFRS S1 and Scope 3 emissions in the second year [1].
Aligning with TPT Framework
The guidance document addresses the fragmentation of disclosures about transition plans and aligns with the Transition Plan Taskforce (TPT) framework, which was launched in 2022 and released its Disclosure Framework in October 2023 [5].
Sue Lloyd, ISSB Vice-Chair, stated that the guidance aims to reduce costs for both preparers of information and investors, and is intended to inspire entities applying IFRS S2 when making disclosures about their climate-related transition plans [2].
The new guidance focuses on providing high-quality information about climate-related transition, including disclosures about transition plans (both mitigation and adaptation) [3].
The IFRS Foundation announced that 36 jurisdictions have moved to adopt or otherwise use the new ISSB standards [6]. The IFRS International Sustainability Standards Board was launched in November 2021, and the inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards were released in June 2023 [7].
It is important to note that the guidance emphasizes the need for entities to disclose if they have set a strategy for their transition to a lower-carbon or climate-resilient economy [4]. Additionally, the standard requires companies to provide information about a transition plan if they have one.
The guidance document is now available for access, offering a valuable resource for companies seeking to align their sustainability strategies with international best practices and disclose climate-related transition information effectively.
- To ensure sustainability standards in alignment with the Transition Plan Taskforce (TPT) framework, the International Sustainability Standards Board (ISSB) guidance focuses on disclosures about climate-related transition plans, inspiring businesses to provide high-quality information about their strategies for a lower-carbon or climate-resilient economy.
- As part of the new guidance, companies are encouraged to integrate science-based climate-change practices, incorporating the latest environmental-science findings in their climate-related transition disclosures and transition plans.
- In order to foster transparency, the guidance document emphasizes the role of technology, finance, and business in climate-related disclosures, adopting a 'comply or explain' approach to help entities navigate the complexities of sustainability reporting while providing investors with comprehensive and reliable information.
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