ICAEW’s Corporate Reporting Faculty recently hosted a webinar to introduce IFRS S2 Climate-related Disclosures (IFRS S2). The event included a summary of the IFRS S2 requirements, plans for UK endorsement and implementation tips based on the experience of reporting in line with Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Questions raised during the webinar were varied and interesting, with several key themes emerging. These are summarised below, along with signposts to additional information and resources.

Where does IFRS S2 fit in the UK reporting landscape?

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 have not yet been endorsed for use in the UK, meaning that application of the standards is not yet mandatory in the UK. 

When the standards were issued, the government indicated a decision would be made on whether they would be endorsed as UK Sustainability Disclosure Standards (UK SDS) by the summer of 2024, although timescales are subject to change due to the current political environment. 

The details of UK SDS, including the entities in scope, any exemptions from reporting, the location of relevant disclosure within the annual report, and any associated assurance requirements, are not yet available and are expected to be subject to consultation in the future.

Nonetheless, UK preparers can expect to see similarities between UK SDS and existing sustainability reporting requirements. The endorsement of UK SDS will be informed by the work of two advisory committees. This will include an analysis of the interactions between IFRS Sustainability Disclosure Standards and existing UK legislation and regulation. 

For preparers interested in the similarities between IFRS S2 and the TCFD recommendations, the International Sustainability Standards Board (ISSB) has produced a comparison, which demonstrates how IFRS S2 integrates – and is consistent – with the four core recommendations and 11 recommended disclosures published by the TCFD.

Are there any initial considerations when implementing IFRS S2?

While adoption of IFRS S1 and IFRS S2 is not yet mandatory in the UK, the standards can be voluntarily adopted by any organisation (including non-profit organisations).

Materiality is likely to be a key issue for successful implementation, and ongoing application, of IFRS S2. The ISSB’s standards adopt a definition of materiality with a financial focus, in which sustainability-related information is material if omitting, misstating or obscuring that information could reasonably be expected to influence investors’ decisions. 

This definition focuses on the needs of investors and should be familiar to finance teams. The Corporate Reporting Faculty has produced an article that should support preparers in developing their materiality mindset.

It is also worth noting that IFRS S2 provides certain transition reliefs. For example, it does not require entities to disclose comparative information in the first year of application. Additionally, IFRS S2 does not require entities to disclose Scope 3 greenhouse gas emissions in the first year of application (a relief that the entity is permitted to continue to use when presenting comparative information in subsequent reporting periods).

What happens if a company is already required to report using another framework?

Some UK preparers are currently assessing what the EU’s Corporate Sustainability Reporting Directive (CSRD) means for them, while others are considering the impact of the US Securities and Exchange Commission’s (SEC) climate-related disclosure developments. Against this backdrop, conversations about the ISSB’s standards can seem overwhelming. PwC has produced a comparison of CSRD, ISSB and SEC requirements to support preparers in developing an appropriate reporting strategy.

The broad scope of European Sustainability Reporting Standards means that reporting requirements for wider sustainability issues (such as other environmental, social and governance topics) are explicit. While the ISSB doesn’t yet have as broad a range of standards, preparers should note that IFRS S1 is itself broad in scope and does require reporting on all sustainability reporting topics.

Where can I find extra resources?

In addition to the resources linked throughout this article, relevant resources are included on the webpage for the Corporate Reporting Faculty’s IFRS S2 webinar.