Sustainability reporting requirements to spark new challenges
Accounting firms should start preparing for more rigorous sustainability reporting with finalised standards set to be released next month, a mid-tier firm warns.
Sustainability reporting is set to become a far more significant focus for accounting firms and businesses over coming years with the International Sustainability Standards Board (ISSB) expected to release finalised standards next month.
The ISSB released two sets of standards as exposure drafts in July last year, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.
Grant Thornton said the final standards are expected to be released by 30 June, with the application of IFRS S1 and IFRS S2 expected to be applicable for reporting periods commencing on or after 1 January 2024 for those entities that adopt them, either through regulatory requirement or through optional election.
“In Australia, a decision needs to be made on whether these standards will be adopted and who will be impacted, and it has been proposed by Treasury that the standards are adopted for certain large listed entities and financial institutions for reporting periods beginning on or after 1 July 2024,” said Grant Thornton partners Andrew Cornes and Shona Cram.
Some organisations may decide to adopt the standards voluntarily given the push from society for transparency around what organisations are doing in the sustainability area, the accounting firm said.
Getting prepared for the changes
Grant Thornton said it may also be necessary for organisations to share their emissions information with key customers and suppliers who may have their own climate reporting obligations that cover their supply chains.
“For some organisations, business-as-usual will not be tenable,” the accounting firm said.
“The message is clear – sustainability reporting is going to be another challenge for organisations and probably for the accountants to manage and report on. The answers to what the reports will look like and when do we start will be available shortly,” said Ms Cram.
In a meeting last month, the ISSB decided that it would introduce transitional relief with the standards to support companies applying S1 and S2.
Accounting firm BDO said the transitional relief means that entities will only need to make disclosures about climate related risks and opportunities, with disclosure of all sustainability-related risks and opportunities beginning in the second year of adoption.
“This relief will enable companies to focus initial efforts on ensuring that they meet investor information needs around climate change, prioritising to provide high-quality, decision-useful information about climate-related risks and opportunities in the first year using the ISSB Standards,” said BDO in a recent update.
However, following the initial year, companies will be required to provide disclosures and sustainability related risks and opportunities beyond climate-related information.
They will also need to provide annual sustainability-related disclosures at the same time as the related financial statements and provide comparative information.
Companies will also be required beyond the initial year to disclose Scope 3 greenhouse gas emissions and use the Greenhouse Gas Protocol to measure emissions if they are currently using a different approach.
BDO national leader, IFRS and Corporate Reporting, Aletta Boshoff said under the short-term transitional relief an entity will be permitted to to report its sustainability-related financial disclosures after its financial statements.
“This relief would require entities to publish sustainability-related financial disclosures:
• At the same time as its next second-quarter or half-year interim report, if the entity is required to provide such an interim report
• At the same time as its next second-quarter or half-year interim report, but within nine months of the end of its annual reporting period, if the entity voluntarily provides such an interim report
• Within nine months of the end of its annual reporting period, if the entity is not required to and does not voluntarily provide an interim report.”
Ms Boshoff said it is not clear yet how long the ISSB will allow this relief to be applied by entities.
Big four firm EY said these changes in international standards for sustainability reporting represent “one of the most significant changes to corporate reporting for decades”.
“Both board members and senior executives will need to carefully monitor this standard-setting development,” said Victor Chan, international director, Global IFRS Services, EY Global.
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