Companies producing financial reports using IFRS standards will be required to disclose any significant sustainability-linked risks in their value chain, which will include lenders and other sources of finance.
The sustainability-related financial disclosure project launched by the IFRS Foundation last year, the International Sustainability Standards Board, has released a draft set of disclosure standards.
IFRS has called for comments on the IFRS Sustainability Disclosure Standard by the end of July.
The four main elements of the draft cover governance, strategy, risk management and metrics and targets. They are to be included in general purpose financial reporting.
Governance disclosures are designed to allow investors and other stakeholders to understand the procedures and controls used to monitor and manage significant sustainability-related risks and opportunities.
Disclosures on strategy would allow stakeholders to understanding how an entity is addressing sustainability-related risks and opportunities.
Risk management disclosures are designed to help understand an entity’s sustainability-related risk management processes and whether those processes are integrated into overall risk management processes.
Metrics and targets disclosure standards are designed to show stakeholders how an entity measures, monitors and manages sustainability-related risks and opportunities.
“These disclosures shall enable users to understand how the entity assesses its performance, including progress towards the targets it has set,” the draft says.
The definition of sustainability-related risks and opportunities in the standard is broad, covering employment practices of suppliers, waste related to the packing of products a business sells, investments in associates and joint ventures, and sources of finance.
For reporting purposes, information is material “if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that the primary users of general purpose financial reporting make on the basis of that reporting.”
IFRS proposes that sustainability-related financial disclosures be reported at the same time as financial statements and form part of “general purpose financial reporting”.
In addition to the general sustainability-related standard, IFRS has issued a draft of a climate-related disclosure standard. It includes a requirement for disclosure of transition planning and carbon offsets.
The climate-related standard attempts to establish cross-industry metrics, which are intended to provide a common set of disclosures applicable to all sectors and industries.