Under ever-increasing pressure from stakeholders to extend non-financial disclosures, companies need help to establish robust systems and processes to enable the selection, measurement, and reporting of material non-financial disclosures.
The International Sustainability Standards Board (ISSB) is seeking to finalise its draft Sustainability Standards early in 2023, with a structured framework for companies to disclose climate-related information. The two standards are:
- IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information; and
- IFRS S2 – Climate-related Disclosures.
Following the finalisation of IFRS S1 and IFRS S2, we expect the ISSB to expand its initial focus beyond climate-related information and incorporate other sustainability-related considerations into future standards. This may ultimately lead to greater convergence of the various reporting frameworks available – for example, by building on recent collaboration between the ISSB and the Global Reporting Initiative (GRI).
For details of the key points relating to IFRS S1 and IFRS S2 from the January 2023 ISSB meeting, please see our Sustainability Alert.
Once issued by the ISSB, it is up to each national jurisdiction to determine how and when to adopt the standards into its own accounting standards framework. In the context of its commitment to global harmonization of accounting standards, the response from the Australian government suggests we expect that mandatory climate-related disclosure is rapidly approaching for Australian companies. In its capacity as the responsible government department, the Treasury opened a consultation period seeking regulatory and industry support and input on critical questions including:
- to what entities should the standards apply;
- the transition arrangements and timing of implementation;
- how to ensure rigour of metrics and measurement of climate-related data;
- matters of materiality and disclosure of climate risks;
- considerations of seeking assurance opinions on climate-related disclosures; and
- potential structures for the establishment of the sustainability-related standards within the financial reporting framework.
This consultation period closed on 17 February 2023. The clear message is to prepare for mandatory climate-related disclosures, and for increasing pressure from stakeholders for voluntary disclosure for those entities not initially captured in the mandatory regime. For most, this will mean creating new systems, processes and controls to identify, measure and report on climate risks, emissions and other material climate related matters. These companies must then obtain assurance opinions on these disclosures, which are essential to provide external validation of the assessments and disclosures a company makes.
Companies will be expected to instil rigour, reasonableness, and internal control frameworks into their non-financial data collection processes in the same way that they have been doing with financial information for many years, and as such are turning to their finance teams who are equipped with the skills and systems necessary to collect, analyse and present large amounts of data. Finance teams are therefore under pressure to understand new and complex reporting obligations and answer questions from a broader group of stakeholders – all in an increasingly resource-constrained environment.
Our CFO Advisory and Audit experts are ready to work with you to develop your ESG reporting strategy, bring you up to speed on the various frameworks and reporting options available and understand where your current strengths and weaknesses are. Once a strategy has been developed, a key insight we can provide is around which discloses are “auditable”, what attest services and assurance opinions may be able to be provided, and where further work is recommended.
Non-financial disclosures are no less susceptible to error than financial disclosures. Moreover, since most companies do not yet have the same comprehensive systems and processes for non-financial reporting as they do for financial reporting, the risks of misstatement are greater. When issues arise with your non-financial disclosures, and the information relied upon to make them, be prepared to seek advice to enable you to address the matters with confidence. Our Forensic experts can help.
Learn more about how our Forensics services can help you
