Making the requirements proportionate

Ensuring that all types of company can apply the standards.

23 September 2022 (Updated 17 February 2023)

Global IFRS Institute | ISSB - Sustainability reporting resource centre

What’s the issue?

The feedback that the International Sustainability Standards Board (ISSB) has received on both proposed IFRS S1 and IFRS S2 (together ‘the proposals’¹) shows strong support for a global baseline of sustainability-related financial information. However, a global baseline can only be achieved if it is feasible for all types of company to apply, not just the most sophisticated.

Many stakeholders asked for a proportionate approach to applying the standards: they requested that the ISSB give more support to companies that are less prepared or that could find it difficult to apply the standards due to resource constraints – in terms of systems, or availability of specialist staff or data.

A global baseline can only be achieved if it’s feasible for all types of company to apply the standards, not just the most sophisticated. By introducing proportionality, the ISSB is showing that it’s listening to concerns about the challenges ahead for preparers in applying the standards.

Irene Chu
Partner, ESG Advisory
KPMG China

Patrick Chu
Partner, Head of ESG Reporting and Assurance
KPMG China

Irene Chu
Partner, ESG Advisory
KPMG China

Rani Kamaruddin
Partner, ESG Advisory
KPMG China

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What was proposed?

The proposals offer some limited relief for companies. For example:

comparative information would not be required in the first year of application; and
scenario analysis and quantified financial impacts would not be required if the company is ‘unable to’ provide them.

However, feedback in the ISSB’s analysis showed concerns with applying the ‘unable to’ relief in practice. There are also other areas of the proposals – e.g. disclosing Scope 3 greenhouse gas (GHG) emissions or reporting at the same time as the financial statements – that will be particularly challenging for some companies to apply.

What’s the ISSB’s latest thinking?

To address these concerns, the ISSB agreed a number of mechanisms to address proportionality – including identifying areas where they need to provide further guidance and clarifications.

For example, the ISSB agreed that companies would need to use scenario analysis to assess their climate resilience. In making this analysis, companies would:

have the option of applying the temporary transition relief from providing comparative information³ in the first year of application;
be given relevant guidance materials; and
consider all reasonable and supportable information available without undue cost or effort and take an appropriate approach depending on their specific circumstances.

These proportionality mechanisms may not be available to all companies, and jurisdictions need not include them in local requirements.

Companies would be able to use the climate-first option and report only on climate-related risks and opportunities in the first year.

What’s the impact?

The ISSB is working on ways to make the standards easier to apply, while keeping the same objectives, structure and strong links to all the elements of the TCFD² framework.

Companies still need to understand what they need to do to be ready for reporting under the standards. They would also need to have a plan to improve their reporting after initial application because some of the available reliefs are temporary. The ISSB expects that as companies’ experience of reporting develops, the level of analysis and disclosure will increase over time.

Actions for management

Do not delay starting your implementation project. The ISSB will provide ways to help with transition but companies will still need to do a lot of work in preparing to apply the standards. So what can be done now?

Familiarise yourself with the proposals and understand what they would require including any applicable proportionality mechanisms. Visit our resource centre for more detail on applicable reliefs.
Perform an impact assessment to understand where there are gaps between your current reporting and the proposals.
Engage with your local standard setter to understand how it plans to introduce the requirements and whether any proportionality mechanisms may be permitted.

How did we get here?

Document version	Reference	Note
Proposed IFRS S1	ED/2022/S1	Published 31 March 2022
Proposed IFRS S2	ED/2022/S2	Published 31 March 2022
ISSB Board meeting – 20-23 September 2022; Frankfurt	AP3C and AP4C Scalability Meeting summary	The ISSB tentatively decided to use three mechanisms to support companies to apply the standards
ISSB Board meeting – 16 February 2023; Montreal	AP3D and AP4C Proportionality and support for those applying IFRS S1 and IFRS S2	The ISSB agreed a number of proportionality mechanisms to support all types of company to apply the standards
ISSB Board meeting 4 April 2023; virtual	AP3: IFRS S1 transition relief Meeting summary	The ISSB agreed to provide a transition relief allowing companies to report only on climate in the first year of application

¹ Proposed IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and proposed IFRS S2 Climate-related Disclosures.

² Task Force on Climate-related Financial Disclosures.

³The ISSB agreed to provide an additional year before the related comparative information is required. For example, in the first year of reporting, a company choosing to use the climate-first relief would not need to disclose comparative information for their climate-related disclosures. In the second year of reporting, companies would need to disclose comparatives for climate-related disclosures, but not for broader sustainability disclosures.