On July 26, 2023, IFRS S1 was officially launched by Chair of ISSB, Emmanuel Fabel, during the annual IFRS Foundation conference. The release of IFRS S1 marked the beginning of a significant endeavor by the accounting profession to usher in a new era of sustainability-related disclosures for business entities and capital markets worldwide. 

Considering the substantial impact of this new standard, it's crucial to understand what is IFRS S1 and the information it contains. With that being said, TGS AU Partners Team will delve into more details about IFRS S1 through the article below.

About IFRS S1 

IFRS S1 is the first global sustainability report standard issued by ISSB. This new standard provides guidance on how companies should transition from local accounting standards (known as PSAK in Indonesia) to international accounting standards (IFRS).

IFRS S1 encompasses a company's obligation to disclose information about corporate governance, strategy, risk management, metrics, and targets related to sustainability. Additionally, the standard offers a set of disclosure requirements designed to enable companies to communicate with investors about sustainability-related risks and opportunities in the short, medium, and long term.

IFRS S1 Baseline

IFRS S1 essentially responds to calls from the G20, the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO), as well as leaders in the business and investor communities. The International Sustainability Standards Board (ISSB) developed these standards by leveraging input from market participants and stakeholders.

In March 2022, ISSB published the Exposure Draft IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information. This draft proposed general requirements for an entity to disclose financial information about sustainability-related risks and opportunities. In these disclosures, the Exposure Draft also proposed that entities provide comprehensive financial disclosures related to sustainability.

After receiving feedback through the Exposure Draft, ISSB conducted a reconsideration of the IFRS S1 proposal. Then, in June 2023, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information was officially issued by ISSB. This new standard was also published for a week at events hosted by stock exchanges worldwide, including Frankfurt, Johannesburg, Lagos, London, New York, and Santiago.

IFRS S1 becomes effective for annual reporting periods beginning on or after January 1, 2024. Early adoption before the specified date is allowed, provided that IFRS S2 Climate-related Disclosures is also applied.

The Purpose of IFRS S1

The ISSB standards are essentially designed to ensure that companies provide information related to sustainability aspects. In this context, IFRS S1 serves as a foundation for entities to disclose information about sustainability-related risks and opportunities. This information will be highly beneficial for users of financial statements.

The issuance of this standard is essentially a significant step in building a global basis for sustainability reporting. Consistent, comparable sustainability information, aligned with financial information, will help investors and stakeholders gain a comprehensive understanding of a company's performance and its commitment to creating sustainable value.

What Are the Requirements for IFRS S1 Disclosure?

IFRS S1 essentially dictates how an entity compiles and reports financial disclosures. In these disclosures, IFRS S1 has established requirements for disclosing information about an entity's sustainability-related risks and opportunities. Entities are required to provide disclosure on:

  1. The governance processes, controls, and procedures used by the entity to monitor, manage, and oversee sustainability-related risks and opportunities.

  2. The entity's strategy for managing sustainability-related risks and opportunities.

  3. The processes used by the entity to identify, assess, prioritize, and monitor sustainability-related risks and opportunities.

  4. The entity's performance in relation to sustainability-related risks and opportunities, including progress toward targets set or required by laws or regulations.

Conclusion

In conclusion, IFRS S1 is a new standard that mandates every company to disclose information about corporate governance, strategy, risk management, metrics, and targets related to sustainability. Through this disclosure effort, IFRS S1 can assist companies in reporting sustainability information to investors and other stakeholders. This information can then be utilized as a basis for investment decisions.

In implementing this standard, companies need to identify, disclose, and measure a spectrum of sustainability issues that can affect their performance. Additionally, companies must identify a comprehensive and valid set of sustainability-related risks and opportunities for effective monitoring and reporting. Selecting appropriate metrics and targets is also necessary to create a sustainability report that is future-focused.

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