To date, much of Australia's sustainability-related disclosure activity (or inactivity) has been driven by voluntary activities. However, as the International Sustainability Standards Board (ISSB) prepares to release the new standards, IFRS S1 - General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 - Climate-related Disclosures, we expect sustainability and climate-related financial reporting to soon become mandatory for certain Australian organisations.

How have the standards been developed? 

The International Financial Reporting Standards (IFRS) Foundation is the governing body for both the ISSB and its older sibling, the International Accounting Standards Board (IASB). It recognises the importance of supporting the two standard-setters in providing guidance to organisations on the disclosure of information that is material to investment decisions. While traditionally, the focus has been on standards for the disclosure of purely financial information, general sustainability and climate-related issues are now acknowledged as material to an enterprise’s long-term value and should be reported in an ongoing manner.

By design, the financial and sustainability standards the two organisations produce will be consistent in phrasing and concepts. This provides report producers with a consistent platform to base their disclosures on, giving the end user a complete and comparable picture of the organisation with 'no gaps or unintended overlaps'.

Without the level of collaboration and engagement seen between the IASB and ISSB there was a great risk of uncertainty, inconsistency and confusion, with the associated administrative burden for businesses and sub-optimal decision-making by investors and stakeholders.

Who needs to get up to speed?

Board members have indicated that environmental, social and governance (ESG) issues hold an important space on the board agenda. While expectations differ in who is ultimately responsible for driving ESG initiatives, sustainability is ultimately seen as a whole-of-business issue to address.

Following the lead of the ISSB and the IASB, the ability of sustainability, finance and risk leaders, in particular, to work together will be paramount. Bringing together the finance team's experience in applying the IFRS standards, the sustainability team's deep knowledge of environmental, social and governance issues, and the risk team's risk assessment and management application will be key to successfully implementing sustainability reporting in organisations across Australia.

ISSB’s update on standards development

In readiness for its meeting in Montreal on 16 February, the ISSB published a number of staff papers, signifying that the deliberation of Exposure Draft IFRS S1 and IFRS S2 are nearing finalisation.

On 17 February 2023, the IFRS Foundation confirmed that the ISSB approved entering the 'thorough drafting and formal 'balloting' process'. The standards are expected to be issued before 30 June 2023. From here, the ISSB will develop the detailed guidance required to support the implementation of these standards. 

Anticipated timing for mandatory reporting

The proposed effective date recommended for IFRS S2 is for financial years beginning on or after 1 January 2024 (e.g. for 31 December year-ends, that would be 31 December 2024), with IFRS S1 following one year later.

Once the standards are officially released, organisations will need to look to the relevant authorities in Australia to determine whether they are mandated to report in this period.

The Australian Government recently engaged in two consultation processes relating to sustainability standards and climate-related disclosures. It would seem its metaphorical eyes are on the horizon, anticipating the release of IFRS S1 and IFRS S2 to shape the way forward for Australian organisations.

This means that certain Australian entities (e.g. large listed entities and financial institutions) with a 30 June year-end would potentially produce their first climate-related disclosures under IFRS S2 in June 2025.

Mandatory sustainability reporting requirements will be a game-changer for Australian organisations. Those already on a sustainability journey may just take an early lead off the blocks.

Join our webinar on Mandatory Sustainability Reporting 

Join us on Thursday 15 June at 12pm for the first webinar in our Big Issues for Boards series. In this webinar, we’ll hear from Aletta Boshoff, BDO’s National Leader of both ESG & Sustainability and IFRS & Corporate Reporting, as we unpack the current state of sustainability reporting in Australia and why organisations must prepare now.