In our previous ESG article, we discussed the implementation timeline for mandatory climate-related disclosures in Singapore, aligned with the standards developed by the International Sustainability Standards Board (ISSB) for both listed and non-listed companies. In this article, we delve deeper into the ISSB standards and explore the driving force behind sustainability-related financial disclosures.
A unified global baseline for sustainability reporting
Following the United Nations Climate Change Conference (COP26) in 2021, the ISSB was established to develop a comprehensive global baseline for sustainability reporting. This initiative aims to consolidate and harmonise existing globally-used standards such as GRI, TCFD and SASB, providing decision-useful information to investors in a fragmented reporting landscape.
In June 2023, the ISSB published its first two standards: International Financial Reporting Standard (IFRS) Sustainability Disclosure Standards – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. These standards, which incorporate recommendations and build on existing frameworks such as TCFD and GRI, aim to provide investors with material information on sustainability-related factors that could reasonably affect a company’s cashflow.
What must be disclosed?
In alignment with the ISSB standards, companies are expected to disclose information pertaining to four content pillars. Under the IFRS S1, companies must disclose sustainability-related risks and opportunities that could reasonably be expected to affect their cash flows, access to finance or cost of capital over the short, medium or long term.
Building on IFRS S1, IFRS S2 requires companies to disclose information about their climate-related risks and opportunities over the short, medium or long term. Climate-related risks refer to the adverse effects of climate change on a company, including potential physical risks (such as extreme weather events) and transition risks (associated with shifting to a low-carbon economy). Conversely, climate-related opportunities pertain to the potential benefits a company may realise from efforts to combat climate change, such as cost savings from energy efficiency or new revenue streams from green technologies.
As things stand
In April 2024, the Accounting and Corporate Regulatory Authority (ACRA) and the Singapore Exchange Regulation (SGX RegCo) concluded a public consultation on the incorporation of ISSB standards into reporting requirements for climate-related disclosures.
In the proposed amendments to the listing rules, issuers are required to publish their sustainability reports at the same time as their annual reports to shareholders and the exchange. Additionally, the primary component of the sustainability report must be prepared in accordance with the ISSB standards relevant to climate-related disclosures, specifically IFRS S1 and IFRS S2, or their Singaporean equivalents.
While there is currently no certainty on when these recommendations will be implemented, one thing is clear: the growing momentum behind the ISSB standards signals a transformative shift towards greater corporate responsibility and stewardship. This shift underscores the importance of sustainability as a collective imperative for companies in shaping a sustainable future.
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