Preparing for global sustainability standards

2022 was a busy year in the sustainability space, and so far, 2023 is showing no signs of slowing down.

Towards the end of 2022, international standard setters and jurisdictions, including Europe (EU) and the United States Securities Exchanges Commission (US SEC), published proposals for sustainability reporting requirements.

European developments

Replacing the Non-Financial Reporting Directive (NFRD), the European Parliament published its final Corporate Sustainability Reporting Directive (CSRD). EU members now have 18 months to incorporate them into national law.

The European Financial Reporting Advisory Group (EFRAG) also delivered its first batch of European Sustainability Reporting Standards (ESRSs). This included 12 standards addressing cost-cutting, environment, social and governance metrics.

United States developments

The US SEC has proposed new rules applicable to domestic and foreign registrants, requiring significantly enhanced climate-related disclosures in registration statements and annual reports (e.g., on Form 10- K). Proposed financial statement disclosures would be presented in a footnote to the consolidated financial statements. In contrast, other disclosures would be required in a separate captioned filing section before management's discussion and analysis (MD&A).

You can find more details about these and other sustainability changes in our International Sustainability Reporting Bulletin (2023/01).

International Sustainability Standards Board (ISSB) releases 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 - General Requirements for Disclosure of Sustainability-related Financial Information and Exposure Draft IFRS S2 - Climate-related Disclosures are nearing finalisation.

What do we know?

The agenda included a request from staff to begin the balloting process on IFRS S1 and IFRS S2, meaning that the deliberation process is nearly complete. Additionally, the staff papers include recommendations for the effective date and transitional reliefs to be offered. Of course, the effective dates will depend on the adoption and endorsement of ISSB standards in jurisdictions around the world.

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 at the end of Q2 2023. From here, the ISSB will develop the detailed guidance required to support the implementation of these standards.

Anticipated timing for mandatory reporting

The staff paper focused on the proposed effective date recommends both IFRS S1 and IFRS S2 come into play as soon as 1 January 2024 (for 31 December 2024 year-ends). This means an entity would produce its first sustainability-related disclosures under IFRS S1 and IFRS S2 in 2025.

Whether this implementation is considered mandatory in this timeframe will rely on the requirements of the jurisdiction. In Australia, organisations will need to look to the relevant authorities to determine whether they are mandated to report in this period, if the recommendation passes.

The second recommendation from the effective date staff paper provides transitional relief on the timing of reporting and scope 3 emissions (excerpt from staff paper):

  • 5. The staff recommends that the ISSB:
    • 5a. permit an entity, in applying short term transitional relief, to report its sustainability-related financial disclosures:
      • at the same time as its next second quarter or half-year interim report if the entity is required to provide such an interim report;
      • at the same time as its next second quarter or half-year interim report, but no later than nine months after the end of its annual reporting period, if the entity voluntarily provides such an interim report;
      • no later than nine months after the end of its annual reporting period, if the entity is not required and does not voluntarily provide an interim report;
    • 5b. make the following reliefs available in the first annual reporting period in which an entity applies IFRS S1 and IFRS S2 (ie transitional relief would be provided for one year):
      • the relief from the requirement to report sustainability-related financial disclosures at the same time as the related financial statement (in accordance with paragraph 5(a) above);1
      • the relief from the requirement to measure Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (GHG Protocol Corporate Standard) for entities that have previously used a different measurement basis;2 and
      • the relief from the requirement to disclose Scope 3 GHG emissions.3


Ultimately, the ISSB recognises that, while implementing IFRS S1 and IFRS S2 builds on the existing IFRS framework, the application of these reporting requirements will be new to most organisations. Therefore, systems, processes, and capabilities will need adjustments.

What does this mean for Australian businesses?

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.

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.

How BDO can help

Our national team of experts can help you to understand the emerging sustainability standards, and what their adoption might mean for your organisation. Contact us today.

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1 As decided by the ISSB at its November 2022 meeting. See the November 2022 Agenda Paper 3C General Sustainability-related Disclosures―Timing of reporting.
2 As decided by the ISSB at its October 2022 meeting. See the October 2022 Agenda Paper 4C Climate-related Disclosures―Greenhouse gas emissions measurement methods.
3As decided by the ISSB at its December 2022 meeting. See the December 2022 Agenda Paper 4B Climate-related Disclosures―Scope 3 greenhouse gas emissions.