Why are the IFRS S1 and S2 sustainability disclosures so crucial?

Big news in sustainability reporting!

The International Sustainability Standards Board (ISSB) recently issued IFRS S1 and S2 standards, designed to provide a global baseline of sustainability-related disclosures. This momentous development marks a significant step forward in the realm of sustainability reporting and underscores the growing importance of ESG considerations in business.

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The introduction of the 2 standards is genuinely transformational for organisations and stakeholders, providing a robust framework that enables companies to measure, manage, and communicate their sustainability performance transparently:

• IFRS 1 (International Financial Reporting Standards) requires a company to disclose information regarding its sustainability risks and opportunities, that may be considered valuable to stakeholders utilizing general financial reports, particularly when making decisions regarding investing or allocating resources to the company.
• IFRS 2 sets out specific climate-related disclosures and is designed to be used with IFRS 1.

By adopting these disclosures, organisations can enhance their credibility, facilitate informed decision-making, and contribute to a more sustainable and equitable global economy.

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The introduction of IFRS®S1 and IFRS®S2 is genuinely transformational for organisations and stakeholders alike. These standards provide a robust framework that enables companies to measure, manage, and communicate their sustainability performance consistently and transparently. By adopting these disclosures, organisations can enhance their credibility, facilitate informed decision-making, and contribute to a more sustainable and equitable global economy.

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Why are these sustainability disclosures so crucial? Here are a few key reasons:

1- Transparency

FRS 1 and IFRS 2 promote greater transparency by establishing clear guidelines for reporting on a wide range of sustainability topics, including climate change, biodiversity, social impact, and more. This transparency empowers investors, regulators, and other stakeholders to make informed choices and hold organisations accountable for their environmental and social impact.

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2- Investor Confidence

With sustainable investing gaining momentum, investors increasingly seek reliable information on companies' ESG performance. By providing standardised sustainability disclosures, organisations can instil confidence in investors and attract capital that aligns with their sustainability goals.

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3️- Risk Management:

The sustainability disclosures outlined in IFRS 1 and IFRS 2 enable companies to effectively identify and manage environmental and social risks. By integrating sustainability considerations into their decision-making processes, organisations can proactively address emerging challenges and seize new opportunities for growth and innovation.

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4- Competitive Advantage:

Embracing sustainability as a core business principle is no longer optional but essential for long-term success. By embracing the first sustainability disclosure standards, organisations can differentiate themselves in the market, attract top talent, foster customer loyalty, and maintain a competitive edge.

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The ISSB's issuance of IFRS 1 and IFRS 2 is a pivotal milestone in advancing sustainable development worldwide. It represents a collaborative effort involving various stakeholders, including businesses, standard-setters, regulators, and civil society organisations. The standards provide a solid foundation for achieving a more sustainable and inclusive future, driving positive change on a global scale.

For more information on the release, read: https://www.ifrs.org/news-and-events/news/2023/06/issb-issues-ifrs-s1-ifrs-s2/

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