The International Sustainability Standards Board (ISSB) has issued its inaugural standards, IFRS S1 and IFRS S2, marking the beginning of a new era in sustainability-related disclosures in global capital markets. These standards will enhance trust and confidence in company disclosures regarding sustainability, enabling informed investment decision-making.
Furthermore, the Standards introduce a groundbreaking development by establishing a shared framework for disclosing the impact of climate-related risks and opportunities on a company’s prospects. This represents the first time such a common language has been created in climate-related disclosures.
FRS S1, General Requirements for Financial Sustainability-Related Disclosures.
IFRS S1 mandates the disclosure of information about all sustainability-related risks and opportunities that could reasonably be expected to impact the entity’s cash flows, its access to financing, or the cost of capital in the short, medium, or long term. This standard sets out how an entity should prepare and report such disclosures, including the general requirements for their content and presentation, ensuring that the disclosed information is helpful to users in making decisions about the entity’s resource allocation.
NIIF S2, Weather-related revelations
IFRS S2 requires an entity to disclose information about physical and transitional climate-related risks and opportunities that could reasonably be expected to impact the entity’s cash flows, access to financing, or the cost of capital in the short, medium, or long term.
Application of IFRS S1 and S2
IFRS S1 and S2 are effective for annual periods beginning on or after January 1, 2024, and early application is permitted as long as both standards are applied together. However, each country must make a pronouncement to establish the date these IFRS will be mandatory within its jurisdiction.
Application in México
In Mexico, it is expected that the National Banking and Securities Commission will make a pronouncement to determine if IFRS S1 and S2 will apply to entities under its regulation and, if applicable, to establish the effective date.
The Mexican Financial Reporting Standards Board (CINIF) has already established a staged adoption strategy for the sustainability disclosures outlined in IFRS S1 and S2. This strategy will apply to entities that are not publicly accountable. As a result, in the coming August, the CINIF will issue documents for consultation and disclose the details of the strategy.