Sustainability-related disclosure standards published under aegis of IFRS Foundation, Russia thinking of using them
MOSCOW. June 26 (Interfax) - The International Sustainability Standards Board (ISSB) has issued its inaugural standards for sustainability-related disclosures in capital markets worldwide.
The IFRS S1 and IFRS S2 standards will be officially launched at the IFRS Foundation's annual conference on Monday and through a week of events hosted by stock exchanges around the world.
They are the first step towards harmonizing global approaches to the disclosure of high-quality, globally comparable information on sustainability-related risks and opportunities for investment decision-making. It is envisaged that the ISSB standards, which the G7 and other international organizations have actively supported, will gradually be adopted as mandatory by individual countries.
The IFRS S2 Climate-related Disclosures Standard sets out specific climate-related disclosures and is designed to be used with the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information Standard, which provides a set of disclosure requirements to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term.
The standards come into effect in 2024 and will be phased in. According to an ISSB decision, companies will be able to limit themselves to full and high-quality disclosure of information on climate risks (S2) in the first year of implementation of the new rules. Companies will not need to disclose information on sustainability-related risks and opportunities in addition to climate-related information, or disclose annual information on sustainable development along with financial statements; or disclose information on greenhouse gas emissions under Scope 3.
Starting from the second year, companies will have to start publishing full data on the full range of new requirements (S1).
Russian ministries are now discussing their own methodological recommendations for non-financial reporting, but they are also ready to use IFRS Foundation standards. "In order to ensure an clear understanding of the meaning, nature and content of such reporting by the compilers of sustainable development reports and its users, we consider it appropriate to use international financial reporting standards adopted by the IFRS Foundation, in particular, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures in the Russian Federation for the preparation and disclosure of sustainability-related," the Finance Ministry said in a letter to the Economic Development Ministry in early June which has been seen by Interfax.
A survey carried out by Interfax of Russia's largest public companies showed that they are ready to follow standards required by investors and foreign trade partners and adopted at the level of national regulators. At the same time, businesses see certain technical difficulties in implementing new requirements.
The head of the National ESG Alliance, Andrei Sharonov, told Interfax in an interview that he thought Russia on the whole be ready to join the process of adapting new international standards.
The gradual transition to the use of global standards will be a challenge for Russian companies publishing sustainability reports, Andrei Yakushin, head of the Corporate Relations Development Department at the Central Bank of Russia, has said.
Survey data published by the Central Bank suggest that Russian companies now mainly use international GRI standards to disclose ESG information.
The new standards are aimed primarily at the investment community and assume that metrics incorporated in sustainability reporting affect a company's financial performance. "One of the key points and one of the difficulties of such disclosure is to show exactly how non-financial metrics affect financial performance, and how a company manages ESG risks and opportunities," Yakushin said.
The new standards provide for mandatory disclosure by companies of information for Scope 2, that is, on greenhouse gas emissions associated with the purchase of energy and heat, and in the future - throughout the entire supply chain and consumption of goods and services (Scope 3), Yakushin said.
The Central Bank's 2021 recommendations on non-financial reporting are based on the principle of double materiality, which is now widely used in the world. Double materiality is the impact of ESG risks and opportunities on the results of the financial and economic activities of a business, on one hand, and the organization's impact on the environment, society and the economy, i.e., the outside world, on the other.
The ISSB has the backing of the G7, G20 and IOSCO; draft standards are based on research by the Climate Disclosure Standards Board (CDSB), Task Force for Climate-related Financial Disclosures (TCFD) and other organizations.