Reliefs in IFRS Sustainability Standards

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By CPA Moenga Elvis

The Kenyan Market Announced the Adoption of The New Standards in September 2023

The alphabet soup that is sustainability reporting continues to get thicker. The latest entrant is IFRS Sustainability disclosure standards S1 (General Requirements for Disclosure of Sustainability-related Financial Information) & S2 (Climate-related Disclosures), which now gives more impetus to the march towards global net zero. Companies worldwide are now facing the difficult task of operationalizing multiple sustainability reporting regulations and doing so within an unprecedented timeline. 

In the context of what has been an eventful couple of years from an accounting standards perspective, with businesses still coming to terms with the post-implementation effects of IFRS 9, 15, 16 and most recently, IFRS 17 (Insurance contracts, which have turned the insurance industry upside down), there has been a concerted effort to improve the quality of financial reporting disclosures.

On 6th September 2023, the Kenyan market announced the adoption of the new standards. ICPAK, working with key stakeholders, has formed a Sustainability Steering Committee developing an implementation roadmap. The standards, nonetheless, have recommended certain explicit reliefs as businesses eventually transition into the new modus operandi. An entity may still claim compliance with IFRS-S if it avails of the reliefs. The reliefs fall into three main categories: Permanent and proportionality-based reliefs and transitional provisions.

Under permanent reliefs, an entity is permitted to omit material disclosures if a law or regulation prohibits such disclosure (the entity must, however, identify the type of information not disclosed and explain the source of restriction) and commercial sensitive disclosures about sustainability-related opportunities. On the latter, the International Sustainability Standards Board (ISSB) seeks to provide a pragmatic solution that allows entities to avoid disclosing commercially sensitive information about their sustainability-related opportunities while enhancing the overall transparency and usefulness of sustainability reporting for investors and other stakeholders.

Under proportionality-related reliefs, an entity may use practical expedients embedded in the standards. These include undue cost and effort, which exempts an entity from locating all reasonable and supporting information available to it at the reporting date; commensurate approach, which allows entities to use the approach most appropriate with the skills, capabilities, and resources available to the entity; and unable-to-do relief, which applies where an entity is incapable of generating information.

Finally, several transition reliefs are given for an entity issuing its first sustainability report. The first of them is climate. This allows entities to focus their initial reporting efforts on providing disclosures related to climate in the first year of applying the standards. The relief enables companies to prioritize ensuring they meet investor information needs around climate change by initially concentrating on high-quality, decision-useful details on climate-related risks and opportunities. By adopting a “climate-first” approach, companies can lay the groundwork for reporting other sustainability-related risks and opportunities in subsequent years, enhancing the quality and relevance of their sustainability disclosures.

In the first year of applying IFRS S2, companies can focus on disclosing their Scope 1 and Scope 2 emissions before being required to report on Scope 3 emissions (indirect greenhouse gas emissions that occur in an organization’s value chain, both upstream and downstream) in subsequent years. This relief is designed to give companies time to implement the processes and systems needed to measure and disclose their Scope 3 emissions, which can be challenging and complex. 

IFRS S2 requires companies to disclose their greenhouse gas (GHG) emissions by the GHG Protocol, the most widely used international standard for GHG accounting and reporting. However, IFRS S2 provides some flexibility in using the GHG Protocol. If a jurisdictional authority requires companies to use a different method to measure GHG emissions, IFRS S2 will allow them to use that alternative method. Additionally, during the first annual reporting period in which a company applies IFRS S2, it can continue using a measurement method other than the GHG Protocol if it had used an alternative approach in the immediately preceding reporting period. 

Additionally, entities have relief regarding prior-year comparatives, which they may opt out of in the first year of reporting, as well as relief from publishing the sustainability report at the same time as their financial statements in the first year.

Ultimately, based on experiences from advanced economies and early adopters of the standards, national roadmaps would embed the reliefs in a phased approach over several years, with the reliefs dropping off as full mandatory reporting crystallizes.


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