IFRS S1 applies to sustainability-related financial disclosures provided as part of an entity’s general purpose financial reports. IFRS S1 is designed to require the disclosure of information that complements an entity’s financial statements, regardless of which generally accepted accounting principles or practices (GAAP) the entity uses in preparing those financial statements. IFRS S1 establishes a base for decision-useful and comparable reporting of sustainability-related financial information by requiring the application of some established practices from financial reporting. IFRS S1 uses definitions and requirements that are consistent, if applicable, with the IASB’s Conceptual Framework, IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The ISSB intends that such an approach does not, in any way, limit the suitability of IFRS Sustainability Disclosure Standards for entities applying other GAAP instead of IFRS Accounting Standards.

IFRS S1 sets out the general requirements that an entity is required to apply to assert compliance with IFRS Sustainability Disclosure Standards. IFRS S1 identifies the essential elements of a complete set of sustainability-related financial disclosures and sets out the qualitative characteristics of useful sustainability-related financial information. An entity applying IFRS Sustainability Disclosure Standards would apply the requirements in IFRS S1 in conjunction with other Standards (for example, an entity applying IFRS S2 would refer to IFRS S1 to decide how to aggregate or disaggregate information). As a result, IFRS S1 will establish the basis for further development of IFRS Sustainability Disclosure Standards by the ISSB in the future.

The purpose of IFRS S1 for sustainability-related financial disclosures is similar to that of the IASB’s Conceptual Framework, IAS 1 and IAS 8, which are applicable to financial statements prepared in accordance with IFRS Accounting Standards.

Although most respondents to the consultation on Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (Exposure Draft) agreed with the proposed requirements, many of these respondents suggested that the ISSB give more consideration to the range of capabilities and preparedness of entities around the world to apply the proposals. The reasons that some entities might be unable to comply fully with the proposals include:

The ISSB discussed a range of mechanisms to respond to these ‘proportionality’ challenges. The ISSB made several proportionality-related decisions intended to ease the burden of disclosure and assist entities in applying IFRS Sustainability Disclosure Standards.

The concept of sustainability is frequently linked to ‘sustainable development’, which was defined in 1987 as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’.3 The United Nations (UN) released definitions of sustainability, Sustainable Development Goals and international policy pronouncements identifying matters that the UN has concluded are important in considering sustainability, including:

The terms ‘sustainability’ and ‘sustainable development’ therefore apply widely across social and ecological communities, and apply to current and future generations. The terms also encompass environmental and social notions of justice, health, welfare and preservation, and acknowledgement of planetary boundaries.

IFRS S1 focuses on sustainability-related financial information—information about an entity’s sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term. This includes information about an entity’s governance, strategy and risk management in relation to those risks and opportunities, and related metrics and targets. Therefore, understanding sustainability-related risks and opportunities, including their relationship with the established notions of sustainability and sustainable development, is pivotal to understanding the scope of IFRS S1 and IFRS Sustainability Disclosure Standards more broadly.

IFRS S1 specifies that sustainability-related risks and opportunities arise out of the interactions between an entity and its stakeholders, society, the economy and the natural environment throughout the entity’s value chain. This description is intentionally broad. Furthermore, an entity’s sustainability-related risks and opportunities—and their effects, as well as expectations of their effects, on an entity—will change over time and in relation to the interdependent system in which an entity operates. IFRS S1 elaborates that an entity both depends on resources and relationships throughout its value chain and affects those resources and relationships, which contributes to their preservation, regeneration and development, or to their degradation and depletion.

In describing the concepts underlying sustainability-related risks and opportunities, the ISSB decided to build on concepts from the Integrated Reporting Framework—a decision consistent with the ISSB’s aim to build on the existing work of framework-providers and standard-setters. The fundamental concepts in the Integrated Reporting Framework emphasise that an entity’s ability to create, preserve and erode value for itself over time—and hence to generate returns for the entity’s investors, lenders and other creditors—is inextricably linked to value that the entity creates, preserves or erodes for others.

These concepts that underlie sustainability-related risks and opportunities are broadly consistent with the concepts and guidance in the IASB’s Exposure Draft Management Commentary. For example, the Exposure Draft Management Commentary explains that an entity’s activities create value for the entity if they enhance or preserve the net present value of the entity’s future cash flows. Conversely, the entity’s activities erode value if they reduce the net present value of the entity’s future cash flows. It also explains that creating value is a precursor to generating cash flows. Conversely, some activities might increase cash inflows in the short term but can erode value in the long term.

The ISSB decided to enhance the description of the concepts that underlie sustainability-related risks and opportunities (and sustainability-related financial information) in the ‘Objective’ section (see paragraphs 1⁠–⁠3 of IFRS S1) and in the application guidance (see paragraphs B1⁠–⁠B12 of IFRS S1). The ISSB also noted that related definitions, including definitions of ‘primary users’ and ‘material information’, help further reinforce the understanding of sustainability-related risks and opportunities.

The ISSB emphasised that the focus of IFRS S1 on the information needs of users of general purpose financial reports distinguishes sustainability-related financial information from broader, multi-stakeholder reporting focused on an entity’s contribution to sustainable development. The ISSB has not broadened its scope beyond investor-focused disclosure. Disclosures made in accordance with IFRS Sustainability Disclosure Standards are conceptually and practically complementary to—but not a replacement for—reporting on an entity’s significant impacts on people, the environment and the economy. IFRS S1 focuses on information that is useful to users in making decisions relating to providing resources to an entity.

The ISSB decided to enhance the description in IFRS S1 of concepts that underlie sustainability-related risks and opportunities. This enhancement was one of many approaches intended to assist preparers in identifying sustainability-related risks and opportunities, including those risks and opportunities that could reasonably be expected to affect an entity’s prospects. The ISSB noted other approaches intended to assist entities, including:

Paragraph 3 of IFRS S1 requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. In feedback to the ISSB, preparers described challenges in identifying risks and opportunities, such as the breadth of assessments that would be necessary to cover all the sustainability-related risks and opportunities that might affect the entity. In response, the ISSB introduced the concept of an entity using ‘all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort’, including information about past events, current conditions and forecasts of future conditions when identifying sustainability-related risks and opportunities (see paragraphs BC10–BC17). The ISSB observed that introducing this concept clarifies that an entity:

Sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects include those that arise throughout the entity’s value chain. IFRS S1 requires an entity to disclose a description of the current and anticipated effects of sustainability-related risks and opportunities on the entity’s business model and value chain. An entity is also required to disclose a description of where in the entity’s business model and value chain sustainability-related risks and opportunities are concentrated. Examples of the type of information an entity might provide include:

During its redeliberation process, the ISSB confirmed that the definition of ‘value chain’ would remain the same as the definition proposed in the Exposure Draft. The ISSB made minor editorial changes to the definitions of ‘value chain’ and ‘business model’ to align those defined terms with the ‘Objective’ section of IFRS S1.

Joint ventures, associates and investments are not considered to be part of the reporting entity that is presenting consolidated financial statements, although these items are recognised in the financial statements. In the same way that financial statements recognise these investments and report aspects of the performance of associates and joint ventures, sustainability-related financial information related to those investments is relevant to users of general purpose financial reports in assessing the effects of sustainability-related risks and opportunities on the entity’s cash flows, its access to finance and cost of capital over the short, medium and long term.

IFRS S1 does not specify how to include sustainability-related financial information about joint ventures, associates and investments. However, specific IFRS Sustainability Disclosure Standards, including IFRS S2, will provide requirements and guidance related to the disclosure of information about the sustainability-related risks and opportunities arising throughout an entity’s value chain.

An entity is required to disclose information about sustainability-related risks and opportunities throughout its value chain. When doing so, the entity is required to identify the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects and determine the scope of its value chain, including its breadth and composition, in relation to each of those sustainability-related risks and opportunities. An entity is also required to disclose the current and anticipated effects of sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects throughout its business model and value chain and describe where these risks and opportunities are concentrated. In feedback to the ISSB, respondents described the challenges associated with obtaining the necessary information to determine the scope of an entity’s value chain, due to the possible extent of the value chain, as well as potential complexities in obtaining information to prepare the required disclosures.

Some respondents to the Exposure Draft stated that obtaining information about the value chain might require a reporting entity to collect information from parties that the entity does not control or in which it has no ownership interest. Some of these respondents suggested that the ISSB limit the scope of the value chain that an entity is required to consider. The ISSB decided not to put limits on the scope of the value chain that an entity is required to consider and confirmed that an entity is required to provide material information about sustainability-related risks and opportunities arising throughout its value chain. For example, the ultimate consumers of an entity’s products might be the most important contributors to the entity’s Scope 3 greenhouse gas emissions, or the employment practices of a supplier in an entity’s supply chain could have a reputational effect on the entity even if the supplier has no direct relationship with the reporting entity.

In response to concerns about the potential difficulties faced by an entity in obtaining information when assessing the scope of its value chain, the ISSB decided that an entity determining the scope of its value chain is required to use ‘all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort’, in relation to each sustainability-related risk and opportunity identified that could reasonably be expected to affect the entity’s prospects. The ISSB noted that the concept of ‘all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort’ assists entities by establishing parameters for the type of information they consider when preparing disclosures regarding the value chain, and the effort required to obtain such information. Specifically, the ISSB noted that this concept clarifies that an entity:

This also provides relief to entities that face challenges associated with obtaining information from entities throughout their value chain.

Paragraph 11 of IFRS S1 requires that ‘a complete set of sustainability-related financial disclosures shall present fairly all sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects’. Fair presentation requires disclosure of relevant information about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects and their faithful representation in accordance with the principles set out in IFRS S1. Fair presentation also requires an entity ‘to disclose information that is comparable, verifiable, timely and understandable’ and ‘to disclose additional information if compliance with the specifically applicable requirements in IFRS Sustainability Disclosure Standards is insufficient to enable users of general purpose financial reports to understand the effects of sustainability-related risks and opportunities on the entity’s cash flows, its access to finance and cost of capital over the short, medium and long term’ (see paragraph 15(a)⁠–⁠(b) of IFRS S1). Fair presentation is a well-understood concept in IFRS Accounting Standards—its characteristics are set out in IAS 1—and in other GAAP. The concepts and language in IFRS S1 were derived from IAS 1 and adapted in the context of sustainability-related financial disclosures.

The ISSB does not have a separate conceptual framework that applies directly to sustainability-related financial information. IFRS S1 includes guidance on the qualitative characteristics of useful sustainability-related financial information, set out in Appendix D. This guidance is an integral part of IFRS S1 and thus is required to be applied by an entity using IFRS S1. The characteristics described in Appendix D are adapted from the IASB’s Conceptual Framework and are intended to ensure that information in general purpose financial reports—including both sustainability-related financial disclosures and financial statements—is useful to users of those reports. The guidance is also intended to provide information to assist an entity in the preparation of sustainability-related financial disclosures.

As with the Conceptual Framework, the fundamental qualitative characteristics of useful sustainability-related financial information are relevance and faithful representation. The enhancing characteristics are comparability, verifiability, timeliness and understandability. IFRS S1 explains how these concepts apply to sustainability-related financial information. For example, IFRS S1 explains that information in the form of explanations or forward-looking statements is still verifiable.

Faithful representation is a component of the concept of ‘fair presentation’ in IAS 1. According to the Conceptual Framework, to be a perfectly faithful representation, a depiction would have three characteristics: it would be complete, neutral and free from error. In developing the Exposure Draft, the ISSB noted that individuals that prepare sustainability-related financial disclosures may not be the same individuals involved in preparing financial statements, and may not be familiar with IFRS Accounting Standards or the Conceptual Framework. Therefore, paragraph 3 of the Exposure Draft used the common label of ‘accurate’, instead of ‘free from error’, to describe a ‘complete depiction’ of an entity’s sustainability-related financial information. The ISSB has aligned the terms used in paragraph D10 of IFRS S1 with those used in paragraph 13 of IFRS S1.

The Exposure Draft proposed that materiality be assessed in relation to the effects of sustainability-related risks and opportunities on an entity’s enterprise value. In response to the feedback, the ISSB confirmed that the materiality definition in IFRS Sustainability Disclosure Standards is aligned with the IASB’s definitions of ‘material information’ and ‘material’ in its Conceptual Framework and IAS 1 respectively, which do not refer to enterprise value. To improve alignment, the ISSB removed ‘enterprise value’ from its description of materiality and removed the definition of ‘enterprise value’ from IFRS S1.

The ISSB has clarified that IFRS S1 requires an entity to disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. The ISSB based its definition of material information on the definitions of ‘material information’ and ‘material’ in the Conceptual Framework and IAS 1, respectively. All the definitions highlight that materiality judgements are made in relation to a specific reporting entity and focus on information that could reasonably be expected to influence decisions of users of general purpose financial reports. The definition in IFRS S1 is specific to sustainability-related financial disclosures and states that materiality judgements are made in the context of an entity’s sustainability-related financial disclosures. This approach is consistent with how the definitions of ‘material information’ in IAS 1 and in the IASB’s Exposure Draft Management Commentary are specific to financial statements and management commentary, respectively. The definition in IFRS S1 also acknowledges that users do not make their decisions on the basis of just one form of general purpose financial reports published by the entity. Using conceptually aligned definitions facilitates connectivity across an entity’s general purpose financial report prepared applying IFRS Standards.

Materiality judgements for sustainability-related financial disclosures will inevitably differ from those for financial statements. Different materiality judgements are necessary because sustainability-related financial disclosures and financial statements serve their specific objectives and provide different types of information about a reporting entity. Sustainability-related financial disclosures provide information about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects, while financial statements provide information about the entity’s assets, liabilities, equity, income and expenses. The ISSB noted that information about sustainability-related risks and opportunities is unconstrained by definitions of assets and liabilities and the criteria for recognising them. Furthermore, the ISSB expects that in preparing sustainability-related financial disclosures, entities will often have to consider financial implications over longer time periods than the time periods considered in preparing financial statements. In addition, in preparing sustainability-related financial disclosures, entities will need to consider the financial implications of interactions throughout their value chain. Finally, the ISSB observed that sustainability-related financial information may have different measurement bases compared to information included in financial statements.

Risk severity is commonly expressed in terms of probability and impact. Opportunities can also be expressed in the same terms. IFRS S1 states that when making materiality judgements, an entity is required to consider risks and opportunities that are unlikely to occur but have a potentially high impact. An entity is required to consider:

The definition of material information in IFRS S1 is aligned with the Conceptual Framework and IAS 1. However, IFRS Sustainability Disclosure Standards are designed to be applied with any GAAP, and the definition of materiality is not the same in every GAAP. For example, the Financial Accounting Standards Board (FASB), in its Statement of Financial Accounting Concepts No. 8, defines materiality as follows:

The omission or misstatement of an item in a financial report is material if, in light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.4

Furthermore, there is some variation in how the concept of materiality is interpreted, applied and enforced in various jurisdictions. Therefore, including a definition in IFRS S1 ensures entities that apply the requirements in IFRS Sustainability Disclosure Standards are applying and interpreting the same words. All entities applying these Standards are required to use the same definition of material information.

In making decisions relating to materiality, the ISSB has reiterated that material information must not be obscured by other information, including information that is provided to satisfy law, regulation or other requirements outside those of IFRS Sustainability Disclosure Standards. Because the ISSB is using a definition of material information that is consistent with IAS 1, it decided to include guidance in IFRS S1 with regards the obscuring of material information based on guidance in IAS 1.

The ISSB emphasised that to avoid obscuring material information, an entity is required to make material information required by IFRS Sustainability Disclosure Standards prominent and distinguishable from immaterial information provided to satisfy law, regulation or other requirements. Ways in which this distinction might be achieved include:

An entity is required to disclose sustainability-related financial information for the same reporting entity as the related financial statements. For example, if a parent prepares consolidated financial statements, the reporting entity is the parent and its subsidiaries. The reporting entity’s sustainability-related financial disclosures focus on the sustainability-related risks and opportunities that enable users of general purpose financial reports to assess the effects of those risks and opportunities on the entity’s cash flows, its access to finance and cost of capital over the short, medium and long term—that is, in information presented with consolidated financial statements, the effects on the parent and its subsidiaries. Requiring the same reporting entity for both financial statements and sustainability-related financial disclosures is designed to enable information disclosed in the financial statements to be connected with sustainability-related financial information.

IFRS S1 requires an entity to provide information in a manner that enables users of general purpose financial reports to understand the following types of connections:

The requirements in IFRS S1 on connected information are intended to provide users of general purpose financial reports with a better understanding of the connections between various disclosures in an entity’s general purpose financial reports, as well insight into the connections between the items to which the information relates (such as connections between various sustainability-related risks and opportunities, or connections between those risks and opportunities and the entity’s performance). Entities are also required to explain the relationships and trade-offs that arise between various sustainability-related risks and opportunities. For example, an entity could explain how environmental risks affect its reputation or ability to operate, and how developing new products to respond to those risks affects the workforce composition or financial performance reported in the entity’s financial statements.

Examples of the types of connections IFRS S1 is designed to elicit include:

The ISSB acknowledges that some sustainability-related risks and opportunities are linked. For example, an entity might face decreasing demand for its products because of changing consumer preferences for lower-carbon alternatives, affecting its workforce and communities. IFRS S1 requires disclosures that show the connections between sustainability-related risks and opportunities, on the one hand, and financial position, financial performance and cash flows in the related financial statements, on the other. For example, such a connection could be demonstrated by a disclosure about the anticipated financial effects of new or potential products that minimise environmental impacts. IFRS S1 states that if an entity provides quantitative information about anticipated financial effects, the entity is permitted to disclose a single estimate or a range of possible outcomes. This acknowledges that ranges of possible outcomes could be more useful in some cases than single estimates. The requirements in paragraph 38 of IFRS S1 are drafted in a way that acknowledges that the nature of the connections between various sustainability-related risks and opportunities might make it difficult for an entity to isolate the implications of individual risks and opportunities.

Respondents to the Exposure Draft asked for clarification on how users of general purpose financial reports draw connections between items of information if the entity uses different data and assumptions to prepare its sustainability-related financial disclosures and its related financial statements. The ISSB clarified in paragraph 23 of IFRS S1 that an entity is required to align data and assumptions to the extent possible by taking into consideration the requirements in IFRS Accounting Standards (or other GAAP) instead of mandating full alignment. This requirement is intended to promote connectivity between sustainability-related financial information and information included in an entity’s financial statements. The ISSB noted that there could be legitimate reasons for data and assumptions to vary between an entity’s sustainability-related financial disclosures and its financial statements. Paragraph B42 of IFRS S1 requires an entity to disclose information about significant differences between the data and assumptions used preparing the entity’s sustainability-related financial disclosures and the data and assumptions used in preparing the related financial statements.

Users of general purpose financial reports have expressed interest in understanding the role of an entity’s governance bodies and their members in overseeing sustainability-related risks and opportunities. Users are also interested in understanding management’s role in assessing and managing sustainability-related risks and opportunities. Such information could help users evaluate whether sustainability-related risks and opportunities receive attention from individual(s) or body(s) such as the board and management.

Paragraph 26 of IFRS S1 requires an entity to disclose information that enables users of general purpose financial reports to understand the governance processes, controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities. To achieve this objective, IFRS S1 requires an entity to disclose information about the governance body(s) or individual(s) with oversight of sustainability-related risks and opportunities, and to disclose information about management’s role in the governance processes, controls and procedures used to monitor, manage and oversee sustainability-related risks and opportunities. ‘Governance body(s)’ includes boards, committees or equivalent bodies charged with governance who have oversight of sustainability-related risks and opportunities. The responsibility for the oversight of sustainability-related risks and opportunities in some entities might be held by an individual(s) rather than a governance body(s). For example, an individual(s) might be charged with the overall oversight of sustainability-related risks and opportunities due to their specific expertise and experience.

These governance disclosure requirements are based mostly on the TCFD recommendations, but with some additional requirements. For example, IFRS S1 requires an entity to disclose how the responsibilities of a governance body(s) or an individual(s) for sustainability-related risks and opportunities are reflected in terms of reference, mandates, role descriptions and other related policies. The disclosure requirements in IFRS S1 that supplement the TCFD recommendations are included to meet the information needs of users of general purpose financial reports.

Some stakeholders said that information about the governance body(s) or individual(s) responsible for the oversight of sustainability-related risks and opportunities could be enhanced by an entity also providing information about the specific expertise these bodies or their members possess on sustainability-related matters. Accordingly, IFRS S1 requires the disclosure of information about how the body(s) or individual(s) determines that the appropriate skills and competencies are available, or will be developed, to oversee strategies designed to respond to sustainability-related risks and opportunities. This level of specificity in skills and competencies might be challenging for some entities to reach—especially smaller corporate boards. For many governance bodies, the expertise needed is likely to focus on a specific sustainability-related risk or opportunity—for example, physical risks associated with climate change for an entity with operations in flood-prone regions. In such cases, industry experience is often the most relevant source of expertise. IFRS S1 does not prescribe the approach an entity is required to take, but requires an entity to explain the approach it has taken and why. Accordingly, a smaller entity with a less complex governance structure than a larger entity would explain that structure in applying IFRS S1.

IFRS S1 differentiates between the governance body(s) and the individual(s) responsible for oversight of sustainability-related risks and opportunities, and management-level positions or committees that are similarly responsible. This distinction enables users of general purpose financial reports to understand how responsibilities are delegated in relation to sustainability-related matters, which might be similar in nature to how roles and responsibilities are delegated as part of their existing management and governance processes. For example, an entity’s board of directors (governance body) might provide oversight on broader sustainability-related matters, whereas the executive body (management) might make operational decisions about how specific sustainability-related risks and opportunities are assessed and managed.

The Exposure Draft proposed that an entity provide information about its strategy for addressing sustainability-related risks and opportunities. The ISSB decided to replace ‘addressing’ with ‘managing’ in the strategy disclosure objective to be consistent with the requirements for disclosures on identifying, assessing, managing and monitoring sustainability-related risks and opportunities.

IFRS S1 requires an entity to disclose information about the processes it uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities.

The risk management disclosure requirements are based on the TCFD recommendations that were used to develop the four aspects of core content, but with some changes. The TCFD recommendations focus only on processes related to risks, whereas IFRS S1 extends disclosure to include opportunities. This extension reflects the view that risks and opportunities could result from or relate to the same source of uncertainty. It also reflects the evolution of common practice in risk management, whereby processes for identification, assessment, prioritisation and response are increasingly being extended to cover opportunities as well.

A few respondents to the Exposure Draft misunderstood the proposed risk management disclosure requirements as requiring an entity to disclose information about the sustainability-related risks and opportunities to which it is exposed. The risk management disclosure requirements focus on providing information about the processes used to identify, assess, prioritise and monitor sustainability-related risks and opportunities—in contrast to the strategy disclosure objective of the core content requirements, which is to enable users of general purpose financial reports to understand an entity’s strategy for managing sustainability-related risks and opportunities.

The requirements set out in IFRS S1 seek to capture the interrelated nature of the core content areas (governance, strategy, risk management, and metrics and targets) without duplicating disclosure requirements. Therefore, IFRS S1 requires disclosures on both:

To improve the clarity of the requirements in the risk management core content, the ISSB clarified the disclosure requirements about the processes an entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities, and the disclosure requirements about how these processes are integrated into the entity’s overall processes for managing risks and opportunities. An entity might, for example, disclose that climate-related risks and opportunities are integrated into its overall process for managing risks and opportunities, such as general strategic or operational risks and opportunities, but that the identification, assessment, prioritisation and monitoring of other sustainability-related risks and opportunities are not part of its overall risk management process and occur separately.

Disclosure requirements for sustainability-related risks are more detailed than those for opportunities, reflecting the relative maturity of risk management processes and the necessity for users of general purpose financial reports to have information about an entity’s processes for identifying, assessing, prioritising and monitoring risks.

Some respondents to the Exposure Draft expressed concerns that the wording of the objective of the ‘Metrics and targets’ section did not fully reflect the intention of disclosures about metrics and targets. The feedback suggested that some respondents interpreted the objective of these disclosures as being limited to disclosures of the metrics and targets an entity already uses. The ISSB concluded that this interpretation could lead to an entity excluding metrics required by IFRS Sustainability Disclosure Standards that were not used by the entity, even though information provided by disclosing those metrics is material.

The ISSB decided to clarify that the objective is to require an entity:

The ISSB noted that these disclosures are subject to materiality. The ISSB stated that its intention in clarifying the objective was not to prescribe how entities manage their businesses, but instead to clarify the disclosure requirements for metrics and targets, which set out the information that is important for users of general purpose financial reports. Similarly, the ISSB did not stipulate that an entity is required to set specific targets, but IFRS S1 requires an entity to disclose information about targets if they have been set by the entity or if the entity is required by law or regulation to set specific targets.

The ISSB also noted that paragraphs 49⁠–⁠50 of IFRS S1 require an entity to disclose information about metrics taken from a source other than IFRS Sustainability Disclosure Standards or developed by the entity. In doing so, the ISSB observed that paragraph 59 of IFRS S1 requires an entity to disclose information about the specific standards, pronouncements, industry practice and other sources of guidance that the entity has applied in preparing its sustainability-related financial disclosures, including the industries specified in the IFRS Sustainability Disclosure Standards, the SASB Standards or other sources of guidance. The ISSB noted that other IFRS Sustainability Disclosure Standards will provide further disclosure requirements in relation to metrics and targets.

IFRS S1 includes requirements for entities on how to use sources of guidance to identify the sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects. These requirements are necessary to facilitate reporting on a range of sustainability-related risks and opportunities. The sources of guidance are particularly important at the time of publication of IFRS S1 because the only specific requirements the ISSB has issued for disclosing information about sustainability-related risks and opportunities are in relation to climate-related risks and opportunities in IFRS S2. Furthermore, the sources of guidance are important because IFRS S1 requires an entity to disclose industry-based metrics in relation to its sustainability-related risks and opportunities—that is, metrics that are associated with particular business models, activities or other common features that characterise participation in an industry (see paragraph 48 of IFRS S1). Although the sources of guidance are intended to assist entities in applying IFRS S1 by reducing the costs of application, the guidance might be particularly useful for entities that have not previously reported sustainability-related financial disclosures focused on meeting the needs of users of general purpose financial reports.

The Exposure Draft proposed that an entity be required to refer to (‘shall consider’) sources of guidance in addition to applying IFRS Sustainability Disclosure Standards to determine which sustainability-related risks and opportunities to provide information about. The Exposure Draft also proposed that an entity be required to refer to such guidance to identify appropriate disclosure requirements and provide information to meet the needs of users of general purpose financial reports in the absence of a specifically applicable IFRS Sustainability Disclosure Standard. This approach was based on similar requirements in IAS 8. To help entities identify sustainability-related risks and opportunities to report on and identify the information to be provided about those risks and opportunities, it was proposed that an entity be required to refer to the SASB Standards, the CDSB Framework Application Guidance for Water-related Disclosures and the CDSB Framework Application Guidance for Biodiversity-related Disclosures (collectively referred to as ‘CDSB Framework Application Guidance’). These standards and guidance were released by other sustainability standard-setters focused on meeting users’ information needs and on the sustainability-related risks and opportunities identified by entities that operate in the same industries or geographical regions. The wording ‘shall consider’ was used in the Exposure Draft, requiring an entity to refer to these sources of guidance.

In feedback on the Exposure Draft, many respondents agreed with the proposed sources of guidance. Respondents stated that they agreed with the ISSB’s approach of building on established standards and frameworks for sustainability reporting, including the SASB Standards and the CDSB Framework. However, some respondents noted that the wording ‘shall consider’ would require consideration of all the sources of guidance listed in the Exposure Draft, which led them to comment on the potentially large burden these requirements would place on entities and assurance providers. Some respondents suggested that, instead of the ‘shall consider’ requirement, the proposals could be modified to ‘may consider’ for some or all of the sources of guidance listed. Some respondents asked what the instruction ‘shall consider’ meant in practice and whether an entity could determine it was not required to apply these sources of guidance.

The proposed reference to other sources of guidance was intended to provide a clear range of sources of guidance for an entity to consider, thereby reducing diversity in reporting in practice and improving comparability between information provided by peer entities and information that might otherwise result in the absence of further IFRS Sustainability Disclosure Standards. The sources of guidance referenced were selected with the objective of identifying sources that were likely to result in the provision of information that would enable entities to meet the objective of IFRS S1. As the ISSB develops additional IFRS Sustainability Disclosure Standards, entities will have less need to rely on the sources of guidance referenced in IFRS S1 than they will initially because forthcoming Standards will identify sustainability-related risks and opportunities to report on and will set out requirements for disclosures designed to meet the needs of users of general purpose financial reports. However, even though more IFRS Sustainability Disclosure Standards will be developed, the sources of guidance will still be useful to entities in identifying sustainability-related risks and opportunities and information to provide about those risks and opportunities.

In response to the feedback, the ISSB examined whether requiring an entity to consider a long list of sources of guidance is warranted for incremental benefit. The ISSB noted that limiting the sources of guidance in IFRS S1 that an entity is required to refer to and consider—both in addition to IFRS Sustainability Disclosure Standards in identifying sustainability-related risks and opportunities and in the absence of a specifically applicable IFRS Sustainability Disclosure Standard in identifying information to provide about those risks and opportunities—would make the requirement less burdensome to apply. The ISSB noted that this change would also help reduce the burden on assurance providers.

Due to feedback that industry-specific disclosures are important to users of general purpose financial reports, the ISSB decided to confirm that an entity is required to refer to and consider the applicability of the SASB Standards in identifying sustainability-related risks and opportunities and information to report about those risks and opportunities. The rationale for the decision was that the SASB Standards were developed with a similar objective to IFRS S1 and that the overall design of the SASB Standards—that is, disclosure topics and associated metrics—generally matches the structure of the requirements in IFRS S1—that is, requirements for identifying sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects and for providing information, including metrics, about those risks and opportunities. The ISSB noted that using the SASB Standards is expected to reduce application costs for entities and to yield useful and comparable disclosures for users. The feedback, particularly from users, generally favoured the use of the SASB Standards. In addition, the disclosure topics in the SASB Standards are useful in helping entities understand the range of sustainability-related risks and opportunities that are within the scope of IFRS S1, which is particularly important in assisting preparers in identifying sustainability-related risks and opportunities.

In discussing the feedback on the Exposure Draft, the ISSB noted that the proposal that an entity ‘shall consider’ particular sources of guidance was intended to create a requirement to review and consider the use of those sources of guidance in a systematic manner, but was not intended to require the application of those sources of guidance. The Basis for Conclusions of the Exposure Draft stated that:

Consistent with the proposals in the Exposure Draft, applying the SASB Standards and CDSB pronouncements would be considered good practice for an entity applying IFRS Sustainability Disclosure Standards, but applying those pronouncements would not be a formal requirement for an entity. For example, an entity could still assert compliance with IFRS Sustainability Disclosure Standards in accordance with paragraph 91 if it did not apply the requirements in these documents.

The ISSB decided that it would be helpful to clarify what it means to ‘consider’ the sources of guidance. It noted that the consideration of the sources of guidance is generally expected to occur through a process that an entity has in place. Although an entity is required to consider the SASB Standards, it is not required to apply the SASB Standards. Instead, an entity is required to provide information that is relevant to the decision-making needs of users of general purpose financial reports and that faithfully represents the entity’s sustainability-related risks and opportunities. If the entity determines that the sources of guidance considered do not result in disclosures that meet those requirements specified in paragraph 57 of IFRS S1, the entity is not required to apply these sources of guidance. The ISSB agreed it was important to distinguish between sources an entity is required to consider (‘shall consider’) and sources that it is permitted but not required to consider (‘may consider’). The ISSB noted that requiring an entity to consider the SASB Standards is beneficial for users by helping to limit diversity in practice and improve comparability, especially among peer companies. However, the ISSB also noted that requiring an entity to ‘consider’ rather than ‘apply’ the sources of guidance reduces that benefit.

In the SASB Standards, disclosure topics and metrics are organised by industry, enabling an entity to identify sustainability-related risks and opportunities that are applicable to its business model and associated activities. The disclosure topics in the SASB Standards represent those sustainability-related risks and opportunities that are likely to be applicable for entities in that industry. The associated metrics are likely to be applicable in assessing the effects of sustainability-related risks and opportunities on the entity’s cash flows, its access to finance and cost of capital over the short, medium and long term. The judgements about what sustainability-related risks and opportunities could reasonably be expected to affect an entity’s prospects and what information, including metrics, is material is entity-specific. However, the ISSB expects that the disclosure topics in the SASB Standards and associated metrics are typically applicable for an entity with the given business model and associated activities.

The ISSB noted a complementary relationship between IFRS S1, which establishes general requirements that apply to all entities, and the guidance provided by the SASB Standards, which is industry-based. Therefore, an entity can expect the guidance provided by the SASB Standards to be tailored to the activities of entities within a particular industry. SASB Standards include disclosure topics focused on sustainability-related risks and opportunities that arise in an industry throughout the value chain. Furthermore, the metrics that accompany disclosure topics in the SASB Standards are commonly tailored to the activities of entities within a particular industry. As a result, the SASB Standards provide guidance that can complement or inform an entity’s application of IFRS Sustainability Disclosure Standards, including the requirements related to value chain. However, in applying the SASB Standards to support the application of IFRS Sustainability Disclosure Standards, an entity is required to comply with all the requirements in IFRS Sustainability Disclosure Standards to assert compliance with these Standards.

In discussing the feedback, the ISSB decided that it is more appropriate to permit the CDSB Framework Application Guidance to be considered rather than to require it to be considered. The ISSB decided similarly to permit an entity to refer to the most recent pronouncements of other standard-setting bodies whose requirements are designed to meet the needs of users of general purpose financial reports, and to also refer to the sustainability-related risks and opportunities identified by entities that operate in the same industries or geographical regions instead of requiring those sources to be considered. The ISSB noted that not requiring entities to consider these sources avoids requiring entities to consider an extensive list of open-ended sources of guidance, which would increase the reporting burden for entities and increase complexities for assurance providers. The ISSB also noted that permitting entities to refer to these sources would facilitate transition to IFRS Sustainability Disclosure Standards by enabling entities to use sources that they might already be familiar with.

The ISSB noted that in referring in the Exposure Draft to the most recent pronouncements of other standard-setting bodies whose requirements are designed to meet the needs of users of general purpose financial reports, an entity would not be permitted to refer to the materials of standard-setters with a broader remit than the ISSB, even if particular disclosures required by those standard-setters would have met the needs of those users. This restriction was included in the Exposure Draft to reduce the risk of disclosures being provided that would not meet users’ information needs. In discussing its proposals on sources of guidance, the ISSB decided an entity is permitted to consider the GRI Standards and ESRS to identify information to provide, including metrics, about sustainability-related risks and opportunities. However, an entity is permitted to consider these sources only to the extent that the information identified assists the entity in meeting the objective of IFRS S1 and that these sources do not conflict with IFRS Sustainability Disclosure Standards. The ISSB agreed that the references to the GRI Standards and ESRS as sources of guidance would be located in an appendix in IFRS S1.

The ISSB noted that the Exposure Draft only permitted an entity to refer to the most recent pronouncements of other standard-setting bodies whose requirements are designed to meet the needs of ‘primary users’ of general purpose financial reports. Therefore, the addition of references to the GRI Standards and ESRS would be necessary to permit an entity to refer to these sources of guidance. Under the revised approach, an entity is permitted to refer to the GRI Standards and ESRS to identify information to provide once the entity has identified sustainability-related risks and opportunities. Allowing these standards to be referred to in identifying information to provide but not to identify sustainability-related risks or opportunities, is intended to ensure that any information disclosed by entities relates to a topic that has been identified as of interest to users of general purpose financial reports. Thus, an entity identifies sustainability-related risks and opportunities by using IFRS Sustainability Disclosure Standards, SASB Standards, or the other sources of guidance listed in paragraph 55(b) of IFRS S1, but not by using the GRI Standards or ESRS.

The ISSB noted that referencing the GRI Standards and ESRS in the sources of guidance could help improve interoperability with other sustainability-reporting requirements and reduce the burden for entities, especially entities that are already using the GRI Standards to provide metrics or other information or those who are mandated to comply with ESRS. The ISSB also noted that it has an MoU with GRI and is working closely with the European Commission and EFRAG to facilitate interoperability between ESRS and IFRS Sustainability Disclosure Standards. Both these arrangements were an important consideration in determining the appropriateness of referring to these sources of guidance. However, unlike the SASB Standards and the CDSB Framework Application Guidance, the GRI Standards and ESRS are intended to meet the information needs of a broader audience than users of general purpose financial reports. The ISSB noted that a subset of disclosures provided in accordance with these standards could produce information that is useful to users.

The ISSB emphasised that, if using the GRI Standards or ESRS, an entity is prohibited from obscuring material information required by IFRS Sustainability Disclosure Standards with immaterial information. An entity is prohibited from making an explicit and unreserved statement of compliance with IFRS Sustainability Disclosure Standards if, in preparing its sustainability-related financial disclosures, the entity applied those sources of guidance without considering the requirements in IFRS Sustainability Disclosure Standards. The ISSB noted that because an entity is required to ensure information identified through using the GRI Standards or ESRS meets the objective of IFRS S1, an entity would not be permitted to simply repurpose a report prepared in accordance with the GRI Standards or ESRS to meet the requirements in IFRS Sustainability Disclosure Standards.

The Exposure Draft proposed that an entity be required to disclose the industry or industries specified for the disclosures that it has provided. This requirement was intended to provide greater transparency for users of general purpose financial reports on how disclosures have been prepared. The requirement was also intended to assist users in understanding the materiality judgements made by an entity in applying the industry-based disclosure requirements (for example, if an entity used the SASB Standards to prepare disclosures in the absence of specifically applicable requirements in IFRS Sustainability Disclosure Standards). In particular, once the industry has been disclosed as required, users are able to see if an entity omitted a metric that is applicable for an entity in that industry.

During its redeliberation, the ISSB decided to confirm the requirement in the Exposure Draft for an entity to disclose the industry or industries specified in the applicable IFRS Sustainability Disclosure Standards or the SASB Standards that the entity has applied in preparing its sustainability-related financial disclosures, including in identifying applicable metrics. The ISSB also decided to broaden the requirement in the Exposure Draft to capture the disclosure of the sources of guidance that the entity has applied in preparing its sustainability-related financial disclosures including, if applicable, identifying the disclosure topics in the SASB Standards. IFRS S1 also requires an entity to disclose information about the judgements the entity has made in the process of preparing its sustainability-related financial disclosures and that have the most significant effect on the information included in those disclosures (see paragraph 74 of IFRS S1). An example of such a judgement is an entity determining which sources of guidance to apply in preparing its sustainability-related financial disclosures. In applying the requirement, it might be necessary for an entity to disclose that it applied particular sources of guidance that it considered and also to disclose that it considered other sources of guidance but did not apply those other sources of guidance.

Sustainability-related financial disclosures are required to be published as part of a reporting entity’s general purpose financial reports. A consequence of this requirement is that the entity is required to report its sustainability-related financial disclosures at the same time as it issues its related financial statements (subject to transition relief, as described in paragraph E4 of IFRS S1). General purpose financial reports provide financial information about a reporting entity that is useful to users in making decisions relating to providing resources to the entity. The ISSB decided to require an entity to publish its sustainability-related financial disclosures as part of the entity’s general purpose financial reports to ensure users of general purpose financial reports are provided with a comprehensive and connected package of reports. This requirement is a change for entities that previously disclosed sustainability-related financial information in a report intended for other stakeholders and for entities that published a report later than their financial statements.

Though corporate reporting varies between jurisdictions, the term ‘general purpose financial reports’ includes—but is not restricted to—an entity’s financial statements and sustainability-related financial disclosures. IFRS S1 does not prescribe the exact location of sustainability-related financial disclosures in general purpose financial reports. The ISSB acknowledges that jurisdictions might specify the exact location in which an entity is required to provide its sustainability-related financial disclosures. Management commentary—or a similar report if it forms part of an entity’s general purpose financial reports—is a possible location for sustainability-related financial disclosures. IFRS S1 states that management commentary might be known by, or included in reports with, various names, such as ‘management report’, ‘management’s discussion and analysis’, ‘operating and financial review’, ‘integrated report’ or ‘strategic report’.

IFRS S1 permits an entity to cross-reference between reports to provide sustainability-related financial disclosures, subject to the requirements being met in paragraphs B45⁠–⁠B47 in IFRS S1. For example, if information is included by cross-reference, that information must be available on the same terms and at the same time as all other sustainability-related financial disclosures, and the location of that information must be precisely specified. Most respondents supported the proposal in the Exposure Draft, which permitted cross-referencing. Many preparers commented on the cost-effectiveness, while many users of general purpose financial reports commented on the importance of the conditions in which cross-referencing is permitted, which were further clarified in IFRS S1. The ISSB observed that information provided by cross-reference is required to be available whenever an entity’s sustainability-related financial disclosures are available. If the information is not part of the same report as the entity’s sustainability-related financial disclosures, an entity would explain how users can access the information.

The Exposure Draft proposed that an entity be required to report its sustainability-related financial disclosures at the same time as its related financial statements. Most respondents to the Exposure Draft agreed with the proposed requirement for sustainability-related financial disclosures to be published at the same time and for the same reporting period as the financial statements; however, many respondents commented that entities would find it challenging to meet the requirement, at least in the near term. Despite the challenges involved, most respondents agreed that it makes sense to report sustainability-related financial disclosures at the same time as the financial statements. These respondents agreed because simultaneous publication would provide users of general purpose financial reports with a coherent, holistic and connected picture of an entity’s financial position and performance, and provide users with a comprehensive set of sustainability-related financial disclosures, which would enable them to make more informed capital allocation decisions. In discussing this feedback, the ISSB noted that many entities are new to reporting sustainability-related financial information. As such, the ISSB agreed with respondents’ view that entities would face challenges in meeting the proposed requirement, including:

During its redeliberation process, the ISSB confirmed that an entity is required to report its sustainability-related financial disclosures at the same time and for the same reporting period as the related financial statements. However, the ISSB also decided to introduce transition relief in response to preparers’ concerns (see paragraph E4 of IFRS S1).

IFRS S1 requires an entity to disclose comparative information in respect of the preceding period for all amounts disclosed in the reporting period. The wording used was adapted from and follows requirements in paragraph 38 of IAS 1. The Exposure Draft proposed that an entity disclose comparative information for all metrics. However, the ISSB noted that it would be more useful to users of general purpose financial reports for IFRS S1 to require the disclosure for ‘all amounts’ rather than limiting the disclosure to metrics. The ISSB clarified that amounts reported in sustainability-related financial disclosures might relate, for example, to the current and anticipated financial effects of sustainability-related risks and opportunities or to metrics and targets.

If the information would be useful for an understanding of the reporting period’s disclosures, an entity is also required to disclose comparative information for narrative and descriptive sustainability-related financial disclosures. As a transition relief, comparative information is not required to be disclosed in the first annual reporting period in which an entity applies IFRS S1 (see paragraph E3 of IFRS S1).

Most respondents agreed with the principle of providing comparative information. However, they gave mixed feedback on the proposals that an entity be required to disclose comparative information that reflects updated estimates. Most users of general purpose financial reports who provided comments agreed with the proposal to require entities to disclose comparative information that reflects updated estimates. However, many other respondents, including preparers, audit firms and accounting standard-setters, raised concerns about the proposed requirement. Some of their concerns were that:

The requirement to revise comparative information differs from the approach to changes in estimates in financial statements established in IFRS Accounting Standards. Changes in estimates are recognised in the current and future periods affected by the change according to the requirements in IFRS Accounting Standards—that is, in the period of the change. Under this approach, the comparative information is not changed and the change in estimate is reflected in the reporting period profit or loss. This practice is followed, for example, for changes in estimates of the useful life of an asset, fair value, and expected credit losses. Changes in such estimates are also reflected in reported equity because they are part of a double-entry model. In sustainability-related financial disclosures, however, estimates and metrics cannot affect equity—for example, a change in a Scope 3 greenhouse gas emissions estimate affects only the estimate itself—which is a reason behind the ISSB’s decision that IFRS S1 should require an entity to revise comparatives for sustainability-related metrics. Another reason for requiring that an entity revise comparatives to reflect updated estimates is so the entity provides users of general purpose financial reports with the best information possible about trends.

The nature of some sustainability-related metrics necessitates a significant element of estimation, including estimation related to the entity’s value chain. The ISSB decided that an entity would provide more useful information if the entity revised comparatives to reflect changes in estimates that relate to the preceding period rather than changing reporting period information.

An entity is required to revise the estimated amount disclosed for a metric, but is not required to revise narrative or descriptive disclosures. This requirement applies only if information about a change is material and if updating the estimate is not impracticable. To clarify the meaning of ‘impracticable’, the ISSB decided to base the definition of ‘impracticable’ in IFRS S1 on the definition in IAS 1, confirming that the term is used in a manner consistent with IFRS Accounting Standards. Accordingly, IFRS S1 sets a high threshold for how an entity determines whether it is ‘impracticable’ to meet the requirements. Applying the requirement is ‘impracticable’ if the entity cannot do so after making every reasonable effort to do so. For the avoidance of doubt, this threshold is higher than a cost-benefit threshold.5

In response to the feedback, the ISSB decided to clarify the requirements for revising comparative information. It decided that if an entity identifies new information in relation to the estimated amount disclosed for a metric in the preceding period and that information provides evidence of circumstances that existed in the preceding period, the entity is required to disclose a revised comparative amount for the metric taking into account the new information. In doing so, the entity is also required to disclose the difference between the amount disclosed for the metric in the preceding period and the revised comparative amount, and to explain why the comparative amount has been revised.

The ISSB decided to exclude forward-looking metrics from the requirement to revise comparative information to reflect updated estimates. However, an entity is permitted to revise a comparative amount disclosed for a forward-looking metric if doing so does not involve hindsight.

The ISSB confirmed what an entity is required to do if the entity redefines or replaces a metric in the reporting period. In those circumstances, the entity is required to disclose a revised comparative amount for the metric, unless it is impracticable to do so. The entity is required to explain the changes in the metric and the reasons for the changes, including why the redefined or replaced metric provides more useful information than the previous metric.

An entity is permitted to include an explicit and unqualified statement of compliance only if its sustainability-related financial disclosures comply with all the requirements of IFRS Sustainability Disclosure Standards. Qualified statements of compliance with IFRS Sustainability Disclosure Standards are prohibited. This requirement reflects the importance of communicating to users of general purpose financial reports whether the entity has been selective in its approach to reporting sustainability-related financial information or whether the entity has applied all the requirements.

IFRS S1 does not require an entity to implement strategic goals, such as following a particular transition plan to a lower-carbon economy, but does require the entity, for example, to disclose information about the targets it has set or is required to set by law or regulation. Therefore, an entity that does not manage some of its sustainability-related risks and opportunities, or that has not established its own metrics and targets for them, could still assert compliance with IFRS Sustainability Disclosure Standards if its disclosures explain that fact. Similarly, an entity might not have governance processes, controls or procedures in place to monitor and manage specific sustainability-related risks or opportunities. The fact that an entity does not have such processes, controls and procedures in place is itself likely to be material information for users of general purpose financial reports.

In preparing sustainability-related financial disclosures, an entity will need to apply judgement and use assumptions and estimates specific to its circumstances. The ISSB considered feedback asking for a requirement to be introduced for an entity to disclose the judgements, assumptions and estimates that it has made in preparing and presenting its sustainability-related financial disclosures. Respondents indicated that such a requirement would help users of general purpose financial reports understand how sustainability-related financial disclosures have been prepared, and would support assurance of the information and assessment of the completeness of information.

IAS 1 includes a requirement to disclose the judgements an entity has made in applying its accounting policies that have the most significant effects on the amounts recognised in its financial statements (paragraphs 122⁠–⁠123 of IAS 1). The ISSB decided to adapt the principle of this requirement in the requirements in IFRS S1 related to disclosures about judgements an entity has made in the process of preparing and disclosing its sustainability-related financial information.

The ISSB decided to confirm a requirement for an entity to disclose the judgements that it has made that have the most significant effects on the information provided in its sustainability-related financial disclosures. Judgements disclosed to meet this requirement would contribute to users’ understanding of information presented in the entity’s sustainability-related financial disclosures. Furthermore, the ISSB noted that such a requirement sets an overarching requirement for an entity to disclose significant judgements that it has made in the absence of a specifically applicable disclosure requirement about judgements in other IFRS Sustainability Disclosure Standards.

The requirement to disclose information about significant judgements complements the proposal in the Exposure Draft for an entity to disclose the industry or industries specified in the relevant IFRS Sustainability Disclosure Standard or industry-based SASB Standards that it used in preparing its sustainability-related financial information. As discussed in paragraphs BC140–BC141, the ISSB decided to expand that requirement to require an entity to identify the specific sources of guidance that have been applied in preparing its sustainability-related financial disclosures. The entity is required to identify these sources in addition to disclosing the industry or industries specified in IFRS Sustainability Disclosure Standards, SASB Standards or other industry-based sources of guidance.

The ISSB noted that other IFRS Sustainability Disclosure Standards might also require disclosures about judgements and estimates. In this case, the ISSB noted that the requirements in IFRS S1 would complement those more specific requirements in other IFRS Sustainability Disclosure Standards.

The Exposure Draft proposed that an entity identifies metrics it has disclosed that have significant estimation uncertainty. These requirements were adapted from and are consistent with similar requirements in paragraph 125 of IAS 1. Following feedback from respondents, the ISSB acknowledged that measurement uncertainty does not solely arise if metrics cannot be measured directly and can only be estimated. Measurement uncertainty also arises, for example, in providing information about the effects of sustainability-related risks and opportunities on an entity’s financial position, financial performance and cash flows for the reporting period, and the anticipated financial effects over the short, medium and long term. For example, some of an entity’s assets might be increasingly at risk from climate-related forest fire events and, therefore, this risk would be considered as part of the impairment analysis and measurement of those assets. If the frequency and severity of these fires are highly uncertain, users would need information about this uncertainty, including the fact that there is a significant risk of a material adjustment within the next annual reporting period to the carrying amounts of these assets.

The Exposure Draft referred to metrics in proposing disclosures about uncertainty. However, the ISSB decided that the disclosure requirements relating to measurement uncertainty would not be limited to metrics but would also cover other amounts reported in sustainability-related financial disclosures—for example, the requirements relating to current and anticipated financial effects. Therefore, IFRS S1 requires an entity to disclose information to enable users of general purpose financial reports to understand the most significant uncertainties affecting the amounts reported in the sustainability-related financial disclosures. In doing so, an entity identifies the amounts it has disclosed that are subject to a high level of measurement uncertainty, including information about assumptions, approximations and judgements in measuring the amount. This requirement is consistent with and based on paragraph 125 of IAS 1.

The ISSB decided to maintain the distinction between the requirements for an entity that revises a comparative amount to, for example, update an estimate for a metric or redefine a metric, and the requirements for restating an amount due to an error. Prior period errors are omissions from and misstatements in the entity’s sustainability-related financial disclosures for one or more prior periods. Potential reporting period errors discovered in that period are corrected before the sustainability-related financial disclosures are authorised for issue. However, material errors are sometimes not discovered until a subsequent period. The ISSB confirmed that if an entity identifies a material error in the sustainability-related financial disclosures for its prior periods, it is required to disclose: