The IFRS Sustainability Disclosure Standards build on the widely accepted recommendations of Task Force on Climate related Financial Disclosures (TCFD). Companies that previously used TCFD recommendations are well positioned to start applying IFRS Sustainability Disclosure Standards.
The International Sustainability Standards Board (ISSB) has reduced the so-called ‘alphabet soup’ of sustainability-related financial disclosure standards and garnered international support to create a global baseline of disclosures for global capital markets.
The ISSB designed the IFRS Sustainability Disclosure Standards to enhance investor–company dialogue by consolidating and aligning the resources of other investor-focused initiatives, such as the Climate Disclosure Standards Board (CDSB), the Value Reporting Foundation and the Task Force for Climate-related Financial Disclosures (TCFD).
After the ISSB issued its inaugural Sustainability Disclosure Standards—IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures—the Financial Stability Board asked the ISSB to take over from the TCFD the monitoring of companies’ progress on climate-related disclosures. The IFRS Foundation will begin this work in 2024 as companies around the world start applying IFRS S2, providing continuity for the TCFD’s implementation status reports.
The International Organization of Securities Commissions (IOSCO) has endorsed IFRS S1 and IFRS S2. It is now calling on its 130 member jurisdictions—capital markets authorities that regulate more than 95% of the world’s securities markets—to consider how they can incorporate the Standards into their respective regulatory frameworks to ensure consistency and comparability in sustainability-related disclosures worldwide.
Companies and investors are seeking clarity and guidance on the many standards and frameworks used to disclose sustainability-related financial information. IFRS Sustainability Disclosure Standards enable companies and investors to standardise on a single global baseline of sustainability disclosures for capital markets.
A company that applies IFRS S1 and IFRS S2 will meet the TCFD recommendations (and more) and support investors’ decision-making better by providing, as robust inputs for decision, comparable and assurable climate-related information. IFRS S1 and IFRS S2 integrate and build upon the TCFD recommendations, reducing the implementation efforts and learning curve for a company that is already familiar with the TCFD recommendations.
A company benefits from applying the IFRS Sustainability Disclosure Standards because they:
IFRS S1 and IFRS S2 are designed to be applied together and alongside and future IFRS Sustainability Disclosure Standards.
IFRS S1 sets out overarching disclosure requirements designed to enable a company to communicate to investors the sustainability-related risks and opportunities it faces over the short, medium and long term. IFRS S1 establishes the conceptual foundations of sustainability-related financial information and prescribes specific requirements for how a company discloses such information, including location of disclosures, timing of reporting, judgements, uncertainties and errors.
For example, IFRS S1 sets out requirements on how a company aggregates and disaggregates information the company discloses in accordance with IFRS S2.
IFRS S1 might require a company to disclose information beyond the climate-related disclosures recommended by the TCFD and prescribed by IFRS S2.
The requirements in IFRS S2 integrate, and are consistent with, the TCFD’s four core recommendations and 11 recommended disclosures, with minor differences.
This IFRS S2–TCFD comparison table summarises differences between IFRS S2 and the TCFD recommendations. As demonstrated in the table, a company that applies IFRS Sustainability Disclosure Standards will meet the TCFD recommendations (and more). Therefore, a company does not need to apply the TCFD recommendations in addition to IFRS Sustainability Disclosure Standards.
IFRS S2 does require a company to make disclosures above and beyond those required by the TCFD recommendations. For example, IFRS S2 requires a company to disclose:
Yes, depending on local regulatory requirements. There are resources on the knowledge hub that reference the TCFD. Given that IFRS S2 aligns with the four core recommendations and eleven recommended disclosures published by the TCFD, these resources may still be helpful for companies preparing disclosures in accordance with IFRS S2.
Using the TCFD recommendations is a good entry point for a company preparing to apply IFRS Sustainability Disclosure Standards. Although the work of the TCFD is completed, the TCFD recommendations remain available for a company to use.
The IFRS Foundation will take over monitoring and reporting to the Financial Stability Board companies' progress in implementing climate-related financial disclosures (IFRS S2), tentatively starting in the autumn of 2024. These reports will provide continuity with TCFD implementation status reports to the Financial Stability Board.
A company that applies IFRS S1 and IFRS S2 will meet the TCFD recommendations (and more). Therefore, by applying IFRS S1 and IFRS S2, the company will likely meet any TCFD-aligned requirements in its jurisdiction. However, the company should always consult its regulators or legal counsel to understand specific jurisdictional requirements to assess how IFRS Sustainability Disclosure Standards can be used to fulfil those specific disclosure requirements.