IFRS Foundation offers sustainability risk guide

The International Financial Reporting Standards Foundation and its International Sustainability Standards Board released a new sustainability guide Tuesday.

The guide can help companies identify and disclose material information about sustainability-related risks and opportunities that could reasonably be expected to affect their cash flows, their access to finance or cost of capital over the short, medium or long term.

Investors and global capital markets are increasingly requesting such information to inform investment decision making. The guide focuses on helping companies understand how the concept of sustainability-related risks and opportunities is described in IFRS S1, the ISSB's sustainability disclosure standard, including how these can come from a company's dependencies and impacts. Those dependencies and impacts on resources and relationships can lead to sustainability-related risks and opportunities that could reasonably be expected to affect its prospects.

The guide discusses how companies applying ISSB standards can benefit from the process they might already follow in making materiality judgments when preparing financial statements, particularly when applying IFRS accounting standards. The IFRS Foundation oversees both the ISSB and the International Accounting Standards Board.

The guide describes the process a company can follow which is closely aligned with the four-step process illustrated in the IASB's IFRS Practice Statement 2: Making Materiality Judgments. As a result, although the ISSB standards can be used with any generally accepted accounting principles, those companies already applying IFRS accounting standards — in over 140 jurisdictions worldwide — as well as those such as in the U.S. where there is strong alignment with a focus on providing material information to investors, will be particularly well prepared to apply the concept of materiality using ISSB standards.

The guide also discusses some of the considerations a company might make to drive connectivity between sustainability-related financial disclosures and a company's financial statements. For those looking to meet the information needs of a wider set of stakeholders, it provides considerations for those applying ISSB standards alongside European Sustainability Reporting Standards or Global Reporting Initiative standards.