As the mandatory adoption of the IFRS Sustainability Disclosure Standards draws near, some organisations are adopting a pragmatic approach: a climate-first reporting strategy in the first year. It is one of the transition reliefs provided for in IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information).
The relief allows the organisation to report only on climate-related risks and opportunities and omit non-climate sustainability risks and opportunities in the first annual reporting period.
This approach helps to lessen the burden and cost of compliance for organisations as they embrace the new sustainability standards. Adopting a climate-first reporting approach implies that such organisations would be applying IFRS S2 (Climate-related disclosures) in their first year.
However, organisations must remember that the relief for climate-first is only applicable in the first year.
Therefore, they would need to prepare to discuss and disclose climate and non-climate sustainability risks and opportunities from their second year of reporting.
Some considerations organisations must make when adopting a climate-first reporting approach include the following.
First, organisations must perform a materiality assessment. This is crucial for many reasons, including helping organisations identify additional material non-climate sustainability risks and opportunities. It also ensures they can begin preparing for disclosures on additional non-climate topics starting in their second year of sustainability reporting.
Organisations can also assess the availability and quality of data on these other material topics, with the aim of closing any data gaps and improving data quality. Therefore, a climate-first reporting strategy should not neglect other materiality topics that make up the organisation’s comprehensive value creation story.
Secondly, organisations must ensure that their sustainability roadmap is grounded in the business case for sustainability rather than a compliance-only mindset. Failure to take a business-lens approach to sustainability adoption could result in greenwashing claims because the substantive work required to embed sustainability, from strategy to operations, does not receive the right level of attention.
Other considerations are putting in place the right governance structures, technology, and people to support the sustainability implementation journey. The climate-first reporting relief is an opportunity to prepare beyond climate.
The writer is a partner at PricewaterhouseCoopers. He is an author who writes and speaks widely on corporate reporting topics.
