As the mandatory requirement for sustainability reporting draws close in Kenya and specific countries in East Africa start to apply the IFRS sustainability disclosure standards (IFRS S1 and IFRS S2) from this year, addressing data challenges across most organisations will become a regular feature of the adoption process.
The new disclosure requirements introduced by the standards involve capturing, processing, and analysing different data sets related to sustainability. These disclosure requirements are not only novel but also require skills and capabilities that are often lacking.
For example, IFRS S2 (Climate-related Disclosures) requires organisations to disclose scenario analysis on climate-related risk, including the anticipated financial effects on the organisation, typically using quantitative analysis.
As organisations prepare for adoption of the new standards, information requests may be nonexistent or, where present, there could be a lack of necessary skills to perform such complex analysis, forcing organisations to consider incorporating qualitative disclosures instead.
The use of qualitative disclosures as a substitute for quantitative disclosures in specific circumstances of sustainability reporting is considered reasonable.
The ISSB (International Sustainability Standards Board) provides specific guidance on aspects of IFRS S2 where organisations could apply qualitative disclosures for constraints around skills and capabilities.
It is reinforced by the proportionality principle of requiring organisations to consider the cost-benefit analysis of adopting the new sustainability reporting standards. Organisations should consider whether the cost of compliance could exceed the benefits when applying this principle.
However, for organisations, this is not a basis for failing to provide disclosures required by the standards.
The assessment on whether quantitative information required by the standards is available or not will involve specific facts, including when the responsible party might address that information gap.
For example, organisations could involve their internal audit teams to verify the available data and ensure accountability from respective teams on their commitment to resolving data gaps.
Organisations should be deliberate when considering the availability of data and the skills required for analysis as they adopt the new sustainability reporting standards.
Conduct a disclosures gap analysis that identifies missing information, as required by the standards and develop a roadmap that details the timeline for addressing the gaps.
The writer is a partner at PricewaterhouseCoopers. He is an author who writes and speaks widely on corporate reporting topics.
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