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TAC Public Meeting October 2024 Paper 3: Mechanisms to support application

Executive summary

Date	08 October 2024
Paper reference	2024-TAC-021
Project	Technical assessment of IFRS S1 and IFRS S2
Topic	Mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements

Objective of the paper

This paper considers the mechanisms used in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) that are designed to support entities in applying the requirements. This paper includes a discussion about the proportionality mechanisms, application guidance, permanent reliefs, transition reliefs, effective date and concerns about the timing of reporting. The TAC is asked to consider all mechanisms together and decide whether further mechanisms are required, or whether existing mechanisms require amendment.

This paper is divided into three parts for ease of navigation.

Decisions for the TAC

Part 1 - proportionality mechanisms, application guidance and permanent reliefs

The TAC is asked to tentatively decide to:

• observe the application of the proportionality mechanisms as practice develops, and that if there is inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2.

Part 2 - transition reliefs and effective date

The TAC is asked to tentatively decide to:

• recommend that the PIC considers the implication of voluntary reporting on the entity's ability to apply transition reliefs.
• amend IFRS S1 by removing the transition relief in paragraph E4 that permits an entity to report its annual sustainability-related financial disclosures after it has published the related financial statements.
• amend the transition reliefs in IFRS S1 and IFRS S2 to either extend the 'climate-first' reporting or the Scope 3 emissions reliefs.

Part 3 - timing of reporting

• amend the effective date in both IFRS S1 and IFRS S2 to 1 January 2026, assuming that the UK Sustainability Reporting Standards are issued in Q2 2025.
• request that the ISSB provides clarity as to the intention of IFRS S1 paragraphs 66–67 that permits a different reporting period for sustainability-related disclosures, including when it can be applied by an entity. For example, can an entity apply this requirement for specific requirements or only for all sustainability-related disclosures.
• request that the ISSB considers how the requirement in IFRS S2 paragraph B19—that permits the use of different reporting period for value chain data—can be applied to sustainability-related matters other than greenhouse gas emissions. This might be through clarification of the existing requirements or as part of the upcoming research on biodiversity, ecosystems and ecosystem services (BEES), and human capital.
• observe practice relating to the use of different reporting periods for sustainability-related disclosures—with specific regard for financed emissions disclosures—and to feed back to the ISSB as part of its post-implementation review.
• amend both IFRS S1 and IFRS S2 to clarify that the reporting period for certain sustainability-related information might not be the same as the current reporting period for the financial statements. This may include amending IFRS S2, using the same language that is used in IFRS S1 paragraph 66, to require entities to disclose when and why the reporting period for greenhouse gas emissions data collected from value chain differs from the reporting period used for the financial statements.

Appendices

There are no appendices to this paper.

This paper has been prepared by the Secretariat for the UK Sustainability Disclosure Technical Advisory Committee (TAC) to discuss in a public meeting. This paper does not represent the views of the TAC or any individual TAC member.

This publication contains copyright material of the IFRS Foundation®. All rights reserved. Reproduced and distributed by the FRC in its role as the secretariat for the UK Sustainability Disclosure Technical Advisory Committee with the permission of the IFRS Foundation. Reproduction and use rights are strictly limited. For more information about the IFRS Foundation and rights to use its material please visit www.ifrs.org.

Disclaimer: To the extent permitted by applicable law the International Sustainability Standards Board and the IFRS Foundation expressly disclaims all liability howsoever arising from this publication or any translation thereof whether in contract, tort or otherwise (including, but not limited to, liability for any negligent act or omission) to any person in respect of any claims or losses of any nature including direct, indirect, incidental or consequential loss, punitive damages, penalties or costs.

Information contained in this publication does not constitute advice and should not be substituted for the services of an appropriately qualified professional.

The Foundation has trade marks registered around the world (Trade Marks) including 'IAS®', 'IASB®', ISSB™, 'IFRIC®', 'IFRS®', the IFRS® logo, 'IFRS for SMEs®', IFRS for SMEs® logo, ISSB™, the 'Hexagon Device', 'International Accounting Standards®', 'International Financial Reporting Standards®', and 'SIC®'. Further details of the Foundation's Trade Marks are available from the Licensor on request.

IFRS

Context

1Both IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) include mechanisms that are designed to support entities when applying the requirements, either broadly or for specific requirements. These mechanisms include:

• proportionality mechanisms—which provide flexibility in the requirements appropriate to the entity's circumstances;
• application guidance—supporting the application of the requirements;
• permanent reliefs—that permit entities to disclose different information, omit information, or permit a different approach to the collection and disclosure of information in certain circumstances without a time limit;
• transition reliefs—permitting entities to omit certain information in certain circumstances with a specified time limit; and
• effective date—balancing timely implementation of the standards with sufficient time for entities to prepare.

2The relevant references to the requirements in IFRS S1 and IFRS S2 are as follows:

• IFRS S1
  • Financial position, financial performance and cash flows paragraphs 34–40
  • Timing of reporting paragraphs 64–68
  • Measurement uncertainty paragraphs 77–82
  • Identifying sustainability-related risks and opportunities paragraphs B6–B7
  • Reasonable and supportable information paragraphs B8–B10
  • Appendix E Effective date and transition paragraphs E1–E6
• IFRS S2
  • Climate-related risks and opportunities paragraphs 10–11
  • Financial position, financial performance and cash flows paragraphs 15–21
  • Climate resilience paragraphs 22, B1, B6–B7
  • Climate-related metrics paragraphs 29(b)–(g) and 30
  • Appendix C Effective date and transition paragraphs C1–C5

3This paper provides an analysis of all the mechanisms together so that the TAC can ascertain whether together they are sufficient and whether any amendments to IFRS S1 and IFRS S2 are necessary for the effective implementation of the standards within the UK. The TAC is asked to consider the preparedness of entities in the UK that will apply the standards, and whether the mechanisms described in paragraph 1 are appropriate and sufficient to enable entities to apply the requirements consistently.

4The TAC also requested further discussion about the requirements relating to the timing of reporting. This technical area is discussed in this paper alongside the mechanisms listed in paragraph 1 to provide the TAC with a holistic view of whether there is sufficient support for an entity to apply the requirements in IFRS S1 and IFRS S2.

5For ease of navigation, this paper is divided into three sections:

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Endorsement criteria

6The endorsement criteria applied in the analysis of this technical area include whether:

1. use of the IFRS Sustainability Disclosure Standard is likely to result in an improvement in the international comparability of sustainability-related reporting in the UK.
2. use of the IFRS Sustainability Disclosure Standard is likely to support companies in making disclosures that are understandable, relevant, reliable and comparable.
3. use of the IFRS Sustainability Disclosure Standard is likely to improve the quality of corporate reporting within the UK in the long term.
4. companies are likely to be able to provide the disclosures required by the IFRS Sustainability Disclosure Standard within the timeframes that a company normally reports without undue cost or effort.
5. use of the IFRS Sustainability Disclosure Standard is likely to be conducive to the UK's economic growth and international competitiveness, taking into account the costs and benefits of compliance.

Part 1

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Analysis

7In Part 1 of this paper, the TAC is asked to discuss the mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements—notably the proportionality mechanism (paragraphs 8–18), the application and accompanying guidance (paragraphs 19-24) and the permanent reliefs (paragraphs 25–27).

Proportionality mechanisms

8Based on feedback from stakeholders on the Exposure Drafts, the ISSB decided to introduce proportionality mechanisms to respond to concerns about preparedness, resource constraints, data availability, and the availability of specialists to be able to apply the requirements. The concept of proportionality in this context considers the nature, volume, and complexity of the disclosures in the context of the different circumstances (e.g., size, capabilities, and complexity) of entities that might apply the standards and attempts to provide a reasonable approach that takes into consideration these different circumstances. For example, FTSE 100 entities may have significantly more resources than smaller entities that mean they are able to meet the requirements of the standards, but also FTSE 100 entities are more likely to have complex organisational structures that make it difficult to apply the standards in full immediately. The mechanisms used by the ISSB in IFRS S1 and IFRS S2 are intended to provide a certain amount of flexibility in relation to specific requirements that support entities with different circumstances to be able to apply the standards to the best of their ability.

9The proportionality mechanisms for both IFRS S1 and IFRS S2 are included in the table below. The ISSB describes the concept of 'unable to do so' as additional clarification rather than a proportionality mechanism. However, it is a concept used in the standards to support entities in applying the standards—whether or not to specifically resolve the issue of proportionality—and therefore has been included in the table below for the TAC's review.

Technical area	Concept of 'reasonable and supportable information...'	Consideration of skills, capabilities and resources	Concept of 'unable to do so'
Identification of risks and opportunities	X
Determination of the scope of the value chain	X
Current financial effects			X
Anticipated financial effects	X	X	X
Climate-related scenario analysis	X	X
Measurement of Scope 3 greenhouse gas emissions	X
Calculation of metrics (in particular cross-industry metric categories)	X

10The proportionality mechanisms used in IFRS S1 and IFRS S2 are described in more detail in the following paragraphs.

11In response to the TAC's call for evidence, many stakeholders generally believe there are enough proportionality mechanisms built into the standards to support application across the market. However, some stakeholders advised that the flexibility offered through the proportionality mechanisms might make the disclosure of compliance and obtaining assurance on the disclosure difficult in practice. These stakeholders requested guidance on how an entity can assert compliance with the standards if they have used any of the proportionality mechanisms. It is important to note that an entity can provide a compliance statement even if it has used the proportionality mechanisms available in the standard. However, if an entity has not disclosed the fact that it has used these mechanisms—which in some cases it is not required to disclose—then assurance providers, users or regulators may question the use of the mechanisms and the judgements applied when deciding to applying them.

12Additionally, a few stakeholders raised concerns about these mechanisms being a permanent part of the standard, noting that entities may use them as an excuse to omit certain information for multiple reporting periods. In some cases, the proportionality mechanisms assume that as entities become more familiar with reporting sustainability-related risks and opportunities and the practice matures, an entity should not be able to assert that it does not have the skills, capabilities and resources. Therefore, the proportionality mechanisms can also be viewed as a temporary solution to proportionality needs in the first years of disclosure. For example, IFRS S2 paragraph B7 states that:

Climate-related scenario analysis can be resource intensive and might—through an iterative learning process—be developed and refined over multiple planning cycles. As an entity repeats the climate-related scenario analysis, it is likely to develop skills and capabilities that will enable the entity to strengthen its approach to climate-related scenario analysis over time.

However, the concerns raised by stakeholders that entities might exploit the proportionality mechanisms could be an area for observation as practice develops. Therefore, the TAC may consider recommending that the application of the proportionality mechanisms is observed as practice develops, and if there appears to be inappropriate use of them this is shared with the ISSB when it completes its post-implementation review of the standards.

The concept of ‘reasonable and supportable information...'

13In several places within both IFRS S1 and IFRS S2, the ISSB has utilised the concept of 'all reasonable and supportable information that is available at the reporting date without undue cost or effort' which specifies the type of information an entity is required to use when preparing its disclosures. In this paper, this concept is referred to in the shortened form ‘reasonable and supportable'. This concept is not new and is used in IFRS Accounting Standards in specific circumstances to support entities in applying requirements that have a high level of measurement uncertainty. Using a similar approach, the ISSB only uses this concept in IFRS S1 and IFRS S2 in relation to requirements that have a high level of judgement or measurement uncertainty, and also to emphasise that entities are not required to carry out an exhaustive search for information that might not be available without undue cost or effort.

14This mechanism is used in IFRS S1 and IFRS S2 in relation to requirements that have been acknowledged as particularly challenging. For example, in paper 2024-TAC-010 on identifying sustainability-related risks and opportunities, it was noted that in response to the TAC's call for evidence, stakeholders highlighted that the identification of sustainability-related risks and opportunities will be more challenging than asking entities to only consider climate-related risks and opportunities. Additionally, some stakeholders raised concerns about the instruction to disclose information about 'all' sustainability-related risks and opportunities, noting that there is a large breadth of sustainability-related matters that could be incorporated into the disclosure. Stakeholders also suggested that entities that are not familiar with this type of reporting may struggle to establish the internal processes and prepare their disclosures on matters other than climate change which would create significant cost and effort from the entity, especially in the initial years of applying IFRS S1. Therefore, the concept of 'reasonable and supportable' is intended to assuage these concerns by only requiring entities to identify sustainability-related risks and opportunities that it is able to obtain relevant information about.

Consideration of skills, capabilities and resources

15For two specific requirements in the standards, entities are able to use an approach that is commensurate with their circumstances which includes the skills, capabilities and resources that are available to the entity when preparing disclosures. These requirements are in relation to disclosing the anticipated financial effects of sustainability-related risks and opportunities (in both IFRS S1 and IFRS S2) and using climate-related scenario analysis (only in IFRS S2) which have been generally regarded by stakeholders as being challenging requirements that necessitate specialist skills and capabilities (either internal or external). This requirement also replaced the wording 'unable to do so' in certain places in the Exposure Drafts to provide further clarity as to the circumstances in which an entity may be unable to provide the disclosure.

The concept of 'unable to do so'

16The concept of 'unable to do so' was used twice in the Exposure Drafts of IFRS S1 and IFRS S2 in relation to proposed requirements on current and anticipated financial effects and the use of climate-related scenario analysis. Based on feedback from stakeholders, the ISSB amended the language in IFRS S1 and IFRS S2 to be more specific about what would reasonably prevent an entity from disclosing the required information.

17For climate-related scenario analysis the wording 'unable to do so' was replaced with permitting entities to use an approach that is commensurate with their circumstances which allows the entities to take a more basic approach if it does not have the skills, capabilities and resources to complete a comprehensive scenario analysis. Large entities (e.g., PIEs) may be unable to justify that they do not have the resources to be able to conduct a comprehensive scenario analysis.

18For the requirements on current and anticipated financial effects the wording 'unable to do so' was replaced with multiple and more specific permissions. Only relating to anticipated financial effects, IFRS S1 permits entities to use ‘reasonable and supportable' information and also an approach that is commensurate with the skills, capabilities and resources that are available to the entity. This permission is only available for anticipated financial effects as this requires forward-looking analysis that may be highly challenging for some entities. Entities need only disclose quantitative information about both current and anticipated financial effects if the effects are separately identifiable—i.e., can be attributed to a specific sustainability-related risk or opportunity—and if the level of measurement uncertainty is so high that the resulting quantitative information would not be useful to users.

Guidance and educational material

19There are several approaches that the ISSB has taken to provide guidance on the requirements in IFRS S1 and IFRS S2. Application Guidance is part of the standards and is located in the appendix to the standards. As noted in both IFRS S1 and IFRS S2, the ‘appendix is an integral part of IFRS [S1/S2] and has the same authority as the other parts of the Standard'. This means that the guidance and requirements in the Application Guidance are required to be applied as part of the standard. The Application Guidance is part of the TAC's assessment of IFRS S1 and IFRS S2.

20The ISSB has developed application guidance on the following requirements.

• For IFRS S1 application guidance is available for the requirements relating to:
  • identifying sustainability-related risks and opportunities, and disclosing material information about such risks and opportunities;
  • identifying material information; and
  • connected information.
• For IFRS S2 application guidance is available for the requirements relating to:
  • applying scenario analysis to assess a company's climate resilience;
  • measuring Scope 1, Scope 2 and Scope 3 greenhouse gas emissions, including a framework for the measurement of Scope 3 greenhouse gas emissions;
  • disclosing information relevant to the cross-industry metric categories; and
  • disclosing information about the climate-related targets a company may have set or is required to meet by law or regulation.

21The TAC has already discussed the relevant requirements in the application guidance in previous meetings. The TAC will further discuss the concept and requirements relating to connectivity in a future meeting.

22Alongside the application guidance, both IFRS S1 and IFRS S2 also have Accompanying Guidance that is not part of the standards but provides illustrative guidance and illustrative examples that are intended to support the application of the requirements. There are currently no plans to endorse the Accompanying Guidance in the UK, which means that the content of this guidance is excluded from the technical assessment of IFRS S1 and IFRS S2. The content of this guidance is presented in this paper to provide context as to the support provided by the ISSB for entities when applying the requirements in the standards.

23The ISSB has provided accompanying guidance on the following requirements.

• For IFRS S1 accompanying guidance is available for the requirements relating to:
  • who 'primary users' are;
  • how companies should apply sources of guidance for identifying sustainability-related risks and opportunities and applicable disclosure requirements; and
  • examples of considering and applying the SASB Standards.
• For IFRS S2 accompanying guidance is available for the requirements relating to:
  • metrics that could be disclosed as part of information relevant to the cross-industry metric categories;
  • examples of disclosing greenhouse gas emissions information applying the principles in IFRS S1 for aggregation and disaggregation; and
  • industry-based guidance on identifying disclosure topics and metrics about climate-related risks and opportunities.

24In response to the TAC's call for evidence, many stakeholders agreed that there are enough proportionality and relief mechanisms built into the standards to support application across the market. However, many stakeholders also requested additional implementation guidance, especially on the more challenging elements of the standards. The TAC has already discussed the need for additional guidance in relation to specific technical areas of the standards and will further discuss these as part of the final advice to the Secretary of State.

Permanent reliefs

25Alongside proportionality mechanisms and supportive guidance, IFRS S1 and IFRS S2 include permissions that do not have a time limit—referred to in this paper as permanent reliefs. Some stakeholders colloquially refer to these permissions as 'permanent reliefs' as opposed to the transition relief that is only available to an entity for a specified period of time.

26The TAC has already discussed and, apart from the permanent relief on using a different reporting period, agreed to maintain these permissions in previous meetings. These include permissions that relate to:

• commercially sensitive information (paper 2024-TAC-006);
• using a measurement method other than GHG Protocol Corporate Standard if required by a jurisdiction (paper 2024-TAC-013);
• reassessing the scope of sustainability-related risks and opportunities in the value chain only on the occurrence of a significant event or change in circumstances (paper 2024-TAC-012); and
• using a different reporting period for greenhouse gas information obtained in the value chain information (paper 2024-TAC-014).

27The permission to use a different reporting period for greenhouse gas information obtained in the value chain is discussed in more detail in Part 3 of this paper.

Endorsement recommendations

Alternative options considered but not recommended

28In considering the TAC's endorsement recommendations on the mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements, the TAC Secretariat considered alternative options that have been disregarded, including:

28.1amending IFRS S1 and IFRS S2 by adding time limits to the proportionality mechanisms and permanent reliefs that are available. Although a few stakeholders were concerned about the permanent nature of some of the mechanisms, it might not be appropriate to add a time limit and therefore make the mechanisms transitional. These mechanisms are intended to provide relief for the more challenging aspects of the standards. The expectation is that entities will be able to evolve their practice and will therefore not need to use the mechanisms after the initial years of disclosure. However, in some circumstances, the permanent mechanisms may still be needed and therefore the TAC may consider these permanent mechanisms proportionate and appropriate in such circumstances.

Suggested endorsement recommendation

29On balance, and based on the analysis provided in this paper, the TAC is asked to tentatively recommend:

29.1to observe the application of the proportionality mechanisms as practice develops, and if there appears to be inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2. Although many stakeholders believe there are enough proportionality mechanisms to support the application of IFRS S1 and IFRS S2 across the market, some stakeholders raised concerns that entities might exploit these mechanisms and that the flexibility offered may make the disclosure of a compliance statement and obtaining assurance on the disclosure difficult in practice. By observing how entities apply these mechanisms, feedback can be provided to the ISSB for its post-implementation review—especially if these mechanisms are misused.

Questions for the TAC

1. Does the TAC agree with the analysis in this paper in relation to the mechanisms to support application of IFRS S1 and IFRS S2?
2. Does the TAC agree to tentatively recommend to observe the application of the proportionality mechanisms as practice develops, and if there appears to be inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2?

Part 2

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Analysis

30In Part 2 of this paper, the TAC is asked to discuss the transition reliefs in IFRS S1 and IFRS S2 (paragraphs 31–42) and the suggested effective dates for UK Sustainability Reporting Standards (paragraphs 43–48).

Transition reliefs

31In addition to the proportionality mechanisms, supportive guidance and permanent reliefs, both IFRS S1 and IFRS S2 include transition reliefs that are available to entities applying the standards for a limited period of time. These reliefs are focused on areas that stakeholders have indicated as being particularly challenging to disclose or may require the development of internal systems to be able to prepare the disclosure. IFRS S2 Basis for Conclusions paragraph BC174 notes that an entity is permitted to use, but is not required to use, the transition reliefs provided in IFRS S1 and IFRS S2. An entity could choose to disregard the reliefs and provide the information required by the standard if it so chooses. However, feedback from stakeholder engagement activities conducted by the TAC Secretariat suggests that UK entities—including large entities that have already disclosed sustainability-related information for several years—are likely to take advantage of the reliefs. These stakeholders noted that despite having disclosed sustainability-related information (particularly climate-related information) for several years, the application of IFRS S1 and IFRS S2 would be a step change compared to current practice and would require further and more granular data collection, which is why they are likely to use the transition reliefs that are offered in the standards.

32Unlike the permanent reliefs, each of the transition reliefs are only applicable for a certain period of time. The table below outlines each of the transition reliefs and when an entity would be able to apply them.

| Transition relief | Description --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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Executive summary

Date	08 October 2024
Paper reference	2024-TAC-021
Project	Technical assessment of IFRS S1 and IFRS S2
Topic	Mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements

Objective of the paper

This paper considers the mechanisms used in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) that are designed to support entities in applying the requirements. This paper includes a discussion about the proportionality mechanisms, application guidance, permanent reliefs, transition reliefs, effective date and concerns about the timing of reporting. The TAC is asked to consider all mechanisms together and decide whether further mechanisms are required, or whether existing mechanisms require amendment.

This paper is divided into three parts for ease of navigation.

Decisions for the TAC

Part 1 - proportionality mechanisms, application guidance and permanent reliefs

The TAC is asked to tentatively decide to:

• observe the application of the proportionality mechanisms as practice develops, and that if there is inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2.

Part 2 - transition reliefs and effective date

The TAC is asked to tentatively decide to:

• recommend that the PIC considers the implication of voluntary reporting on the entity's ability to apply transition reliefs.
• amend IFRS S1 by removing the transition relief in paragraph E4 that permits an entity to report its annual sustainability-related financial disclosures after it has published the related financial statements.
• amend the transition reliefs in IFRS S1 and IFRS S2 to either extend the 'climate-first' reporting or the Scope 3 emissions reliefs.

Part 3 - timing of reporting

• amend the effective date in both IFRS S1 and IFRS S2 to 1 January 2026, assuming that the UK Sustainability Reporting Standards are issued in Q2 2025.
• request that the ISSB provides clarity as to the intention of IFRS S1 paragraphs 66–67 that permits a different reporting period for sustainability-related disclosures, including when it can be applied by an entity. For example, can an entity apply this requirement for specific requirements or only for all sustainability-related disclosures.
• request that the ISSB considers how the requirement in IFRS S2 paragraph B19—that permits the use of different reporting period for value chain data—can be applied to sustainability-related matters other than greenhouse gas emissions. This might be through clarification of the existing requirements or as part of the upcoming research on biodiversity, ecosystems and ecosystem services (BEES), and human capital.
• observe practice relating to the use of different reporting periods for sustainability-related disclosures—with specific regard for financed emissions disclosures—and to feed back to the ISSB as part of its post-implementation review.
• amend both IFRS S1 and IFRS S2 to clarify that the reporting period for certain sustainability-related information might not be the same as the current reporting period for the financial statements. This may include amending IFRS S2, using the same language that is used in IFRS S1 paragraph 66, to require entities to disclose when and why the reporting period for greenhouse gas emissions data collected from value chain differs from the reporting period used for the financial statements.

Appendices

There are no appendices to this paper.

This paper has been prepared by the Secretariat for the UK Sustainability Disclosure Technical Advisory Committee (TAC) to discuss in a public meeting. This paper does not represent the views of the TAC or any individual TAC member.

This publication contains copyright material of the IFRS Foundation®. All rights reserved. Reproduced and distributed by the FRC in its role as the secretariat for the UK Sustainability Disclosure Technical Advisory Committee with the permission of the IFRS Foundation. Reproduction and use rights are strictly limited. For more information about the IFRS Foundation and rights to use its material please visit www.ifrs.org.

Disclaimer: To the extent permitted by applicable law the International Sustainability Standards Board and the IFRS Foundation expressly disclaims all liability howsoever arising from this publication or any translation thereof whether in contract, tort or otherwise (including, but not limited to, liability for any negligent act or omission) to any person in respect of any claims or losses of any nature including direct, indirect, incidental or consequential loss, punitive damages, penalties or costs.

Information contained in this publication does not constitute advice and should not be substituted for the services of an appropriately qualified professional.

The Foundation has trade marks registered around the world (Trade Marks) including 'IAS®', 'IASB®', ISSB™, 'IFRIC®', 'IFRS®', the IFRS® logo, 'IFRS for SMEs®', IFRS for SMEs® logo, ISSB™, the 'Hexagon Device', 'International Accounting Standards®', 'International Financial Reporting Standards®', and 'SIC®'. Further details of the Foundation's Trade Marks are available from the Licensor on request.

IFRS

Context

1Both IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) include mechanisms that are designed to support entities when applying the requirements, either broadly or for specific requirements. These mechanisms include:

• proportionality mechanisms—which provide flexibility in the requirements appropriate to the entity's circumstances;
• application guidance—supporting the application of the requirements;
• permanent reliefs—that permit entities to disclose different information, omit information, or permit a different approach to the collection and disclosure of information in certain circumstances without a time limit;
• transition reliefs—permitting entities to omit certain information in certain circumstances with a specified time limit; and
• effective date—balancing timely implementation of the standards with sufficient time for entities to prepare.

2The relevant references to the requirements in IFRS S1 and IFRS S2 are as follows:

• IFRS S1
  • Financial position, financial performance and cash flows paragraphs 34–40
  • Timing of reporting paragraphs 64–68
  • Measurement uncertainty paragraphs 77–82
  • Identifying sustainability-related risks and opportunities paragraphs B6–B7
  • Reasonable and supportable information paragraphs B8–B10
  • Appendix E Effective date and transition paragraphs E1–E6
• IFRS S2
  • Climate-related risks and opportunities paragraphs 10–11
  • Financial position, financial performance and cash flows paragraphs 15–21
  • Climate resilience paragraphs 22, B1, B6–B7
  • Climate-related metrics paragraphs 29(b)–(g) and 30
  • Appendix C Effective date and transition paragraphs C1–C5

3This paper provides an analysis of all the mechanisms together so that the TAC can ascertain whether together they are sufficient and whether any amendments to IFRS S1 and IFRS S2 are necessary for the effective implementation of the standards within the UK. The TAC is asked to consider the preparedness of entities in the UK that will apply the standards, and whether the mechanisms described in paragraph 1 are appropriate and sufficient to enable entities to apply the requirements consistently.

4The TAC also requested further discussion about the requirements relating to the timing of reporting. This technical area is discussed in this paper alongside the mechanisms listed in paragraph 1 to provide the TAC with a holistic view of whether there is sufficient support for an entity to apply the requirements in IFRS S1 and IFRS S2.

5For ease of navigation, this paper is divided into three sections:

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Endorsement criteria

6The endorsement criteria applied in the analysis of this technical area include whether:

1. use of the IFRS Sustainability Disclosure Standard is likely to result in an improvement in the international comparability of sustainability-related reporting in the UK.
2. use of the IFRS Sustainability Disclosure Standard is likely to support companies in making disclosures that are understandable, relevant, reliable and comparable.
3. use of the IFRS Sustainability Disclosure Standard is likely to improve the quality of corporate reporting within the UK in the long term.
4. companies are likely to be able to provide the disclosures required by the IFRS Sustainability Disclosure Standard within the timeframes that a company normally reports without undue cost or effort.
5. use of the IFRS Sustainability Disclosure Standard is likely to be conducive to the UK's economic growth and international competitiveness, taking into account the costs and benefits of compliance.

Part 1

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Analysis

7In Part 1 of this paper, the TAC is asked to discuss the mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements—notably the proportionality mechanism (paragraphs 8–18), the application and accompanying guidance (paragraphs 19-24) and the permanent reliefs (paragraphs 25–27).

Proportionality mechanisms

8Based on feedback from stakeholders on the Exposure Drafts, the ISSB decided to introduce proportionality mechanisms to respond to concerns about preparedness, resource constraints, data availability, and the availability of specialists to be able to apply the requirements. The concept of proportionality in this context considers the nature, volume, and complexity of the disclosures in the context of the different circumstances (e.g., size, capabilities, and complexity) of entities that might apply the standards and attempts to provide a reasonable approach that takes into consideration these different circumstances. For example, FTSE 100 entities may have significantly more resources than smaller entities that mean they are able to meet the requirements of the standards, but also FTSE 100 entities are more likely to have complex organisational structures that make it difficult to apply the standards in full immediately. The mechanisms used by the ISSB in IFRS S1 and IFRS S2 are intended to provide a certain amount of flexibility in relation to specific requirements that support entities with different circumstances to be able to apply the standards to the best of their ability.

9The proportionality mechanisms for both IFRS S1 and IFRS S2 are included in the table below. The ISSB describes the concept of 'unable to do so' as additional clarification rather than a proportionality mechanism. However, it is a concept used in the standards to support entities in applying the standards—whether or not to specifically resolve the issue of proportionality—and therefore has been included in the table below for the TAC's review.

Technical area	Concept of 'reasonable and supportable information...'	Consideration of skills, capabilities and resources	Concept of 'unable to do so'
Identification of risks and opportunities	X
Determination of the scope of the value chain	X
Current financial effects			X
Anticipated financial effects	X	X	X
Climate-related scenario analysis	X	X
Measurement of Scope 3 greenhouse gas emissions	X
Calculation of metrics (in particular cross-industry metric categories)	X

10The proportionality mechanisms used in IFRS S1 and IFRS S2 are described in more detail in the following paragraphs.

11In response to the TAC's call for evidence, many stakeholders generally believe there are enough proportionality mechanisms built into the standards to support application across the market. However, some stakeholders advised that the flexibility offered through the proportionality mechanisms might make the disclosure of compliance and obtaining assurance on the disclosure difficult in practice. These stakeholders requested guidance on how an entity can assert compliance with the standards if they have used any of the proportionality mechanisms. It is important to note that an entity can provide a compliance statement even if it has used the proportionality mechanisms available in the standard. However, if an entity has not disclosed the fact that it has used these mechanisms—which in some cases it is not required to disclose—then assurance providers, users or regulators may question the use of the mechanisms and the judgements applied when deciding to applying them.

12Additionally, a few stakeholders raised concerns about these mechanisms being a permanent part of the standard, noting that entities may use them as an excuse to omit certain information for multiple reporting periods. In some cases, the proportionality mechanisms assume that as entities become more familiar with reporting sustainability-related risks and opportunities and the practice matures, an entity should not be able to assert that it does not have the skills, capabilities and resources. Therefore, the proportionality mechanisms can also be viewed as a temporary solution to proportionality needs in the first years of disclosure. For example, IFRS S2 paragraph B7 states that:

Climate-related scenario analysis can be resource intensive and might—through an iterative learning process—be developed and refined over multiple planning cycles. As an entity repeats the climate-related scenario analysis, it is likely to develop skills and capabilities that will enable the entity to strengthen its approach to climate-related scenario analysis over time.

However, the concerns raised by stakeholders that entities might exploit the proportionality mechanisms could be an area for observation as practice develops. Therefore, the TAC may consider recommending that the application of the proportionality mechanisms is observed as practice develops, and if there appears to be inappropriate use of them this is shared with the ISSB when it completes its post-implementation review of the standards.

The concept of ‘reasonable and supportable information...'

13In several places within both IFRS S1 and IFRS S2, the ISSB has utilised the concept of 'all reasonable and supportable information that is available at the reporting date without undue cost or effort' which specifies the type of information an entity is required to use when preparing its disclosures. In this paper, this concept is referred to in the shortened form ‘reasonable and supportable'. This concept is not new and is used in IFRS Accounting Standards in specific circumstances to support entities in applying requirements that have a high level of measurement uncertainty. Using a similar approach, the ISSB only uses this concept in IFRS S1 and IFRS S2 in relation to requirements that have a high level of judgement or measurement uncertainty, and also to emphasise that entities are not required to carry out an exhaustive search for information that might not be available without undue cost or effort.

14This mechanism is used in IFRS S1 and IFRS S2 in relation to requirements that have been acknowledged as particularly challenging. For example, in paper 2024-TAC-010 on identifying sustainability-related risks and opportunities, it was noted that in response to the TAC's call for evidence, stakeholders highlighted that the identification of sustainability-related risks and opportunities will be more challenging than asking entities to only consider climate-related risks and opportunities. Additionally, some stakeholders raised concerns about the instruction to disclose information about 'all' sustainability-related risks and opportunities, noting that there is a large breadth of sustainability-related matters that could be incorporated into the disclosure. Stakeholders also suggested that entities that are not familiar with this type of reporting may struggle to establish the internal processes and prepare their disclosures on matters other than climate change which would create significant cost and effort from the entity, especially in the initial years of applying IFRS S1. Therefore, the concept of 'reasonable and supportable' is intended to assuage these concerns by only requiring entities to identify sustainability-related risks and opportunities that it is able to obtain relevant information about.

Consideration of skills, capabilities and resources

15For two specific requirements in the standards, entities are able to use an approach that is commensurate with their circumstances which includes the skills, capabilities and resources that are available to the entity when preparing disclosures. These requirements are in relation to disclosing the anticipated financial effects of sustainability-related risks and opportunities (in both IFRS S1 and IFRS S2) and using climate-related scenario analysis (only in IFRS S2) which have been generally regarded by stakeholders as being challenging requirements that necessitate specialist skills and capabilities (either internal or external). This requirement also replaced the wording 'unable to do so' in certain places in the Exposure Drafts to provide further clarity as to the circumstances in which an entity may be unable to provide the disclosure.

The concept of 'unable to do so'

16The concept of 'unable to do so' was used twice in the Exposure Drafts of IFRS S1 and IFRS S2 in relation to proposed requirements on current and anticipated financial effects and the use of climate-related scenario analysis. Based on feedback from stakeholders, the ISSB amended the language in IFRS S1 and IFRS S2 to be more specific about what would reasonably prevent an entity from disclosing the required information.

17For climate-related scenario analysis the wording 'unable to do so' was replaced with permitting entities to use an approach that is commensurate with their circumstances which allows the entities to take a more basic approach if it does not have the skills, capabilities and resources to complete a comprehensive scenario analysis. Large entities (e.g., PIEs) may be unable to justify that they do not have the resources to be able to conduct a comprehensive scenario analysis.

18For the requirements on current and anticipated financial effects the wording 'unable to do so' was replaced with multiple and more specific permissions. Only relating to anticipated financial effects, IFRS S1 permits entities to use ‘reasonable and supportable' information and also an approach that is commensurate with the skills, capabilities and resources that are available to the entity. This permission is only available for anticipated financial effects as this requires forward-looking analysis that may be highly challenging for some entities. Entities need only disclose quantitative information about both current and anticipated financial effects if the effects are separately identifiable—i.e., can be attributed to a specific sustainability-related risk or opportunity—and if the level of measurement uncertainty is so high that the resulting quantitative information would not be useful to users.

Guidance and educational material

19There are several approaches that the ISSB has taken to provide guidance on the requirements in IFRS S1 and IFRS S2. Application Guidance is part of the standards and is located in the appendix to the standards. As noted in both IFRS S1 and IFRS S2, the ‘appendix is an integral part of IFRS [S1/S2] and has the same authority as the other parts of the Standard'. This means that the guidance and requirements in the Application Guidance are required to be applied as part of the standard. The Application Guidance is part of the TAC's assessment of IFRS S1 and IFRS S2.

20The ISSB has developed application guidance on the following requirements.

• For IFRS S1 application guidance is available for the requirements relating to:
  • identifying sustainability-related risks and opportunities, and disclosing material information about such risks and opportunities;
  • identifying material information; and
  • connected information.
• For IFRS S2 application guidance is available for the requirements relating to:
  • applying scenario analysis to assess a company's climate resilience;
  • measuring Scope 1, Scope 2 and Scope 3 greenhouse gas emissions, including a framework for the measurement of Scope 3 greenhouse gas emissions;
  • disclosing information relevant to the cross-industry metric categories; and
  • disclosing information about the climate-related targets a company may have set or is required to meet by law or regulation.

21The TAC has already discussed the relevant requirements in the application guidance in previous meetings. The TAC will further discuss the concept and requirements relating to connectivity in a future meeting.

22Alongside the application guidance, both IFRS S1 and IFRS S2 also have Accompanying Guidance that is not part of the standards but provides illustrative guidance and illustrative examples that are intended to support the application of the requirements. There are currently no plans to endorse the Accompanying Guidance in the UK, which means that the content of this guidance is excluded from the technical assessment of IFRS S1 and IFRS S2. The content of this guidance is presented in this paper to provide context as to the support provided by the ISSB for entities when applying the requirements in the standards.

23The ISSB has provided accompanying guidance on the following requirements.

• For IFRS S1 accompanying guidance is available for the requirements relating to:
  • who 'primary users' are;
  • how companies should apply sources of guidance for identifying sustainability-related risks and opportunities and applicable disclosure requirements; and
  • examples of considering and applying the SASB Standards.
• For IFRS S2 accompanying guidance is available for the requirements relating to:
  • metrics that could be disclosed as part of information relevant to the cross-industry metric categories;
  • examples of disclosing greenhouse gas emissions information applying the principles in IFRS S1 for aggregation and disaggregation; and
  • industry-based guidance on identifying disclosure topics and metrics about climate-related risks and opportunities.

24In response to the TAC's call for evidence, many stakeholders agreed that there are enough proportionality and relief mechanisms built into the standards to support application across the market. However, many stakeholders also requested additional implementation guidance, especially on the more challenging elements of the standards. The TAC has already discussed the need for additional guidance in relation to specific technical areas of the standards and will further discuss these as part of the final advice to the Secretary of State.

Permanent reliefs

25Alongside proportionality mechanisms and supportive guidance, IFRS S1 and IFRS S2 include permissions that do not have a time limit—referred to in this paper as permanent reliefs. Some stakeholders colloquially refer to these permissions as 'permanent reliefs' as opposed to the transition relief that is only available to an entity for a specified period of time.

26The TAC has already discussed and, apart from the permanent relief on using a different reporting period, agreed to maintain these permissions in previous meetings. These include permissions that relate to:

• commercially sensitive information (paper 2024-TAC-006);
• using a measurement method other than GHG Protocol Corporate Standard if required by a jurisdiction (paper 2024-TAC-013);
• reassessing the scope of sustainability-related risks and opportunities in the value chain only on the occurrence of a significant event or change in circumstances (paper 2024-TAC-012); and
• using a different reporting period for greenhouse gas information obtained in the value chain information (paper 2024-TAC-014).

27The permission to use a different reporting period for greenhouse gas information obtained in the value chain is discussed in more detail in Part 3 of this paper.

Endorsement recommendations

Alternative options considered but not recommended

28In considering the TAC's endorsement recommendations on the mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements, the TAC Secretariat considered alternative options that have been disregarded, including:

28.1amending IFRS S1 and IFRS S2 by adding time limits to the proportionality mechanisms and permanent reliefs that are available. Although a few stakeholders were concerned about the permanent nature of some of the mechanisms, it might not be appropriate to add a time limit and therefore make the mechanisms transitional. These mechanisms are intended to provide relief for the more challenging aspects of the standards. The expectation is that entities will be able to evolve their practice and will therefore not need to use the mechanisms after the initial years of disclosure. However, in some circumstances, the permanent mechanisms may still be needed and therefore the TAC may consider these permanent mechanisms proportionate and appropriate in such circumstances.

Suggested endorsement recommendation

29On balance, and based on the analysis provided in this paper, the TAC is asked to tentatively recommend:

29.1to observe the application of the proportionality mechanisms as practice develops, and if there appears to be inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2. Although many stakeholders believe there are enough proportionality mechanisms to support the application of IFRS S1 and IFRS S2 across the market, some stakeholders raised concerns that entities might exploit these mechanisms and that the flexibility offered may make the disclosure of a compliance statement and obtaining assurance on the disclosure difficult in practice. By observing how entities apply these mechanisms, feedback can be provided to the ISSB for its post-implementation review—especially if these mechanisms are misused.

Questions for the TAC

1. Does the TAC agree with the analysis in this paper in relation to the mechanisms to support application of IFRS S1 and IFRS S2?
2. Does the TAC agree to tentatively recommend to observe the application of the proportionality mechanisms as practice develops, and if there appears to be inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2?

Part 2

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Analysis

30In Part 2 of this paper, the TAC is asked to discuss the transition reliefs in IFRS S1 and IFRS S2 (paragraphs 31–42) and the suggested effective dates for UK Sustainability Reporting Standards (paragraphs 43–48).

Transition reliefs

31In addition to the proportionality mechanisms, supportive guidance and permanent reliefs, both IFRS S1 and IFRS S2 include transition reliefs that are available to entities applying the standards for a limited period of time. These reliefs are focused on areas that stakeholders have indicated as being particularly challenging to disclose or may require the development of internal systems to be able to prepare the disclosure. IFRS S2 Basis for Conclusions paragraph BC174 notes that an entity is permitted to use, but is not required to use, the transition reliefs provided in IFRS S1 and IFRS S2. An entity could choose to disregard the reliefs and provide the information required by the standard if it so chooses. However, feedback from stakeholder engagement activities conducted by the TAC Secretariat suggests that UK entities—including large entities that have already disclosed sustainability-related information for several years—are likely to take advantage of the reliefs. These stakeholders noted that despite having disclosed sustainability-related information (particularly climate-related information) for several years, the application of IFRS S1 and IFRS S2 would be a step change compared to current practice and would require further and more granular data collection, which is why they are likely to use the transition reliefs that are offered in the standards.

32Unlike the permanent reliefs, each of the transition reliefs are only applicable for a certain period of time. The table below outlines each of the transition reliefs and when an entity would be able to apply them.

Transition relief	Description	Period available
'climate-first' reporting	IFRS S1 permits an entity to only disclose information on climate-related risks and opportunities in the first annual reporting period. Information related to other (non-climate) sustainability-related risks and opportunities must be disclosed from the second year of reporting.	First year
the timing of reporting	IFRS S1 permits an entity to report its annual sustainability-related financial disclosures after it has published the related financial statements, along with its half-year financial reports. All sustainability-related disclosures must be reported at the same time as the related financial statements from the second year of reporting.	First year
comparative disclosures	IFRS S1 and IFRS S2 permits an entity to not disclose comparative information in the first annual reporting period. In the second year of disclosure, an entity must provide comparative information on sustainability-related risks and opportunities. However, if an entity decides to apply the relief to disclose information on only climate-related risks and opportunities in the first annual reporting period, it does not need to provide comparative information about its sustainability-related risks and opportunities apart from climate in its second year.	First year
GHG Protocol	IFRS S2 permits an entity already using a different measurement method (than the GHG Protocol Corporate Standard) to calculate its greenhouse gas emissions to continue to use that method in the first annual reporting period.	First year
Scope 3 GHG emissions	IFRS S2 permits an entity to not disclose Scope 3 emissions in the first annual reporting period.	First year

33Most of the transition reliefs are only available for the first year of applying the standards. Although they are intended to give entities more time to prepare their disclosure by phasing in the most challenging elements, providing reliefs that are only available in the first year may create additional burden in the second year of reporting—therefore delaying the cost and burden rather than providing relief.

34Additionally, it is unclear whether entities stating full compliance with the standards are only able to utilise the transition reliefs in the first year of reporting, regardless of whether the standards are applied voluntarily or mandatorily. For example, if an entity applies the standards voluntarily and includes a statement of compliance while utilising the transition reliefs that are available, it is not clear whether the entity is able to use the transition reliefs again once the standards are mandated. This may not be an issue if an entity applies the standards voluntarily but does not include a statement of compliance. As this is an issue for implementation, this is an area that the UK Policy and Implementation Committee (PIC) should be aware of and discuss as part of its review of IFRS S1 and IFRS S2. The TAC may consider recommending that the PIC considers the implication of voluntary reporting on the entity's ability to apply transition reliefs.

35The table below demonstrates what information an entity would be expected to disclose year to year, and what information an entity can omit if applying all the reliefs that are available in both IFRS S1 and IFRS S2. As demonstrated below, the jump from year 1 to year 2 for entities applying the reliefs will be significant.

| Current transition reliefs in IFRS S1 and IFRS S2 Part 3 Timing of reporting 25 51–65
| Part 2 | Part 2 Effective date 13 31–42
| Transition reliefs | Part 3 Timing of reporting 25 51–65
| Transition reliefs | Part 3 Timing of reporting 25 51–65
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Executive summary

Date	08 October 2024
Paper reference	2024-TAC-021
Project	Technical assessment of IFRS S1 and IFRS S2
Topic	Mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements

Objective of the paper

This paper considers the mechanisms used in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) that are designed to support entities in applying the requirements. This paper includes a discussion about the proportionality mechanisms, application guidance, permanent reliefs, transition reliefs, effective date and concerns about the timing of reporting. The TAC is asked to consider all mechanisms together and decide whether further mechanisms are required, or whether existing mechanisms require amendment.

This paper is divided into three parts for ease of navigation.

Decisions for the TAC

Part 1 - proportionality mechanisms, application guidance and permanent reliefs

The TAC is asked to tentatively decide to:

• observe the application of the proportionality mechanisms as practice develops, and that if there is inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2.

Part 2 - transition reliefs and effective date

The TAC is asked to tentatively decide to:

• recommend that the PIC considers the implication of voluntary reporting on the entity's ability to apply transition reliefs.
• amend IFRS S1 by removing the transition relief in paragraph E4 that permits an entity to report its annual sustainability-related financial disclosures after it has published the related financial statements.
• amend the transition reliefs in IFRS S1 and IFRS S2 to either extend the 'climate-first' reporting or the Scope 3 emissions reliefs.

Part 3 - timing of reporting

• amend the effective date in both IFRS S1 and IFRS S2 to 1 January 2026, assuming that the UK Sustainability Reporting Standards are issued in Q2 2025.
• request that the ISSB provides clarity as to the intention of IFRS S1 paragraphs 66–67 that permits a different reporting period for sustainability-related disclosures, including when it can be applied by an entity. For example, can an entity apply this requirement for specific requirements or only for all sustainability-related disclosures.
• request that the ISSB considers how the requirement in IFRS S2 paragraph B19—that permits the use of different reporting period for value chain data—can be applied to sustainability-related matters other than greenhouse gas emissions. This might be through clarification of the existing requirements or as part of the upcoming research on biodiversity, ecosystems and ecosystem services (BEES), and human capital.
• observe practice relating to the use of different reporting periods for sustainability-related disclosures—with specific regard for financed emissions disclosures—and to feed back to the ISSB as part of its post-implementation review.
• amend both IFRS S1 and IFRS S2 to clarify that the reporting period for certain sustainability-related information might not be the same as the current reporting period for the financial statements. This may include amending IFRS S2, using the same language that is used in IFRS S1 paragraph 66, to require entities to disclose when and why the reporting period for greenhouse gas emissions data collected from value chain differs from the reporting period used for the financial statements.

Appendices

There are no appendices to this paper.

This paper has been prepared by the Secretariat for the UK Sustainability Disclosure Technical Advisory Committee (TAC) to discuss in a public meeting. This paper does not represent the views of the TAC or any individual TAC member.

This publication contains copyright material of the IFRS Foundation®. All rights reserved. Reproduced and distributed by the FRC in its role as the secretariat for the UK Sustainability Disclosure Technical Advisory Committee with the permission of the IFRS Foundation. Reproduction and use rights are strictly limited. For more information about the IFRS Foundation and rights to use its material please visit www.ifrs.org.

Disclaimer: To the extent permitted by applicable law the International Sustainability Standards Board and the IFRS Foundation expressly disclaims all liability howsoever arising from this publication or any translation thereof whether in contract, tort or otherwise (including, but not limited to, liability for any negligent act or omission) to any person in respect of any claims or losses of any nature including direct, indirect, incidental or consequential loss, punitive damages, penalties or costs.

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IFRS

Context

1Both IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) include mechanisms that are designed to support entities when applying the requirements, either broadly or for specific requirements. These mechanisms include:

• proportionality mechanisms—which provide flexibility in the requirements appropriate to the entity's circumstances;
• application guidance—supporting the application of the requirements;
• permanent reliefs—that permit entities to disclose different information, omit information, or permit a different approach to the collection and disclosure of information in certain circumstances without a time limit;
• transition reliefs—permitting entities to omit certain information in certain circumstances with a specified time limit; and
• effective date—balancing timely implementation of the standards with sufficient time for entities to prepare.

2The relevant references to the requirements in IFRS S1 and IFRS S2 are as follows:

• IFRS S1
  • Financial position, financial performance and cash flows paragraphs 34–40
  • Timing of reporting paragraphs 64–68
  • Measurement uncertainty paragraphs 77–82
  • Identifying sustainability-related risks and opportunities paragraphs B6–B7
  • Reasonable and supportable information paragraphs B8–B10
  • Appendix E Effective date and transition paragraphs E1–E6
• IFRS S2
  • Climate-related risks and opportunities paragraphs 10–11
  • Financial position, financial performance and cash flows paragraphs 15–21
  • Climate resilience paragraphs 22, B1, B6–B7
  • Climate-related metrics paragraphs 29(b)–(g) and 30
  • Appendix C Effective date and transition paragraphs C1–C5

3This paper provides an analysis of all the mechanisms together so that the TAC can ascertain whether together they are sufficient and whether any amendments to IFRS S1 and IFRS S2 are necessary for the effective implementation of the standards within the UK. The TAC is asked to consider the preparedness of entities in the UK that will apply the standards, and whether the mechanisms described in paragraph 1 are appropriate and sufficient to enable entities to apply the requirements consistently.

4The TAC also requested further discussion about the requirements relating to the timing of reporting. This technical area is discussed in this paper alongside the mechanisms listed in paragraph 1 to provide the TAC with a holistic view of whether there is sufficient support for an entity to apply the requirements in IFRS S1 and IFRS S2.

5For ease of navigation, this paper is divided into three sections:

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Endorsement criteria

6The endorsement criteria applied in the analysis of this technical area include whether:

use of the IFRS Sustainability Disclosure Standard is likely to result in an improvement in the international comparability of sustainability-related reporting in the UK. use of the IFRS Sustainability Disclosure Standard is likely to support companies in making disclosures that are understandable, relevant, reliable and comparable. use of the IFRS Sustainability Disclosure Standard is likely to improve the quality of corporate reporting within the UK in the long term. companies are likely to be able to provide the disclosures required by the IFRS Sustainability Disclosure Standard within the timeframes that a company normally reports without undue cost or effort. use of the IFRS Sustainability Disclosure Standard is likely to be conducive to the UK's economic growth and international competitiveness, taking into account the costs and benefits of compliance.

Part 1

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Analysis

7In Part 1 of this paper, the TAC is asked to discuss the mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements—notably the proportionality mechanism (paragraphs 8–18), the application and accompanying guidance (paragraphs 19-24) and the permanent reliefs (paragraphs 25–27).

Proportionality mechanisms

8Based on feedback from stakeholders on the Exposure Drafts, the ISSB decided to introduce proportionality mechanisms to respond to concerns about preparedness, resource constraints, data availability, and the availability of specialists to be able to apply the requirements. The concept of proportionality in this context considers the nature, volume, and complexity of the disclosures in the context of the different circumstances (e.g., size, capabilities, and complexity) of entities that might apply the standards and attempts to provide a reasonable approach that takes into consideration these different circumstances. For example, FTSE 100 entities may have significantly more resources than smaller entities that mean they are able to meet the requirements of the standards, but also FTSE 100 entities are more likely to have complex organisational structures that make it difficult to apply the standards in full immediately. The mechanisms used by the ISSB in IFRS S1 and IFRS S2 are intended to provide a certain amount of flexibility in relation to specific requirements that support entities with different circumstances to be able to apply the standards to the best of their ability.

9The proportionality mechanisms for both IFRS S1 and IFRS S2 are included in the table below. The ISSB describes the concept of 'unable to do so' as additional clarification rather than a proportionality mechanism. However, it is a concept used in the standards to support entities in applying the standards—whether or not to specifically resolve the issue of proportionality—and therefore has been included in the table below for the TAC's review.

Technical area	Concept of 'reasonable and supportable information...'	Consideration of skills, capabilities and resources	Concept of 'unable to do so'
Identification of risks and opportunities	X
Determination of the scope of the value chain	X
Current financial effects			X
Anticipated financial effects	X	X	X
Climate-related scenario analysis	X	X
Measurement of Scope 3 greenhouse gas emissions	X
Calculation of metrics (in particular cross-industry metric categories)	X

10The proportionality mechanisms used in IFRS S1 and IFRS S2 are described in more detail in the following paragraphs.

11In response to the TAC's call for evidence, many stakeholders generally believe there are enough proportionality mechanisms built into the standards to support application across the market. However, some stakeholders advised that the flexibility offered through the proportionality mechanisms might make the disclosure of compliance and obtaining assurance on the disclosure difficult in practice. These stakeholders requested guidance on how an entity can assert compliance with the standards if they have used any of the proportionality mechanisms. It is important to note that an entity can provide a compliance statement even if it has used the proportionality mechanisms available in the standard. However, if an entity has not disclosed the fact that it has used these mechanisms—which in some cases it is not required to disclose—then assurance providers, users or regulators may question the use of the mechanisms and the judgements applied when deciding to applying them.

12Additionally, a few stakeholders raised concerns about these mechanisms being a permanent part of the standard, noting that entities may use them as an excuse to omit certain information for multiple reporting periods. In some cases, the proportionality mechanisms assume that as entities become more familiar with reporting sustainability-related risks and opportunities and the practice matures, an entity should not be able to assert that it does not have the skills, capabilities and resources. Therefore, the proportionality mechanisms can also be viewed as a temporary solution to proportionality needs in the first years of disclosure. For example, IFRS S2 paragraph B7 states that:

Climate-related scenario analysis can be resource intensive and might—through an iterative learning process—be developed and refined over multiple planning cycles. As an entity repeats the climate-related scenario analysis, it is likely to develop skills and capabilities that will enable the entity to strengthen its approach to climate-related scenario analysis over time.

However, the concerns raised by stakeholders that entities might exploit the proportionality mechanisms could be an area for observation as practice develops. Therefore, the TAC may consider recommending that the application of the proportionality mechanisms is observed as practice develops, and if there appears to be inappropriate use of them this is shared with the ISSB when it completes its post-implementation review of the standards.

The concept of ‘reasonable and supportable information...'

13In several places within both IFRS S1 and IFRS S2, the ISSB has utilised the concept of 'all reasonable and supportable information that is available at the reporting date without undue cost or effort' which specifies the type of information an entity is required to use when preparing its disclosures. In this paper, this concept is referred to in the shortened form ‘reasonable and supportable'. This concept is not new and is used in IFRS Accounting Standards in specific circumstances to support entities in applying requirements that have a high level of measurement uncertainty. Using a similar approach, the ISSB only uses this concept in IFRS S1 and IFRS S2 in relation to requirements that have a high level of judgement or measurement uncertainty, and also to emphasise that entities are not required to carry out an exhaustive search for information that might not be available without undue cost or effort.

14This mechanism is used in IFRS S1 and IFRS S2 in relation to requirements that have been acknowledged as particularly challenging. For example, in paper 2024-TAC-010 on identifying sustainability-related risks and opportunities, it was noted that in response to the TAC's call for evidence, stakeholders highlighted that the identification of sustainability-related risks and opportunities will be more challenging than asking entities to only consider climate-related risks and opportunities. Additionally, some stakeholders raised concerns about the instruction to disclose information about 'all' sustainability-related risks and opportunities, noting that there is a large breadth of sustainability-related matters that could be incorporated into the disclosure. Stakeholders also suggested that entities that are not familiar with this type of reporting may struggle to establish the internal processes and prepare their disclosures on matters other than climate change which would create significant cost and effort from the entity, especially in the initial years of applying IFRS S1. Therefore, the concept of 'reasonable and supportable' is intended to assuage these concerns by only requiring entities to identify sustainability-related risks and opportunities that it is able to obtain relevant information about.

Consideration of skills, capabilities and resources

15For two specific requirements in the standards, entities are able to use an approach that is commensurate with their circumstances which includes the skills, capabilities and resources that are available to the entity when preparing disclosures. These requirements are in relation to disclosing the anticipated financial effects of sustainability-related risks and opportunities (in both IFRS S1 and IFRS S2) and using climate-related scenario analysis (only in IFRS S2) which have been generally regarded by stakeholders as being challenging requirements that necessitate specialist skills and capabilities (either internal or external). This requirement also replaced the wording 'unable to do so' in certain places in the Exposure Drafts to provide further clarity as to the circumstances in which an entity may be unable to provide the disclosure.

The concept of 'unable to do so'

16The concept of 'unable to do so' was used twice in the Exposure Drafts of IFRS S1 and IFRS S2 in relation to proposed requirements on current and anticipated financial effects and the use of climate-related scenario analysis. Based on feedback from stakeholders, the ISSB amended the language in IFRS S1 and IFRS S2 to be more specific about what would reasonably prevent an entity from disclosing the required information.

17For climate-related scenario analysis the wording 'unable to do so' was replaced with permitting entities to use an approach that is commensurate with their circumstances which allows the entities to take a more basic approach if it does not have the skills, capabilities and resources to complete a comprehensive scenario analysis. Large entities (e.g., PIEs) may be unable to justify that they do not have the resources to be able to conduct a comprehensive scenario analysis.

18For the requirements on current and anticipated financial effects the wording 'unable to do so' was replaced with multiple and more specific permissions. Only relating to anticipated financial effects, IFRS S1 permits entities to use ‘reasonable and supportable' information and also an approach that is commensurate with the skills, capabilities and resources that are available to the entity. This permission is only available for anticipated financial effects as this requires forward-looking analysis that may be highly challenging for some entities. Entities need only disclose quantitative information about both current and anticipated financial effects if the effects are separately identifiable—i.e., can be attributed to a specific sustainability-related risk or opportunity—and if the level of measurement uncertainty is so high that the resulting quantitative information would not be useful to users.

Guidance and educational material

19There are several approaches that the ISSB has taken to provide guidance on the requirements in IFRS S1 and IFRS S2. Application Guidance is part of the standards and is located in the appendix to the standards. As noted in both IFRS S1 and IFRS S2, the ‘appendix is an integral part of IFRS [S1/S2] and has the same authority as the other parts of the Standard'. This means that the guidance and requirements in the Application Guidance are required to be applied as part of the standard. The Application Guidance is part of the TAC's assessment of IFRS S1 and IFRS S2.

20The ISSB has developed application guidance on the following requirements.

• For IFRS S1 application guidance is available for the requirements relating to:
  • identifying sustainability-related risks and opportunities, and disclosing material information about such risks and opportunities;
  • identifying material information; and
  • connected information.
• For IFRS S2 application guidance is available for the requirements relating to:
  • applying scenario analysis to assess a company's climate resilience;
  • measuring Scope 1, Scope 2 and Scope 3 greenhouse gas emissions, including a framework for the measurement of Scope 3 greenhouse gas emissions;
  • disclosing information relevant to the cross-industry metric categories; and
  • disclosing information about the climate-related targets a company may have set or is required to meet by law or regulation.

21The TAC has already discussed the relevant requirements in the application guidance in previous meetings. The TAC will further discuss the concept and requirements relating to connectivity in a future meeting.

22Alongside the application guidance, both IFRS S1 and IFRS S2 also have Accompanying Guidance that is not part of the standards but provides illustrative guidance and illustrative examples that are intended to support the application of the requirements. There are currently no plans to endorse the Accompanying Guidance in the UK, which means that the content of this guidance is excluded from the technical assessment of IFRS S1 and IFRS S2. The content of this guidance is presented in this paper to provide context as to the support provided by the ISSB for entities when applying the requirements in the standards.

23The ISSB has provided accompanying guidance on the following requirements.

• For IFRS S1 accompanying guidance is available for the requirements relating to:
  • who 'primary users' are;
  • how companies should apply sources of guidance for identifying sustainability-related risks and opportunities and applicable disclosure requirements; and
  • examples of considering and applying the SASB Standards.
• For IFRS S2 accompanying guidance is available for the requirements relating to:
  • metrics that could be disclosed as part of information relevant to the cross-industry metric categories;
  • examples of disclosing greenhouse gas emissions information applying the principles in IFRS S1 for aggregation and disaggregation; and
  • industry-based guidance on identifying disclosure topics and metrics about climate-related risks and opportunities.

24In response to the TAC's call for evidence, many stakeholders agreed that there are enough proportionality and relief mechanisms built into the standards to support application across the market. However, many stakeholders also requested additional implementation guidance, especially on the more challenging elements of the standards. The TAC has already discussed the need for additional guidance in relation to specific technical areas of the standards and will further discuss these as part of the final advice to the Secretary of State.

Permanent reliefs

25Alongside proportionality mechanisms and supportive guidance, IFRS S1 and IFRS S2 include permissions that do not have a time limit—referred to in this paper as permanent reliefs. Some stakeholders colloquially refer to these permissions as 'permanent reliefs' as opposed to the transition relief that is only available to an entity for a specified period of time.

26The TAC has already discussed and, apart from the permanent relief on using a different reporting period, agreed to maintain these permissions in previous meetings. These include permissions that relate to:

• commercially sensitive information (paper 2024-TAC-006);
• using a measurement method other than GHG Protocol Corporate Standard if required by a jurisdiction (paper 2024-TAC-013);
• reassessing the scope of sustainability-related risks and opportunities in the value chain only on the occurrence of a significant event or change in circumstances (paper 2024-TAC-012); and
• using a different reporting period for greenhouse gas information obtained in the value chain information (paper 2024-TAC-014).

27The permission to use a different reporting period for greenhouse gas information obtained in the value chain is discussed in more detail in Part 3 of this paper.

Endorsement recommendations

Alternative options considered but not recommended

28In considering the TAC's endorsement recommendations on the mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements, the TAC Secretariat considered alternative options that have been disregarded, including:

28.1amending IFRS S1 and IFRS S2 by adding time limits to the proportionality mechanisms and permanent reliefs that are available. Although a few stakeholders were concerned about the permanent nature of some of the mechanisms, it might not be appropriate to add a time limit and therefore make the mechanisms transitional. These mechanisms are intended to provide relief for the more challenging aspects of the standards. The expectation is that entities will be able to evolve their practice and will therefore not need to use the mechanisms after the initial years of disclosure. However, in some circumstances, the permanent mechanisms may still be needed and therefore the TAC may consider these permanent mechanisms proportionate and appropriate in such circumstances.

Suggested endorsement recommendation

29On balance, and based on the analysis provided in this paper, the TAC is asked to tentatively recommend:

29.1to observe the application of the proportionality mechanisms as practice develops, and if there appears to be inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2. Although many stakeholders believe there are enough proportionality mechanisms to support the application of IFRS S1 and IFRS S2 across the market, some stakeholders raised concerns that entities might exploit these mechanisms and that the flexibility offered may make the disclosure of a compliance statement and obtaining assurance on the disclosure difficult in practice. By observing how entities apply these mechanisms, feedback can be provided to the ISSB for its post-implementation review—especially if these mechanisms are misused.

Questions for the TAC

Does the TAC agree with the analysis in this paper in relation to the mechanisms to support application of IFRS S1 and IFRS S2? Does the TAC agree to tentatively recommend to observe the application of the proportionality mechanisms as practice develops, and if there appears to be inappropriate use of these mechanisms this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2?

Part 2

Contents	Page number	Paragraph numbers
Part 1
Proportionality mechanisms	6	8–18
Guidance and educational material	9	19–24
Permanent reliefs	11	25–27
Part 2
Transition reliefs	13	31–42
Effective date	20	43–48
Part 3
Timing of reporting	25	51–65

Analysis

30In Part 2 of this paper, the TAC is asked to discuss the transition reliefs in IFRS S1 and IFRS S2 (paragraphs 31–42) and the suggested effective dates for UK Sustainability Reporting Standards (paragraphs 43–48).

Transition reliefs

31In addition to the proportionality mechanisms, supportive guidance and permanent reliefs, both IFRS S1 and IFRS S2 include transition reliefs that are available to entities applying the standards for a limited period of time. These reliefs are focused on areas that stakeholders have indicated as being particularly challenging to disclose or may require the development of internal systems to be able to prepare the disclosure. IFRS S2 Basis for Conclusions paragraph BC174 notes that an entity is permitted to use, but is not required to use, the transition reliefs provided in IFRS S1 and IFRS S2. An entity could choose to disregard the reliefs and provide the information required by the standard if it so chooses. However, feedback from stakeholder engagement activities conducted by the TAC Secretariat suggests that UK entities—including large entities that have already disclosed sustainability-related information for several years—are likely to take advantage of the reliefs. These stakeholders noted that despite having disclosed sustainability-related information (particularly climate-related information) for several years, the application of IFRS S1 and IFRS S2 would be a step change compared to current practice and would require further and more granular data collection, which is why they are likely to use the transition reliefs that are offered in the standards.

32Unlike the permanent reliefs, each of the transition reliefs are only applicable for a certain period of time. The table below outlines each of the transition reliefs and when an entity would be able to apply them.

Transition relief	Description	Period available
'climate-first' reporting	IFRS S1 permits an entity to only disclose information on climate-related risks and opportunities in the first annual reporting period. Information related to other (non-climate) sustainability-related risks and opportunities must be disclosed from the second year of reporting.	First year
the timing of reporting	IFRS S1 permits an entity to report its annual sustainability-related financial disclosures after it has published the related financial statements, along with its half-year financial reports. All sustainability-related disclosures must be reported at the same time as the related financial statements from the second year of reporting.	First year
comparative disclosures	IFRS S1 and IFRS S2 permits an entity to not disclose comparative information in the first annual reporting period. In the second year of disclosure, an entity must provide comparative information on sustainability-related risks and opportunities. However, if an entity decides to apply the relief to disclose information on only climate-related risks and opportunities in the first annual reporting period, it does not need to provide comparative information about its sustainability-related risks and opportunities apart from climate in its second year.	First year
GHG Protocol	IFRS S2 permits an entity already using a different measurement method (than the GHG Protocol Corporate Standard) to calculate its greenhouse gas emissions to continue to use that method in the first annual reporting period.	First year
Scope 3 GHG emissions	IFRS S2 permits an entity to not disclose Scope 3 emissions in the first annual reporting period.	First year

33Most of the transition reliefs are only available for the first year of applying the standards. Although they are intended to give entities more time to prepare their disclosure by phasing in the most challenging elements, providing reliefs that are only available in the first year may create additional burden in the second year of reporting—therefore delaying the cost and burden rather than providing relief.

34Additionally, it is unclear whether entities stating full compliance with the standards are only able to utilise the transition reliefs in the first year of reporting, regardless of whether the standards are applied voluntarily or mandatorily. For example, if an entity applies the standards voluntarily and includes a statement of compliance while utilising the transition reliefs that are available, it is not clear whether the entity is able to use the transition reliefs again once the standards are mandated. This may not be an issue if an entity applies the standards voluntarily but does not include a statement of compliance. As this is an issue for implementation, this is an area that the UK Policy and Implementation Committee (PIC) should be aware of and discuss as part of its review of IFRS S1 and IFRS S2. The TAC may consider recommending that the PIC considers the implication of voluntary reporting on the entity's ability to apply transition reliefs.

35The table below demonstrates what information an entity would be expected to disclose year to year, and what information an entity can omit if applying all the reliefs that are available in both IFRS S1 and IFRS S2. As demonstrated below, the jump from year 1 to year 2 for entities applying the reliefs will be significant.

	Disclosures shall include	Disclosures do not have to include (transition reliefs available)
Year 1	- Climate change only, without Scope 3 emissions or use of GHG Protocol Corporate Standard Could be disclosed up to 9 months after publishing financial statements.	- All other sustainability-related matters, including comparatives- Comparatives for all climate-related data- Scope 3 emissions data (incl. financed emissions)- Use of GHG Protocol Corporate Standard
Year 2	- All sustainability-related matters- All climate change, including: - Scope 3 emissions (incl. financed emissions) - Comparatives (other than Scope 3 emissions) - Use of GHG Protocol Corporate Standard	- Comparatives for other sustainability-related matters- Comparatives for Scope 3 emissions data (incl. financed emissions)
All information shall be disclosed at the same time as the financial statements.
Year 3	All information	No exclusions

36In response to the TAC's call for evidence, most stakeholders welcomed the transition reliefs and noted that they are proportionate and focused on the areas that are particularly challenging. However, some stakeholders suggested that only providing one year's relief on certain elements of the standards would not be enough and requested that these are extended to 2 years. These stakeholders suggested that extension of the transition reliefs would be preferable to substantial 'carve out' of any requirement(s). However, other stakeholders, notably investors, suggested that any extension to the transition reliefs would compromise the timely disclosure of information that they need to make capital allocation decisions. Other jurisdictions, including Canada and Singapore, have proposed extensions to some of the transition reliefs—'climate-first' reporting and Scope 3 emissions—which has been met with diverging opinions from the market.

37In May 2024 the IFRS Foundation published its inaugural jurisdictional adoption guide that sets out possible routes to implementation of the IFRS Sustainability Disclosure Standards. In this guide, the IFRS Foundation does not consider or classify extensions of the transition reliefs as 'jurisdictional modifications'. Therefore, if the UK were to extend any of the transition reliefs, this would not be seen as compromising the global baseline. Responding to stakeholder requests for a 'phased approach' to the implementation of the standards, the TAC Secretariat believes that extending one or two of the transition reliefs is preferable to introducing phased effective dates that would cover the entire standards. While recognising the concerns of investors that delays to reporting are not ideal, the TAC Secretariat believes that extensions to one or two of the transition reliefs are a reasonable and balanced approach, since it also recognises concerns from reporting entities that IFRS S1 and IFRS S2 will result in a significant jump in the expected granularity and quality of reporting from year one to two. Therefore, the TAC may consider amending the transition reliefs in IFRS S1 and IFRS S2 to either extend the ‘climate-first' reporting or the Scope 3 emissions reliefs. By extending one of these transition reliefs and creating a more balanced and phased approach, it is expected that the reporting entities will benefit from having more time to prepare the challenging elements of the standards while maintaining the global baseline.

38Additionally, the TAC Secretariat believes that the transition relief relating to the timing of reporting is potentially unhelpful and could lead to a downgrade of current practice in the UK. The TAC may consider removing the transition relief in IFRS S1 that permits an entity to report its annual sustainability-related financial disclosures after it has published the related financial statements. Current reporting requirements in the UK—including those related to TCFD disclosures—require the disclosure of sustainability-related information as part of an entity's annual report and at the same time as the financial statements. In practice, some entities provide additional information in a separate report which may not be published at the same time as the financial statements, but this would not meet the requirements in IFRS S1 for information to be disclosed in the same location as general purpose financial information. There are some practical challenges with the transition relief as described below.

38.1If an entity utilises the transition relief to disclose sustainability-related information up to 9 months after publishing financial statements in the first year, only 3 months later the entity will be required to start preparing its sustainability-related information to be disclosed at the same time as the financial statements in the second year. This means that in the second year of reporting, the entity will have less time to prepare its disclosure. Although this transition relief may ease cost and burden in the first year, there is a risk that the cost and burden will increase significantly in the second year. There is also a risk that entities do not use the longer time period available to prepare the year two reporting requirements and this diminishes the quality of the second year reporting.

38.2Allowing entities to disclose the sustainability-related information at a different time compromises the principle of connectivity and removes comparability with the financial statements and other narrative reporting that an entity provides in the Strategic Report.

38.3The justification provided by the ISSB as to why this transition relief was made available was to respond to several concerns about data availability and preparer readiness. As noted in IFRS S1 Basis for Conclusions paragraph BC173, the ISSB decided that this relief would be a reasonable balance between giving entities more time to prepare disclosures while maintaining the objective of timely reporting. However, the concerns from stakeholders primarily focused on metrics and lags in data collection in the value chain including Scope 3 emissions. There were no concerns relating to the disclosure requirements for Governance and Risk Management, and some of the requirements relating to Strategy. Therefore, it may be concluded that a broad delay to all requirements in the standards may be unnecessary, especially as additional reliefs are available in the standards that deal with specific requirements.

38.4Additionally, the concerns raised by stakeholders relating to metrics and lags in data collection in the value chain including Scope 3 emissions have been addressed in other areas. For example, the transition relief for Scope 3 emissions, plus the application guidance and proportionality mechanisms may be sufficient which, again, renders the broad transition relief on timing of reporting unnecessary.

39The options for the amendments to the transition reliefs are demonstrated in the tables below.

| Option 1: Extending disclosure of all sustainability-related risks and opportunities ('climate first' reporting) to two years Part | Year 1 | - Climate change only, without Scope 3 emissions or use of GHG Protocol Corporate Standard Could be disclosed up to 9 months after publishing financial statements. | - All other sustainability-related matters, including comparatives- Comparatives for all climate-related data- Scope 3 emissions data (incl. financed emissions)- Use of GHG Protocol Corporate Standard | | Year 2 | - All sustainability-related matters- All climate change, including: - Scope 3 emissions (incl. financed emissions) - Comparatives (other than Scope 3 emissions) - Use of GHG Protocol Corporate Standard | - Comparatives for other sustainability-related matters- Comparatives for Scope 3 emissions data (incl. financed emissions) | | All information shall be disclosed at the same time as the financial statements. | | | | Year 3 | All information | No exclusions |

| Option 2: Extending Scope 3 emissions to two years Part 3 Timing of reporting 25 51–65
| Transition reliefs | Part 3 Timing of reporting 25 51–65
| Transition reliefs | Part 3 Timing of reporting 25 51–65
| Transition reliefs |

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Name TAC Public Meeting October 2024 Paper 3: Mechanisms to support application

Publication date 01 October 2024

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