In deliberating stakeholder comments on the ISSB’s exposure drafts of IFRS S1 and IFRS S2, the ISSB acknowledges that entities have different levels of readiness as well as skills, resources and capabilities to apply the ISSB Standards. In order to make the ISSB Standards truly scalable to cater to different entities’ ability to make sustainability disclosures, the ISSB has introduced two key proportionality mechanisms into the ISSB Standards, namely:
(i) The ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’ mechanism; and
(ii) the ‘skills, capabilities and resources available to the entity’ mechanism.
The concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’ is intended to help entities provide the disclosures required by the ISSB Standards in areas in which there is a high level of measurement or outcome uncertainty. The concept, which has previously been used by the International Accounting Standards Board, will support entities by guiding them to consider information that is reasonably available and by clarifying that they need not carry out an exhaustive search for information.
The concept of ‘skills, capabilities and resources available to the entity’ allows entities to apply qualitative approaches (instead of quantitative approaches) in several instances in IFRS S1 and S2. This concept was introduced to ensure that entities are able to apply the requirements in a way that is proportionate to their circumstances while still providing useful information to investors.
The table below summarises the proportionality mechanisms in IFRS S1 and S2:
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Information used limited to what is reasonable, supportable and available without undue cost or effort
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Qualitative approaches allowed if an entity lacks skills, capabilities or resources
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Determination of anticipated financial effects
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Yes
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Yes
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Climate-related scenario analysis
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Yes
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Yes
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Measurement of scope 3 GHG emissions
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Yes
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N/A
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Identification of risks and opportunities
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Yes
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N/A
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Determination of the scope of the value chain
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Yes
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N/A
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Calculation of metrics in some cross-industry categories
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Yes
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N/A
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The introduction of proportionality mechanisms in IFRS S1 and S2 is intended to assist entities particularly when the ISSB Standards are first applied. Guidance on key requirements (including illustrative examples) is provided in the ISSB Standards to aid application. These mechanisms are likely to be particularly helpful for those entities that might be less able to comply with the disclosure requirements in the Standards.
The full alignment with IFRS S1 and S2 means that the full range of proportionality mechanisms embedded in the ISSB Standards are available in the HKFRS SDS.
To enhance awareness and understanding of the proportionality mechanisms, the HKICPA has issued two pieces of educational guidance (Two important ideas in IFRS S1 and IFRS S2 to facilitate proportionality and scalability; and Considerations of Skills, Capabilities and Resources in Climate-Related Scenario Analysis) in early 2024 to explain these concepts and the ISSB is in the process of developing further guidance on how to apply these proportionality mechanisms.
*The information in this FAQ is adapted from paragraphs 18 to 23 of the ISSB Inaugural Jurisdictional Guide.
