24 January 2023 (Updated 31 August 2023)
What’s the issue?
Information, including forward-looking information, that is subject to judgement or uncertainty is fundamental to sustainability-related financial disclosures. Therefore, the International Sustainability Standards Board (ISSB) is helping companies understand what is expected of them when identifying relevant information to support their disclosures.
The standards1 include many areas where high levels of judgement or uncertainty can make it challenging to provide disclosures – e.g:
- identifying relevant risks and opportunities;
- reporting on the value chain, such as:
- assessing the scope of the value chain; and
- measuring Scope 3 greenhouse gas (GHG) emissions;
- anticipating future financial statement effects from sustainability-related risks and opportunities;
- applying climate-related scenario analysis; and
- calculating certain cross-industry metrics.
Providing sustainability-related financial disclosures can be challenging for companies because of the high level of judgement or uncertainty involved. The ISSB has provided a practical solution, leveraging IFRS® Accounting Standards to help companies identify the type of information to use for disclosures in a scalable way.
What are the requirements?
To support companies in providing disclosures in these areas, the standards use the concept of ‘reasonable and supportable information that is available to the company at the reporting date without undue cost or effort’.
Some companies use the same concept when estimating expected credit losses under IFRS 9 Financial Instruments and future cash flows under IFRS 17 Insurance Contracts.
| Concept | Concept explained |
| Reasonable and supportable information | Companies need to have a reasonable basis for using the information. It needs to be relevant to what is being reported. Appropriate governance and controls need to be in place to ensure that the information can be supported. |
| Available without ‘undue cost or effort’ | Companies need to consider all information that is ‘reasonably available’ to them. This also means that they cannot disregard any information they already have or know about. However, they do not need to undertake an exhaustive search for information. ‘Undue cost or effort’ weighs the costs and benefits of information and is proportionate to the company, considering the:
|
| At the reporting date | Where relevant, companies consider information about past events, current conditions and forecasts of future conditions as at the reporting date. The information available, particularly forward-looking information, will change over time. |
For example, information from existing systems or information that is otherwise available for financial reporting, business operations, strategy setting and risk management purposes is considered to be available without ‘undue cost or effort’. In some instances, companies will source additional information reasonably available to them for their sustainability-related financial disclosures.
What’s the impact?
The concept of ‘reasonable and supportable’ aims to support all types of company to report information with a high degree of judgement or uncertainty because it is proportionate based on an individual company’s circumstances. However, it does not give companies an exemption from providing the required disclosures.
Each company needs to assess what reasonable and supportable information it has and can reasonably obtain to support its disclosures, but it does not need to perform an exhaustive search.
To ensure information is supportable, companies need to ensure they have the appropriate processes, systems and controls in place. This is likely to require additional cost and effort, in terms of management time and/or direct spend, but is proportionate.
This is not a one-time assessment. The ISSB expects that over time the quality of reasonable and supportable information will improve as companies gain experience of reporting and data becomes more readily available.
Actions for management
- Read our guide for more on the requirements involving disclosures with high levels of judgement or uncertainty.
- Understand the information required to support these disclosures, including what is reasonably available to you.
- Assess whether any existing systems, processes and controls are sufficient to support these disclosures.
- Develop a roadmap to improve information for disclosures over time.
1 IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (together 'the standards').
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