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Strengthen governance to support robust sustainability reporting
Many companies operating in industries and/or geographical locations that are considered highly exposed to climate-related risks may have already been disclosing not only their boards’ oversight of climate-related risks and opportunities but also management’s role in assessing and dealing with such risks, as recommended by the Task Force on Climate-Related Financial Disclosures (TCFD). However, it is important to note that IFRS S1 covers a much broader spectrum of sustainability topics besides climate change and the disclosure requirements include, for example:
- How the board oversees the setting of targets and monitors progress towards them, including whether those metrics influence the remuneration policies;
- Whether dedicated controls and procedures are applied to management of sustainability-related risks and opportunities; and
- How these controls and procedures are integrated with other internal functions.
To reap the full potential of IFRS S1, companies need to strengthen their governance, redesign controls and rethink their processes and procedures. To capture and monitor sustainability-related financial disclosures required by the standard, companies will need to go far beyond updating the organization chart and will have to match their commitments with the necessary expertise and experience of leadership teams as well as sustainability professionals.
Identify a comprehensive set of sustainability-related risks and opportunities
Although a company may take advantage of the relief permitting it to report on only climate-related risks and opportunities in the first year of applying IFRS S1, eventually, to make sure it is aligned with IFRS S1 from the second year of application, it needs to identify a complete and valid set of sustainability-related risks and opportunities. This would directly impact how companies define what the risk management activities could be as well as how the metrics and targets could be identified and used.