{"id":1627,"date":"2024-03-07T17:00:00","date_gmt":"2024-03-07T17:00:00","guid":{"rendered":"https:\/\/www.tejwin.com\/en\/insights\/an-introduction-to-ifrs-s1align-quantitative-method-with-esg\/"},"modified":"2024-03-07T17:00:00","modified_gmt":"2024-03-07T17:00:00","slug":"an-introduction-to-ifrs-s1align-quantitative-method-with-esg","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insights\/an-introduction-to-ifrs-s1align-quantitative-method-with-esg\/","title":{"rendered":"An Introduction to IFRS S1\uff01Align quantitative method with ESG"},"content":{"rendered":"
\"An<\/figure>\n

Intro<\/strong><\/h2>\n

Greenwashing refers to companies trying to gain public trust by claiming to have environmental, social, and corporate governance (ESG) contributions or making carbon reduction declarations, but taking little action. To prevent such behavior and to strengthen corporate focus on sustainable ESG disclosure, the International Financial Reporting Standards Foundation (IFRS Foundation) has developed a globally applicable set of sustainability disclosure standards with an accounting foundation\u2014the IFRS Sustainability Disclosure Standards. In this article, we will start by introducing the IFRS Foundation, and then delve into the main content of the IFRS S1 as well as how Taiwan aligns with international sustainability disclosure standards.<\/p>\n

IFRS Foundation \u2014 Sustainability Disclosure<\/strong><\/h2>\n

IFRS Foundation is a non-profit organization responsible for developing high-quality global accounting standards, known as IFRS Standards. Their mission is to create standards that enhance transparency, accountability, and efficiency for financial markets worldwide. By fostering trust, growth, and long-term financial stability in the global economy, their work brings public interests.<\/p>\n

IFRS Foundation oversees two organizations: International Accounting Standards Board (IASB) and International Sustainability Standards Board (ISSB). While IASB is responsible for publishing International Financial Reporting Standards (IFRS), ISSB is in charge of IFRS Sustainability Disclosure Standards (IFRS S1\/S2).<\/p>\n

\"IFRS
IFRS Foundation Relationship (Source\uff1aTEJ)<\/figcaption><\/figure>\n

IFRS Sustainability Disclosure Standards is based on SASB standards, TCFD framework, and IFRS accounting concept. In current 2 versions, IFRS S1 stipulates where and how to make sustainability-related financial disclosures, while IFRS S2 emphasizes more on climate-related disclosures.<\/p>\n

What is IFRS S1\uff1f<\/strong><\/h2>\n

IFRS S1 requires companies to disclose any risk and opportunity that would impact future cash flows (FCF), financing abilities, and capital expenditure (CapEx). Moreover, risks and opportunities that can be reasonably estimated should be categorized as short-term, mid-term, and long-term. In other words, risks and opportunities that can\u2019t be reasonably estimated are not under the regulation of IFRS S1. Similar to \u201cConceptual Framework for Financial Reporting\u201d under IFRS, IFRS S1 also serves as a basis for all Sustainability Disclosure Standards, meaning that IFRS S2 and other versions that may be released should all abide by IFRS S1.\u00a0<\/p>\n

Basic Concept of Sustainability Disclosure Standards\u00a0<\/strong><\/h2>\n

Since sustainability disclosures are still a part of financial reports, IFRS S1 refers to IFRS Conceptual Framework for Financial Reporting and established 4 basic concept:<\/p>\n

    \n
  1. Fair Presentation:\u00a0<\/strong><\/li>\n<\/ol>\n

    An entity shall provide a complete, neutral and accurate depiction of all sustainability-related risks and opportunities that could reasonably be expected to affect an entity\u2019s prospects.<\/p>\n

      \n
    1. Materiality:<\/strong><\/li>\n<\/ol>\n

      An entity shall disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entity\u2019s prospects.<\/p>\n

        \n
      1. Reporting Entity:<\/strong><\/li>\n<\/ol>\n

        An entity\u2019s sustainability-related financial disclosures shall be for the same reporting entity as the related financial statements.<\/p>\n

          \n
        1. Connected Information:<\/strong><\/li>\n<\/ol>\n

          An entity shall provide information in a manner that enables users of general purpose financial reports to understand the connections between the items to which the information relates and the connections between disclosures provided by the entity.<\/p>\n

          \"IFRS
          IFRS Basic Concept (Source\uff1aTEJ)<\/figcaption><\/figure>\n

          Core Content of Sustainability Disclosure Standards<\/strong><\/h2>\n

          The content of IFRS S1 follows TCFD framework, and requires companies to make disclosures regarding the following four contents.\u00a0<\/p>\n

            \n
          1. Governance:<\/strong><\/li>\n<\/ol>\n

            The governance processes, controls and procedures the entity uses to monitor and manage sustainability-related risks and opportunities<\/p>\n

              \n
            1. Strategy:<\/strong><\/li>\n<\/ol>\n

              The approach the entity uses to manage sustainability-related risks and opportunities.<\/p>\n

                \n
              1. Risk Management:<\/li>\n<\/ol>\n

                The processes the entity uses to identify, assess, prioritize and monitor sustainability-related risks and opportunities.<\/p>\n

                  \n
                1. Metrics and Targets:<\/strong><\/li>\n<\/ol>\n

                  The entity\u2019s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.<\/p>\n

                  \"Contents
                  Contents adopted from TCFD framework\u00a0 (Source\uff1aTEJ)<\/figcaption><\/figure>\n

                  General Requirement of Sustainability Disclosure Standards<\/strong><\/h2>\n

                  Aside from the four core contents, IFRS S1 also has the following five general requirements.<\/p>\n

                    \n
                  1. Sources of Guidance:<\/strong><\/li>\n<\/ol>\n

                    In addition to IFRS S1, an entity shall refer to and consider the applicability of the disclosure topics in the SASB Standards.<\/p>\n

                      \n
                    1. Location of Disclosures:<\/strong><\/li>\n<\/ol>\n

                      An entity is required to provide disclosures required by IFRS Sustainability Disclosure Standards as part of its general purpose financial reports.<\/p>\n

                        \n
                      1. Timing of Reporting:<\/strong><\/li>\n<\/ol>\n

                        An entity shall report its sustainability-related financial disclosures at the same time and cover the same reporting period as the related financial statements.<\/p>\n

                          \n
                        1. Comparative Information:<\/strong><\/li>\n<\/ol>\n

                          Unless another IFRS Sustainability Disclosure Standard permits, an entity shall disclose comparative information in respect of the preceding period for all amounts disclosed in the reporting period.<\/p>\n

                            \n
                          1. Statement of Compliance:<\/strong><\/li>\n<\/ol>\n

                            An entity whose sustainability-related financial disclosures comply with all the requirements of IFRS Sustainability Disclosure Standards shall make an explicit and unreserved statement of compliance.<\/p>\n

                            How does Taiwan Sustainability Disclosure gear to international standards?<\/strong>\u00a0<\/strong><\/h2>\n

                            After the emergence of IFRS S1 and S2, in order to gear to international standards, under \u201cTaiwan\u2019s Roadmap to Align with IFRS Sustainability Disclosure Standards\u201d, Financial Supervisory Commision (FSC) began to require listed companies and OTC companies to follow IFRS to disclose sustainability-related information.<\/p>\n

                            \"Taiwan\u2019s
                            Taiwan\u2019s Roadmap to Align with IFRS Sustainability Disclosure Standards\u00a0 (Source\uff1aFSC)<\/figcaption><\/figure>\n

                            \u201cTaiwan\u2019s Roadmap to Align with IFRS Sustainability Disclosure Standards\u201d was released in 2023. Starting from 2026, companies will start to apply IFRS S1 and S2 standards through direct adoption, and will be divided into three stages based on their capital amount. Here are a few characteristic of \u201cTaiwan\u2019s Roadmap to Align with IFRS Sustainability Disclosure Standards\u201d:<\/p>\n

                              \n
                            1. Location of Disclosure:\u00a0<\/strong><\/li>\n<\/ol>\n

                              Since annual reports in Taiwan are divided into financial reports and shareholders\u2019 meeting annual reports, FSC requires companies to add a dedicated chapter for sustainability information in shareholders\u2019 meeting annual reports, while financial reports only need to abide by IFRS.<\/p>\n

                                \n
                              1. Timing of Reporting:<\/strong><\/li>\n<\/ol>\n

                                Sustainability-related disclosures should be released in annual reports simultaneously with financial reports, and cover the same reporting period.<\/p>\n

                                  \n
                                1. Exemptions:<\/strong><\/li>\n<\/ol>\n

                                  To provide enterprises with sufficient preparation time, FSC will allow exemptions of specific items in the sustainability standards:<\/p>\n