By Harsheenee Aujayeb, General Manager, ESG Intellis Solutions Ltd
In exciting news for sustainability practitioners around the world, the IFRS Foundation has just released a guide to help companies voluntarily adopt ISSB Standards! This new resource simplifies global sustainability disclosures, making it easier for businesses to provide consistent, investor-relevant data. The guide makes the point that as jurisdictions around the world start adopting the IFRS sustainability disclosure standards, many companies in those jurisdictions are making a mark by applying these standards early.
Traditionally, in Mauritius, we have been using the GRI (Global Reporting Initiative) as the gold standard for sustainability reporting. With the emergence and increasing global adoption of the IFRS sustainability standards, there have been a lot of talks around this principle. However, no word is yet out from regulators on whether Mauritius will, or will not, adopt this standard.
In this thought leadership, we intend to provide an overview of the IFRS sustainability disclosure standards IFRS S1 and S2, provide timelines for their adoption, and, most crucially, the implications in terms of challenges and opportunities for Mauritius as IFRS S1 and S2 come into adoption.
What is the ISSB and how did the IFRS standards emerge?
The International Sustainability Standards Board (ISSB) is the founding body for the IFRS sustainability disclosure standards. The ISSB is an independent standard-setting body that was founded in Glasgow on November 3, 2021, during COP26. It aims to set a high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets.
The IFRS S1 and IFRS S2 standards were issued by the ISSB in June 2023 as the first IFRS sustainability disclosure standards. Sustainability reporting is increasingly integral to economic and investment decisions as it holds companies accountable for their impact on sustainability. It also allows investors to invest in companies aligned with sustainability principles.
In our earlier blog on materiality, we briefly touched upon the IFRS sustainability disclosure standards. We noted that IFRS S1 sets out general reporting requirements for disclosing sustainability-related financial information. Meanwhile, IFRS S2 requires an entity to disclose information about climate-related risks and opportunities and the impact on an entity’s financial position, performance, cash flows, strategy and business model.
In a nutshell then, IFRS S1 and S2 can be summed up as follows:
IFRS S1 (General Requirements for Sustainability-related Financial Disclosures)
- Purpose: To provide guidelines on how entities should disclose sustainability-related risks and opportunities.
- Key Areas: Financial impacts of sustainability issues beyond climate (e.g., water, biodiversity, social issues).
IFRS S2 (Climate-related Disclosures)
- Purpose: Focus on climate-specific risks and opportunities.
- Key Areas: Alignment with TCFD (Task Force on Climate-related Financial Disclosures) principles.
What are the timelines for their adoption?
The standards are expected to come into effect for annual reporting periods starting on or after January 1, 2024, for jurisdictions that have decided to adopt these standards. Thus, companies can start applying IFRS S1/S2 now. However, it will become mandatory when and if regulators integrate them into financial reporting frameworks and regulatory requirements.
Companies must not view these standards as yet another standalone reporting framework. Notably, IFRS S1 and S2 consolidate and incorporate several key frameworks such as TCFD, SASB, CDSB and several others towards arriving at a more comprehensive measure of a company’s sustainability efforts.
Implications for Mauritius: What are the challenges and opportunities in the way of adoption?
Certain key sectors in Mauritius that will be impacted by IFRS S1 and S2 are tourism, banking, financial services, agriculture, and energy. These reflect the composition of the economy – with hospitality and financial services, in particular, being key contributors, at 8% and 13.7% of the GDP respectively in 2023. The key opportunities for Mauritius from IFRS adoption are as follows:
- Regional sustainability hub: Positioning Mauritius as a regional sustainability leader in the Indian Ocean.
- Attracting increased Foreign Direct Investment: Giving local companies an opportunity to attract foreign investment by adhering to globally recognised standards.
- Protecting against Foreign Currency volatility: Achieving enhanced resilience against global market fluctuations, especially in sectors like tourism and exports.
When it comes to challenges in the way of the standards’ adoption in Mauritius, the main issue lies in the significant preparation these standards entail upon participating companies. Indeed, companies may need to commit intensive resources to comply with, and extract the full benefit from, their alignment with these comprehensive principles. Broadly speaking, the following challenges are expected to be faced by complying companies:
- Awareness and Knowledge: There is low familiarity with the new sustainability reporting standards.
- Data Collection: Companies in Mauritius currently offer limited infrastructure for collecting, verifying, and reporting on sustainability data.
- Resource Limitations: Intensive financial and human resources are required to meet the new standards.
- Regulatory Adaptation: The need for alignment between the Mauritian regulatory framework and IFRS standards imposes further challenges.
What are some key steps towards IFRS S1 and S2 implementation?
At ESG Intellis Solutions Ltd (ESG Intellis) we believe that Mauritius must start taking steps to adopt these cutting-edge principles informing the sustainability landscape worldwide. Indeed, the adoption of IFRS S1 and S2 provides Mauritius with a window to become a regional leader in sustainability, if only our economy is able to seize this opportunity with both hands.
For this challenging journey, we believe Mauritius must equip itself on multiple fronts, such as:
- Capacity Building: Training and development for local companies, accountants, and auditors on IFRS S1 and S2.
- Policy Support: Government and regulatory incentives to encourage voluntary compliance before mandatory regulations.
- Collaboration: Partnerships with global organisations, international financial institutions, and regulatory bodies to support smooth adoption.
In terms of collaboration, ESG Intellis sees a pivotal potential role for key local institutions.
At the outset, we see the Stock Exchange of Mauritius (SEM) as laying the path for the integration of IFRS S1 and S2 into listing requirements of companies. This will ensure that companies consider these standards from the start.
For its part, we expect the Financial Services Commission (FSC) of Mauritius as the key regulator for the non-banking financial services sector to provide regulatory guidance and oversight.
Finally, the private sector must turn to associations and sustainability experts within their ranks to suggest adoption strategies for companies.
Take steps today! Become a sustainability pioneer in Mauritius
At ESG Intellis, we strongly advise you not to wait for mandatory regulations. Start preparing now for IFRS S1 and S2! Adopting these global best practices allows you to pave the way for the future and become a sustainability pioneer in Mauritius.
Not only does the adoption of the comprehensive sustainability framework set by IFRS S1 and S2 allow companies to become individual sustainability champions, but it also adds up to Mauritius’ enhanced role in global sustainability reporting efforts. We firmly believe that Mauritius can be a trailblazer in the region by embracing these standards early, especially as we are positioning ourselves to be an international financial hub of substance and note. As Mauritius is poised to undertake a review of its financial services sector and arrive at a revised blueprint for future success, including a review of the funds regime to enhance its attractiveness, sustainability efforts will play a key part in setting up the island economy as a regional sustainability hub.
More information about the standards may be found at : IFRS – Introduction to ISSB and IFRS Sustainability Disclosure Standards
