The Future of Sustainability Reporting in Africa

Key Insights on ISSB and IFRS Sustainability Disclosure Standards

Sustainability reporting has evolved into a crucial component of corporate governance in today’s business environment. As global markets place greater emphasis on environmental, social, and governance (ESG) factors, businesses are increasingly under pressure to provide transparent, reliable, and comparable sustainability-related disclosures. This pressure is particularly pronounced in Africa, where there is a growing demand from stakeholders for enhanced corporate accountability in addressing sustainability challenges.

The introduction of the International Sustainability Standards Board (ISSB) and its standards, IFRS Sustainability Disclosure Standard (S1) and IFRS Sustainability Disclosure Standard (S2), represents a significant shift in global sustainability reporting practices. These standards offer a structured, consistent framework for businesses to disclose their sustainability strategies, risks, and opportunities, with a particular emphasis on environmental factors. This article explores the importance of these evolving standards and provides African businesses with guidance on how to effectively prepare for their implementation.

Understanding ISSB and IFRS Sustainability Disclosure Standards (S1 and S2)

The ISSB, established by the IFRS Foundation, is tasked with developing globally accepted sustainability-related disclosure standards. The ISSB’s mission is to enhance the consistency and comparability of ESG disclosures, ensuring that investors and stakeholders receive clear, reliable, and relevant information.

The IFRS Sustainability Disclosure Standards (S1 and S2) are the first two standards issued by the ISSB and are designed to provide businesses with a clear framework for sustainability reporting. The standards are as follows:

IFRS S1 (General Sustainability-related Disclosures): This standard requires companies to disclose their governance structures, risk management processes, and strategies related to sustainability. It ensures that companies provide transparency on how sustainability issues impact their financial performance and overall business operations.
IFRS S2 (Climate-related Disclosures): Focused specifically on climate-related risks, this standard requires companies to disclose how they are addressing both transition risks (those associated with the shift toward a low-carbon economy) and physical risks (resulting from the direct impacts of climate change, such as extreme weather events).

Mandatory Adoption Timelines in Kenya

In Kenya, the Institute of Certified Public Accountants of Kenya (ICPAK) has outlined a clear, phased approach for adopting IFRS S1 and S2. This structured timeline allows businesses ample time to prepare for compliance with the new standards:

Voluntary Adoption: Beginning January 1, 2024, businesses may voluntarily adopt IFRS S1 and S2.
Mandatory Adoption: The mandatory adoption of these standards will occur in stages, as follows:

January 1, 2027: Public Interest Entities (PIEs) will be required to adopt IFRS S1 and S2.
January 1, 2028: Large Non-Public Interest Entities (Non-PIEs) must adopt the standards.
January 1, 2029: Small and Medium-sized Non-PIEs will be required to implement IFRS S1 and S2.

This phased approach ensures that businesses have sufficient time to align their reporting frameworks with the new sustainability standards and fully integrate them into their operations.

Adoption Timelines in Other African Countries

Across Africa, several countries have established timelines for adopting IFRS S1 and S2, reflecting a broader trend toward enhancing transparency in sustainability reporting:

Nigeria: Nigeria has taken the lead in adopting IFRS S1 and S2, aligning its regulatory framework with global sustainability standards. This adoption is expected to improve the country’s appeal to international investors and increase the accountability of businesses operating in the region.
South Africa: Although adoption is currently voluntary in South Africa, there are ongoing discussions regarding the mandatory adoption of ISSB standards. The country is likely to implement these standards in the near future as part of its ongoing efforts to enhance its sustainability practices.
Other African Countries: Countries such as Ghana, Zimbabwe, and Egypt are progressing toward adopting ISSB standards, with timelines varying based on local regulations and the specific needs of each market.

Businesses operating across multiple jurisdictions within Africa will need to monitor the local regulatory landscape to ensure timely compliance with the evolving requirements.

Preparing for IFRS S1 and S2 Adoption

To effectively prepare for the mandatory adoption of IFRS S1 and S2, businesses must take the following steps:

Strengthen Governance and Risk Management: Companies should enhance their governance structures to ensure that sustainability-related risks are adequately managed. Establishing clear roles for overseeing ESG issues at the board level is critical to ensuring that these matters are integrated into strategic decision-making.
Implement Comprehensive Climate Risk Assessments: Businesses must assess both transition risks (such as regulatory changes and shifts in market preferences) and physical risks (impacts from extreme weather events or changing climate conditions). Developing detailed strategies for mitigating these risks will be essential for compliance with IFRS S2.
Enhance Data and Reporting Systems: Organizations will need to invest in robust data management systems capable of accurately capturing and reporting ESG data. This includes tracking emissions, energy consumption, waste management, and other key environmental and social metrics.
Set Clear and Measurable Sustainability Targets: In alignment with IFRS S1, businesses should define clear, measurable sustainability goals. Reporting on progress toward these goals in a transparent and consistent manner will be essential for meeting stakeholder expectations and regulatory requirements.

Conclusion

Sustainability reporting is rapidly becoming a central aspect of corporate governance across Africa. The introduction of IFRS S1 and IFRS S2 offers businesses an opportunity to enhance transparency, attract investment, and contribute to global sustainability efforts. By preparing for the mandatory adoption of these standards, African businesses can ensure they are well-positioned to meet the evolving expectations of investors, regulators, and other stakeholders.

Article by: Samson Okari CPA