NGX regulation Limited in collaboration with Financial Reporting Council and the International Sustainability Standards Board (ISSB) recently launched IFRS S1, IFRS S2 Standards to encourage better investment decision among investors. AMAKA IFEAKANDU writes on the benefits of the new accounting standards to the companies and capital market in general.
IFRS sustainability Disclosure Standards
NGX regulation Limited (Regco) and Financial Reporting Council (FRC) launched the first two IFRS sustainability Disclosure Standards -IFRS S1 and IFRS S2 standards in the nation’s financial system to unlock financial flows in the capital market.
The new standards set to empower investors to make better investment decisions as well as encourage corporates to adopt sustainability at the core of their financial reporting.
Launching of ISSB standards
The launching of the ISSB Standards which held at Nigerian Exchange Group House in Lagos makes Nigeria the first African country to adopt the standards, just as they were also launched in six major global financial centers including; New York, London, Frankfurt, Singapore, Santiago and Montreal.
But before launching of the standards there have been the increasing demand for credible sustainability disclosures as a tool to manage sustainability risks and opportunities and to unlock capital flows.
Why IFRS S1 & S2 standards launched
The Standards provide a global baseline of sustainability disclosures that meet the information needs of investors to enable companies to provide comprehensive sustainability information to global capital markets and facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.
Apart from providing the fulsome information, in an appropriate way, to support investor decision-making and facilitate international comparability to attract capital they are cost-effective, decision-useful, and market-informed disclosure standards developed to help companies report what is required to meet investors’ needs across markets globally.
The ISSB Standards are designed to ensure that companies provide sustainability-related information alongside financial statements—in the same reporting package. The Standards have been developed to be used in conjunction with any accounting requirements. They are also built on the concepts that underpin the IFRS Accounting Standards, which are required by more than 140 jurisdictions. The ISSB Standards are suitable for application around the world, creating a truly global baseline.
This is the first time, the Standards create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.
The inauguration of the Standards—IFRS S1 and IFRS S2 —ushers in a new era of sustainability-related disclosures in capital markets worldwide. The Standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions.
Basically, the IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term while IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1. Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The International Sustainability Standard Board (ISSB) developed IFRS S1 and IFRS S2 with the benefit of extensive market feedback and in response to calls from the G20, the Financial Stability Board and the International Organization of Securities Commissions (IOSCO), as well as leaders in the business and investor community.This support for a comprehensive global baseline of sustainability-related disclosures demonstrates the widespread demand for a consistent understanding of how sustainability factors affect companies’ prospects.
Comments from experts
Speaking at the launch, the Executive Secretary, FRC, Ambassador Shuaibu Adamu, noted that it marks a historic milestone for Nigeria and is a testament to the country’s unwavering commitment to responsible and sustainable business practices. He also said that as Nigeria adopts the standards, it is setting a powerful example for other nations and reaffirming its position as one of the global leaders in sustainability reporting.
“Today, there is a growing global, environmental, social and governance investor base of over $2 trillion in global institutional investor funds under management. No country or institution can attract or accept these private investment capital if you are not seen to be committed to climate and sustainable development. Nigeria must therefore compete with the rest of the world for this private capital.
A veritable platform to attract this capital
“Obviously, in Nigeria, NGX provides a veritable platform to attract this capital. Comprehensive, comparable and transparent information about sustainability and climate related risks and opportunities will play an essential role in appropriately pricing these risk and opportunities and unlock the needed private capital flows,” he said
Also speaking, the Chief Executive Officer, NGX RegCo, Ms Tinuade Awe, said that the launch is tremendous for the growth of the capital market as companies in Nigeria will now have a global baseline that it can use. Awe, while calling for focus on the forthcoming standards stated, “NGX RegCo remains committed to promoting a fair, transparent and orderly market that thrives on full and timely information needed for the protection of investors in the Nigerian capital market.”
Board Member, ISSB, Ndidi Nnoli-Edozien, said that ISSB was born at COP 26 as a sister entity to the International Accounting Standard Board (IASB) while noting that its intention to launch the standards was to see how Nigerian firms process sustainability, climate related risks and opportunities and embed them in their reporting to help guide capital flows. “There are close to 300 different standards and what we have done is create a single global baseline that is interoperable with standards such as GRI and reduce the cost of reporting burden,” she said.
A core value in financial reporting practices
In a goodwill message, the Director-General, Securities and Exchange Commission (SEC), Lamido Yuguda who was represented by the Executive Commissioner, Operations, Dayo Obisan, said the launch of the ISSB Standards in Nigeria signals the country’s readiness to embrace sustainability as a core value in financial reporting practices. “This sends a strong message to the global community that Nigeria is committed to transparent and responsible business practices that prioritize environmental stewardship, social well-being as well as good governance,” he added.
Commending the NGX RegCo and FRC, Chairman, ISSB, Emmanuel Faber, said that the lack of comparability and ambiguity about the many available standards and frameworks have limited the effectiveness of reporting and the efficiency of capital markets.
Faber further stated that the standards are cost effective for reporters and useful for investors and added that organizations that use IFRS 1 and 2 as a tool to communicate to investors will win a financing competitive advantage.
NGX RegCo had earlier revealed that there is an adoption readiness strategy mapped out to help accountants and auditors in sustainability and climatic reporting.
In adopting that IFRS S1 and IFRS S2 are issued, the ISSB gave assurance that it will work with jurisdictions and companies to support adoption. The first steps will be creating a Transition Implementation Group to support companies that apply the Standards and launching capacity-building initiatives to support effective implementation.