A Guide to the IFRS Sustainability Disclosure Standards for the Aviation Sector

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The aviation sector, being a significant contributor to greenhouse gas emissions, faces increasing pressure to disclose its sustainability-related risks and opportunities. These disclosures play a vital role for companies to communicate their Environmental, Social, and Governance (ESG) performance to investors, stakeholders, and the public.

The International Sustainability Standards Board (ISSB), operating under the International Financial Reporting Standards (IFRS) Foundation’s oversight, has developed the IFRS Sustainability Disclosure Standards (IFRS SDS) to create a global standard for disclosing sustainability-related financial data and climate-related information. The ISSB, committed to supporting the adoption of IFRS SDS, provides guidance, training materials, and has established a Transition Implementation Group (TIG).

Compliance with IFRS SDS enables aviation companies to provide transparent and comparable information on their sustainability performance, helping investors and stakeholders make informed decisions and promoting sustainable practices within the industry. As of November 2024, the IFRS SDS have been endorsed by the International Organization of Securities Commissions (IOSCO), and over 30 jurisdictions have initiated steps to incorporate these standards into their regulatory frameworks (IFRS Foundation, 2024) 1.

Reporting on IFRS SDS requires a comprehensive understanding of the standards, consideration of relevant frameworks like the Climate Disclosure Standards Board (CDSB) and International Integrated Reporting (IR) Frameworks, adherence to Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and compliance with country-specific requirements. This forms a comprehensive approach to sustainability reporting, bolstering transparency and accountability in corporate reporting.

This guide covers:

 

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What is IFRS?

IFRS stands for the International Financial Reporting Standards. It is a set of accounting rules for the financial statements of public companies. Issued by the International Accounting Standards Board (IASB), its goal is to make financial statements coherent and consistent across industries and countries.

ifrs foundation explained

 

What are the IFRS Sustainability Disclosure Standards?

The IFRS SDS are developed by the ISSB to address sustainability-related risks and opportunities in financial reporting. These standards were formed through a consultative process, including exposure drafts and stakeholder feedback.

IFRS SDS standards overview

IRFS S1

  • Requires disclosure of material information about a company’s sustainability-related risks and opportunities.
  • Uses the same definition of materiality as the IFRS Accounting Standards
  • Aims to provide transparency to assess company’s sustainability performance.

Types of IRFS S1 disclosures:

  • Sustainability-related risks and opportunities affecting financial performance.
  • Governance structures around these risks.
  • Strategy for managing them
  • Risk management processes.
  • Metrics and targets.
  • Impacts on business strategy and financial planning.
  • Business model resilience.

IRFS S2

  • Focuses on climate-related risks and opportunities.
  • Includes physical risks (e.g. flooding), transition risks (e.g. regulatory change), and climate opportunities (e.g. new technologies).

Types of IRFS S2 disclosures:

  • Governance and oversight of climate risks.
  • Strategy and low-carbon transition planning.
  • Risk management processes.
  • Metrics and targets, including greenhouse gas (GHG) emissions (Scopes 1, 2, and 3).
  • Financial impacts of climate scenarios.
  • Business model resilience.
  • Expected effects on cash flows, financing, and capital costs (Cleary Gottlieb, 2023) 2.

For aviation, adopting these standards enhances transparency, builds stakeholder trust, and aligns with global best practices.

The Incorporation of TCFD Recommendations in IFRS SDS

IFRS S1 and S2 integrate the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, aligning with global climate reporting standards. This enables aviation companies to:

  • Conduct scenario analyses.
  • Disclose climate targets and progress.
  • Detail risk management measures.

How can the CDSB Framework help companies comply with IFRS?

The Climate Disclosure Standards Board (CDSB) offers:

  • A reporting framework integrated with financial reporting.
  • Technical guidance.
  • An evidence base for developing IFRS SDS.

The consolidation of CDSB into the IFRS Foundation enhances this integration.

How can the IR Framework help companies to comply with IFRS?

 

The International Integrated Reporting (IR) Framework supports IFRS SDS by:

  • Providing a taxonomy for disclosure alignment.
  • Offering a common reporting language.
  • Supporting Sustainability Accounting Standards Board (SASB) standard application.
  • Encouraging framework adoption through IFRS Foundation backing.

IFRS Timeline:

The timeline for adoption of the IFRS Sustainability Disclosure Standards (SDS) is as follows:

  • June 2023: IFRS S1 and S2 issued by ISSB.
  • January 2024: Effective for reporting periods starting on or after 1 January 2024.

Adoption depends on jurisdictional regulations.

How to prepare for IFRS?

Aviation companies should:

  • Conduct materiality assessments.
  • Update accounting systems.
  • Train staff on sustainability principles.
  • Engage with auditors and regulators.
  • Monitor regulatory and standard-setting developments.

Conclusion

IFRS S1 and S2 represent a significant step toward improved transparency in ESG performance. By aligning with TCFD and using CDSB and IR frameworks, aviation firms can effectively disclose climate-related risks and opportunities.

Preparation is essential as the standards become mandatory in many jurisdictions. Adoption will foster informed decision-making, build trust, and contribute to sustainability resilience.

Frequently Asked Questions

Why should companies comply with IFRS SDS?

Complying with IFRS SDS is important for several reasons, including:

  • Global standardisation: IFRS provides a global standard for financial reporting, making it easier for companies to do business with countries throughout the world.
  • Attracting foreign investors: Adhering to IFRS makes a company more attractive to foreign investors. If a company is not adhering to IFRS, it can be difficult for interested parties overseas to determine the company’s financial health, which can affect investment decisions.
  • Expansion opportunities: IFRS adoption gives a company a leg up if it wants to expand to other countries. IFRS compliance can put a company in a unique position to jump at opportunities that might arise with no warning.
  • Consistency and transparency: IFRS aims to make financial statements consistent, comparable, and transparent across the world. This helps ensure that financial information is reliable and transparent, which can improve investor confidence.
  • Compliance with local laws: In some jurisdictions, IFRS compliance is mandatory for certain types of companies or financial reporting.

Overall, complying with IFRS SDS can help companies improve their financial reporting, attract investors, and expand their business opportunities.

What are the benefits of adopting IFRS SDS?

Companies benefit from adopting IFRS SDS in several ways. These benefits include increased international business growth, lower cost of capital, improved capital allocation, enhanced communication, and access to international markets. IFRS also facilitates cross-border comparisons, increases reporting transparency, and reduces information costs for companies.

What are the key differences between GAAP and IFRS?

GAAP is used primarily in the United States, while IFRS is adopted by many countries globally. The key differences lie in specific accounting treatments, recognition criteria, and disclosure requirements for various financial transactions and events.

Are financial statements prepared under GAAP and IFRS directly comparable?

While efforts have been made to converge accounting standards, some differences remain. Financial statements prepared under GAAP and IFRS may require adjustments for comparability, especially when analysing the financial performance of multinational companies.

What are the IFRS SDS that impact the aviation industry?

Apart from IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures already discussed in the guide.

There are Several IFRS SDS impact the aviation industry, including:

  • IFRS 9 Financial Instruments: This standard affects aviation companies that hold financial instruments such as loans, bonds, and derivatives. IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.
  • IFRS 16 Leases: This standard affects aviation companies that lease aircraft and other assets. IFRS 16 sets out a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors.
  • IFRS 17 Insurance Contracts: This standard affects aviation companies that provide insurance services. IFRS 17 sets out the principles for the recognition, measurement, presentation, and disclosure of insurance contracts.

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