
IFRS Sustainability Standards: Nigeria's Implementation Roadmap
As the global business landscape continues to evolve, to remain competitive and ahead of emergent risks and opportunities, adopting a structured approach to managing and reporting sustainability performance should be a priority for organizations. For Nigeria, following the adoption of the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, S1 (sustainability-related disclosures) and S2 (climate-related disclosures), the Financial Reporting Council of Nigeria (FRC) established the Adoption Readiness Working Group (ARWG) in 2023. The initiative was strategic as the FRC recognized the pressing need for a proactive approach to implementing the standards in Nigeria. The ARWG brought together different stakeholders, including sustainability professionals, industry experts, and representatives from various economic sectors.
The efforts of the ARWG produced a comprehensive report that describes in detail the steps for the effective implementation of the IFRS S1 and S2 standards. By navigating through the complexities of these standards, the group ensured that Nigerian organizations would be equipped to align their practices with global sustainability benchmarks, thus fostering a more responsible and transparent business culture.
The Adoption Roadmap Report
Understanding that a sudden shift might overwhelm many organizations, the FRC adopted a phased approach to the implementation. This phased approach is similar to the one deployed during the adoption of IFRS Accounting Standards in 2012. Some companies who were willing to stay ahead already prepared their reports for the reporting period that ended on December 31st, 2023, in alignment with the standards. These companies have been commended and globally celebrated as early adopters because they have demonstrated the will to gradually integrate these disclosures into their reporting practices. The early adoption avails them the opportunity to learn from their experiences and better establish systems that would support their continual improvement. According to the roadmap report, there is a reporting window (reporting periods starting January 1st, 2024) that still allows proactive companies, especially Public Interest Entities (PIEs) to voluntarily commence the integration of these standards before the mandatory window (January 1st, 2028).
Just as in the case of the early adopters, it is in the best interest of PIEs to leverage the voluntary adoption window to learn from their errors and improve their reporting systems.
Following the mandatory adoption of the reporting standards for PIEs by January 1st, 2028, small and medium enterprises (SMEs) will also be mandated to adopt the reporting standards by January 1st, 2030. This timeline has been structured not only to allow organizations to adapt their business models gradually, but also to allow for a learning curve that will ease the integration process.
Furthermore, the FRC’s initiative underscores a significant shift in the Nigerian business landscape, encouraging organizations to prioritize environmental, social, and governance considerations in their overall strategy, day-to-day operations, and stakeholder relations. Through fostering awareness and equipping businesses with the necessary tools and knowledge, the FRC is laying down the groundwork for sustainable business practices that will enhance responsible corporate behavior, mitigate risks associated with climate change, prepare for emergent societal challenges, and ultimately contribute to the overall well-being of society and the economy. As businesses are preparing to embrace these changes, the ARWG is expected to continue to engage stakeholders, ensuring that the journey towards sustainability is inclusive, informed, and impactful.
Readiness Test Assessment
The readiness test assessment for the adoption of the IFRS Sustainability Disclosure Standards (IFRS SDS) is a vital aspect of Nigeria's roadmap for implementing the IFRS SDS. Through a checklist of documented pieces of evidence, it assesses the readiness of an organization to adopt and adequately comply with the IFRS S1 and S2 standards. A pass in the assessment would indicate that the organization can fully integrate its strategy, operations, and reporting practices with the standards. Below are some of the reasons why this is quite important:
- Ensures Preparedness: It will help to confirm that organizations possess the necessary systems, processes, and governance frameworks to generate high-quality sustainability disclosures.
- Drives Capacity Building: It will support internal coherence and skill development to fulfill the requirements of IFRS S1 and S2.
Documents to be submitted to the FRC
Reporting entities are required to submit specific documents to the Financial Reporting Council of Nigeria (FRC) in three phases before publishing a sustainability report.
Phase 1 (Three Months Prior to Reporting Date):
- Board Resolution: This is a formal approval to adopt the IFRS Sustainability Disclosure Standards.
- Gap Analysis Report: This is an evaluation of the entity’s existing practices in relation to IFRS S1 and S2 requirements.
- Implementation Plan: This is a comprehensive plan outlining steps to address identified gaps and ensure alignment with the standards.
Phase 2 (Three Months Following Reporting Date):
- Sustainability Disclosure Policies: Evidence of policies that are aligned with IFRS standards and drive internal processes for sustainability reporting within the entity.
- Transitional Reliefs Documentation: This is the identification and implementation of applicable transitional reliefs.
- Enterprise Risk Management and Sustainability Framework: This is two-fold; existing approach to addressing enterprise risk and approach to managing environmental, social, and governance (ESG) risks and opportunities (if not already integrated into existing ERM framework).
- Board Approval of IFRS SDS Policies: This includes any documented evidence showing board approval of sustainability policies.
- Board Approval of ERM and Sustainability frameworks: This includes documented evidence showing board approval of ERM and Sustainability frameworks.
- Training Evidence: Records of Sustainability/ESG-specific training for board members, management, and reporting personnel by reputable training providers acceptable to the FRC.
- Registration with FRC: Registration of the entity and professionals engaged in the reporting process.
Phase 3 (Six Months Following Reporting Date):
- Scenario Analysis Models: This is a description of methods used for scenario analysis as well as the results of the scenario analysis.
- Risk and Opportunity Identification: This includes documented evidence of identifying and assessing sustainability and climate-related risks and opportunities.
- Governance Structure for Sustainability Reporting: This represents objective evidence of governance processes set up for overseeing sustainability reporting
- Metrics and Targets: These are clearly defined metrics and targets for measuring and managing the entity's risks and opportunities.
- Financial Report Updates: This will present the identification of aspects of financial reports that will require necessary adjustments.
- Impact Assessment: This is an analysis of how current and potential sustainability and climate-related risks affect the entity’s business model and value chain.
- Internal Control Framework: This represents the processes established to ensure the reliability of sustainability reporting.
How to get started
The readiness test assessment for sustainability disclosures has been designed with thoroughness in mind, which we believe is commendable and organizations looking to ensure a smooth transition can take the following steps.
- Engage Leadership: It is crucial to secure a commitment from both management and the board regarding the sustainability disclosures. Establishing a supportive tone at the top is vital, as the active involvement of leadership significantly influences the success of the process.
- Partner with experts: Collaborating with professional advisors can provide invaluable guidance throughout the documentation process. Even more, as active stakeholders in the ARWG, their expertise will ensure that all submissions comply with FRC requirements.
- Invest in Systems: Implementing robust data collection, analysis, and reporting systems is crucial for organizations to ensure compliance and will enhance the quality of their sustainability disclosures. These systems will support accurate data gathering and in-depth analysis, which will help identify trends and improve sustainability performance.
By following these recommendations, your organization can successfully navigate the readiness test assessment and demonstrate its commitment to transparency and long-term success.
Effective reporting fosters transparency and builds trust with stakeholders, reinforcing the organization's commitment to responsible practices.
In conclusion, enhanced transparency and accountability are here to stay, and they require dedication and collaboration. By proactively addressing these areas, your organization would not only meet compliance requirements but also lead by example as the world navigates the complexities of a more sustainable future.
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