Sustainability

reporting in Nigeria:
The nexus between
IFRS S2 and climate
change accounting.
November 2023
 04 Introduction

07 Sustainability developments in Nigeria

09 The conceptual foundations

11 Core contents

14 Connections with IFRS financial

statements

15 Conclusion

Contents
O1

Introduction

Sustainability reporting in Nigeria: The nexus

between IFRS S2 and climate change accounting.
Introduction

The effect of human activities on the climate

has been a growing concern to everyone over
the years. Investors and stakeholders
consider climate change to be a material issue
with financial consequences for most
companies. As a result, there is increasing
demand for greater transparency in reporting
the impact of climate change, not just in
sustainability or integrated reports but also,
more fundamentally, in a company’s financial
report. The demand from companies amongst
other things include the need for financial
reports to reflect reasonable assumptions
about the impact of climate-related risks and
opportunities. Investors believe that climate-
related risks are material factors that should
be disclosed appropriately in the financial
statements.
In response to the growing concerns on
climate and sustainability-related risks, and
investors’ demands on reporting, the
International Sustainability Standard Board
(ISSB) had on 26 June 2023, issued two
inaugural standards, IFRS S1: General
requirements for disclosure of sustainability-
related financial information and IFRS S2:
Climate-related disclosures. As part of
assisting entities in the transition process,
ISSB issued some transition reliefs which
include the requirement to focus on IFRS S2
in the first year of adoption. Therefore, the
objective of this article is to discuss the
requirements of IFRS S2 with focus on the
nexus between sustainability reports in
accordance with IFRS S2 and climate change
accounting.

4 Sustainability reporting in Nigeria: The

nexus between IFRS S2 and climate
change accounting.
O2

Sustainability
developments in
Nigeria

Sustainability reporting in Nigeria: The nexus

between IFRS S2 and climate change accounting.
Sustainability
developments in Nigeria

Nigeria, like many other countries, has The Climate Change Act, 2021 established the
recognized the need to address climate change National Council on Climate Change (NCCC), an
and its impacts. As a result of Investors’ organization responsible for the implementation
increasing demands for more transparency on of the Act with a goal of achieving net-zero
the reporting of climate and sustainability risks, emissions by 2060. Also, the Financial
Nigeria Exchange Group (NGX) released a Reporting Council of Nigeria (FRC) in November
"Sustainability Disclosure Guidelines" approved 2022 gave a commitment to early adopt the
by the Securities and Exchange Commission ISSB standards once they are issued. As a
(SEC) on 9 November 2018. The guideline result, the FRC and NGX took the lead during the
requires listed companies to disclose their launching of the ISSB standards in June 2023.
sustainability performance, including climate- Nigeria became one of the few countries that
related information. In 2021, Nigeria enacted immediately adopted the ISSB standards as soon
the Climate Change Act which is applicable to as they were issued.
ministries, departments, and agencies (MDAs),
public companies and private entities with more
than 50 employees.

6 Sustainability reporting in Nigeria: The

nexus between IFRS S2 and climate
change accounting.
O3

The conceptual
foundations:

Sustainability reporting in Nigeria: The nexus

between IFRS S2 and climate change accounting.
The conceptual foundations:

Though the focus of our article is on IFRS S2, the conceptual principles underpinning the ISSB
standards are in IFRS S1 which is also applicable for IFRS S2. IFRS S1.10-24 outlines the
conceptual foundations which include qualitative characteristics, fair presentation, materiality,
reporting entity and connected information. The conceptual foundations are consistent with the
conceptual framework issued by the International Accounting Standard Board (IASB).
In line with IFRS S1, climate-related disclosures will be useful if they are relevant and faithfully
represent what they purport to represent. A climate-related information is relevant when it has
predictive and confirmatory values. For materiality, the expectation is that for an information
about climate-related risks and opportunities to be disclosed in the sustainability report, it should
be material.

Fundamental characteristics Enhancing characteristics

Relevance Comparable
Qualitative
Faithful representation characteristic Verifiable

Timely

Understandable

Connected Conceptual
foundations Fair presentation
information

Reporting Materiality
entity

The context of materiality in IFRS S1.18 is consistent with IAS 1.7 in IFRS. Information is material
if omitting, misstating, or obscuring it could reasonably be expected to influence user’s investment
decisions. IFRS S1.B19 requires materiality judgements to be specific to an entity. ISSB does not
specify any threshold for materiality or predetermine what would be material in a particular
situation, but the assessment of materiality should consider both the quantitative and qualitative
factors that will be of interest to users of the general-purpose financial report.

8 Sustainability reporting in Nigeria: The

nexus between IFRS S2 and climate
change accounting.
O4

Core contents

Sustainability reporting in Nigeria: The nexus

between IFRS S2 and climate change accounting.
Core contents

Like the core contents in IFRS S1, IFRS S2 Users of general-purpose financial report will
specifies that, for climate-related risks and benefit from this information especially on
opportunities, an entity is required to disclose climate-related risks identified and how the
information about governance, strategy, risk entity intends to achieve its climate-related
management, and metrics and targets. targets. Also, information about changes in
business model in addition to how the entity
Governance:
intends to transition to a lower-carbon economy
According to IFRS S2.5, users of general- and assessment of climate resilience should be
purpose financial reports would benefit from disclosed.
information about the governance processes,
Risk management:
controls, and procedures an entity employs in
monitoring, managing, and overseeing climate- Risk management is an integral part of an
related risks and opportunities. This means that entity’s overall business processes and as such,
part of the information required to be disclosed information about the processes are disclosed in
by an entity includes the body or individual(s) the financial statements. In the context of
with oversight responsibilities on climate-related financial reporting, we rely on IFRS 7
risks and opportunities at board level. disclosures for financial instruments exposed to
Specifically, it is expected that this information various types of risks in addition to other
should include the roles and responsibilities of operational risk management disclosures. IFRS
the body or individual(s) in the governance S2 also includes similar requirements about
processes, procedures and controls used to disclosure of climate-related risks for which an
manage, monitor, and oversee climate-related entity may be exposed to and the process of
risks and opportunities. managing those risks. Specifically, IFRS S2.24
requires an entity to provide information about
Strategy:
the entity’s climate-related financial disclosures
IFRS S2.8 requires an entity to disclose the on risk management.
strategy used in managing climate-related risks
and opportunities.

10 Sustainability reporting in Nigeria: The

nexus between IFRS S2 and climate
change accounting.
Core contents

Risk management information will enable users

of general-purpose financial reports to
understand an entity's processes with respect to
identifying, assessing, prioritizing, and
monitoring climate-related risks and
opportunities, including whether and how those
processes are embedded into an entity's overall
risk management process.
Metrics and targets:
In order to manage climate-related risks and
opportunities, entities may have targets they
intend to achieve such as zero carbon emission
targets, carbon neutrality or significantly
reduced level of emissions. Achieving these
targets require close monitoring of sustainability
indicators and tracking of the metrics to
evaluate actual performance with the set
targets. In this regard, IFRS S2.27 provides the
requirements for entities to provide financial
disclosures on metrics and targets. The required
disclosures will enable users of general-purpose
financial report to understand an entity’s
performance in relation to progress towards any
climate-related targets it has set, and any
targets it is required to meet by law or
regulation.
In doing that, entities are expected to disclose
relevant information on cross-industry metric
categories, the business model associated to it,
and any set target that the entity intends to
achieve on climate related risks and
opportunities.

11 Sustainability reporting in Nigeria: The

nexus between IFRS S2 and climate
change accounting.
O5

Connections with
IFRS financial
statements

Sustainability reporting in Nigeria: The nexus

between IFRS S2 and climate change accounting.
Connections with IFRS
financial statements

The sustainability report prepared in accordance Certain information about the financial effects
with ISSB standards is expected to have of climate-related risks and opportunities
connections with the IFRS financial statements required to be disclosed per IFRS S2 may have
issued by the same entity. In the context of been disclosed in the IFRS financial statements
climate-related risks and opportunities, entities while complying with IFRS guidance for climate
should disclose information about how these change accounting. ISSB recognizes this fact
risks and opportunities impact their financial and states in IFRS S1.20 that an entity shall
performance, financial position and cashflows provide information about the connections
(IFRS S2.15). In doing this, paragraph 15 between sustainability-related financial
specifically requires entities to disclose the disclosures and other general purpose financial
financial effect of the strategy and governance reports published by the entity such as its
processes for current and anticipated effects in related financial statements. Specifically,
the short, medium, and long term. These paragraph 21 of IFRS S1 requires an entity to
disclosures should be both quantitative and identify the financial statements to which the
qualitative in nature and should include climate-related financial disclosures relate.
investment and financing plans that are climate Following the requirements of paragraph 20 and
related. 21 of IFRS S1, entities will not be expected to
duplicate information about climate related risks
and opportunities in the annual report
“Following the comprising of both IFRS financial statements
and a sustainability report. Entities should
requirements of disclose the impact of climate-related risks and
opportunities on the financial position, financial
paragraph 20 and 21 of performance and cashflows in the financial
statements using IFRS guidance where
IFRS S1, entities will applicable and cross-reference these disclosures
not be expected to to the sustainability report as may be
appropriate to avoid duplications.
duplicate information
about climate related
risks and opportunities
in the annual report
comprising of both IFRS
financial statements
and a sustainability
report….”

13 Sustainability reporting in Nigeria: The

nexus between IFRS S2 and climate
change accounting.
Connections with IFRS
financial statements

To determine the impact of climate-related risks

and opportunities on financial position, financial
“Entities should disclose performance and cashflows as required by IFRS
S2.15, an entity may start with an assessment of
the impact of climate- climate change impact on various items in the
related risks and financial statements. Depending on the entity
and the nature of its operations, climate change
opportunities on the may impact inventory, income taxes especially
financial position, financial deferred tax assets, impairment of financial
assets and non-current assets, provisions and
performance and contingencies, insurance contracts and going
cashflows in the financial concern assessment.

statements using IFRS

guidance where applicable
and cross-reference these
disclosures to the
sustainability report as
may be appropriate to
avoid duplications”

14 Sustainability reporting in Nigeria: The

nexus between IFRS S2 and climate
change accounting.
Conclusion

The ISSB standards IFRS S1 and S2 become effective for annual reports beginning on or after 1
January 2024. As noted in the introductory section, ISSB introduced some transition reliefs
including focusing on the implementation of IFRS S2 in the first year of adoption. This article
focuses on the requirements of IFRS S2 with respect to the interactions with IFRS financial
statements. There should be a handshake between sustainability report and climate change
disclosures in the financial statements. Entities can leverage on our recent publication on climate
change accounting to assess the impact of climate-related risks and opportunities on their financial
position, financial performance and cashflows. To avoid duplication of information, a reporting
entity should clearly identify the financial statements relating to the sustainability reports and
provide cross-references as may be appropriate.

For additional information, please contact our team

Jamiu Olakisan
Partner, Assurance Services
Assurance Leader – West
Cluster
[email protected]

Samuel Agbevem
Partner, Financial Accounting Advisory
Services & Climate Change and
Sustainability Services,
West Africa.
[email protected]

Alani Surakat
West Cluster Leader, Financial EY | Assurance | Tax | Strategy & Transactions | Consulting
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