Remodelling the Integration Principles of International Financial Reporting Standards (IFRSS) Reporting Requirements with Environmental, Social Governance (ESG) Sustainability Reporting

Abstract

The International Financial Reporting Standards (IFRS) Foundation has traditionally shaped financial reporting through its frameworks and accounting standards, mainly focussed on the investors and capital providers. with an overall goal to maximize wealth and returns. The traditional accounting models have been marred by short termism returns at the detriment of financial sustainability and returns, that mitigate other key stakeholders, Other key capital formations including the planet (environmental capital), people (human capital) and profits (economic capital) which sustainability reporting considers in addition to the investors required rate of return. The IFRS foundation in mitigation of these growing sustainability upheavals, has formed International Sustainability Standard Board (ISSB) framework, which is dubbed as IFRS Sustainability, and to date has issued two (2) standards, namely the IFRS S1 (general related financial sustainability) and IFRS S2 (general related Climate sustainability) whose effected adoption was January 2024. Whilst these ISSB framework interventions are fast gathering momentum and adoption across numerous international jurisdictions, their key goals are more focussed on financial materiality at detriment of impact materiality, whose hallmark is the Environmental, Social and Governance (ESG) Reporting. This study seeks to remodel traditional financial reporting principles to embed sustainability reporting and impacts. An empirical study was adopted focussed on Pan African Federation Accountants (PAFA) across all the African jurisdictions. The findings revealed that IFRS is rooted in decision useful information relevant to investors and capital providers, at the expense of other key stakeholders including, communities, employees, regulators and those across the supply chain. Furthermore, sustainability reporting conceptually does not apply the accrual concept, which makes integrated reporting technically challenging. The IFRS S2 is climate centric, through the environmental pillar, at the expense of the other environmental issues and the social pillar of the ESG Framework. The study recommends the further evaluation of the ISSB Framework consolidated reporting with traditional financial reporting.