IFRS S1 and S2: preparedness in Bangladesh

Adopting International Financial Reporting Standards (IFRS) S1 and S2 marks a pivotal moment for Bangladesh as it aims to enhance sustainability reporting among its corporations. The International Sustainability Standards Board's (ISSB) release of these standards in June 2023 signifies the global shift towards integrating environmental, social, and governance (ESG) factors into financial reporting. The question now arises: Is Bangladesh ready for this transformation?

Understanding IFRS S1 and S2: IFRS S1 outlines general requirements for disclosing sustainability-related financial information, while IFRS S2 focuses specifically on climate-related disclosures. These standards urge organisations to provide insights into sustainability-related risks and opportunities that may impact their financial performance. A critical argument in favour of these standards is the holistic view they advocate-requiring sustainability disclosures to be presented alongside financial statements, thus offering stakeholders a clearer picture of overall performance.

The regulatory landscape in Bangladesh: In response to the ISSB's directives, Bangladesh Bank has proactively adopted IFRS S1 and S2 through its SFD Circular 06/2023. This represents an essential step towards aligning national reporting standards with international practices. As Bangladesh is particularly susceptible to climate change-a country consistently ranked among the most vulnerable to its effects-the urgency of implementing robust sustainability reporting cannot be overstated.

However, a recent survey conducted by the Institute of Cost Accountants of Bangladesh (ICAB) indicates significant gaps. While assessing 25 companies known for their annual reporting excellence, the study found that only half of the companies issued standalone sustainability reports, and a mere third referred to relevant frameworks such as the Global Reporting Initiative (GRI) regarding climate change data. Notably, none reported on the scope of emissions or used assurance statements, raising concerns about the credibility of available information.

The current preparedness of Bangladeshi Banks: The financial sector in Bangladesh has shown a more advanced commitment to sustainability reporting. Driven by the efforts of Bangladesh Bank, several banks have begun to embrace sustainability practices, including the adoption of green banking initiatives. The regulatory framework encouraging financial institutions to practise environmental and social risk management has often placed banks at the forefront of sustainability reporting efforts.

Nonetheless, the momentum must spread beyond the banking sector. Manufacturing industries, particularly textiles-the backbone of Bangladesh's economy-have shown slow progress in sustainability reporting. As stakeholders increasingly prioritise sustainability in investment decisions, companies in other sectors must also align with IFRS S1 and S2 to remain competitive.

CHALLENGES AHEAD: One of the pressing challenges is the low awareness of IFRS S1 and S2 among financial institution owners and managers. Many practitioners are unfamiliar with sustainability reporting nuances, leading to reluctance to adopt these standards. Furthermore, the capacity limitations regarding infrastructure, technical expertise, and financial resources, especially among small and medium-sized enterprises (SMEs), could hinder effective implementation.

Cost is another significant concern. Transitioning to IFRS S1 and S2 requires substantial investment in training, systems upgrades, and compliance monitoring-expenses that many SMEs may find prohibitive.

STAKEHOLDER ENGAGEMENT FOR CAPACITY BUILDING: To facilitate a smoother transition, a collaborative approach among stakeholders is essential. Institutions such as the Financial Reporting Council (FRC), ICAB, and the Institute of Cost and Management Accountants of Bangladesh (ICMAB) are crucial in driving these initiatives.

ICAB, for instance, has established a Committee on Sustainability Reporting & Assurance (CSRA) to promote the adaptation of IFRS S1 and S2 within businesses. By conducting research, organising training, and facilitating seminars, ICAB is actively working to enhance the capacity of professionals in Bangladesh.

Moreover, initiatives undertaken by the Dhaka Stock Exchange (DSE) and the Bangladesh Securities and Exchange Commission (BSEC) to promote transparency and ESG disclosure are vital. Ensuring sustainable practices become an integral part of corporate governance will attract foreign direct investment, which is increasingly focused on sustainability.

PROSPECTS: The outlook for Bangladesh's transition towards IFRS S1 and S2 can be optimistic if challenges are addressed effectively. The phased implementation approach that Bangladesh Bank has proposed is strategic, allowing organizations to gradually scale up their sustainability reporting and disclosures by 2027.

CONCLUSION: Bangladesh stands at a significant crossroads regarding sustainability reporting. The adoption of IFRS S1 and S2 presents an opportunity not just for compliance, but to position the nation as a responsible player in the global market. While challenges abound, a concerted effort from regulators, professional organisations, and industry players can facilitate a positive shift towards a sustainable future. By integrating these standards into their reporting practices, Bangladeshi companies can enhance transparency, attract investment, and ensure long-term resilience in an increasingly eco-conscious world.

Touhidul Alam Khan is a fellow of the Institute of Cost & Management Accountants of Bangladesh (ICMAB) and Bangladesh's first Certified Sustainability Reporting Assurer (CSRA). touhid1969@gmail.com