September 2023
Aaron Chen and Tina Lee
With the rising awareness of “sustainability development” in recent years, many countries, including Taiwan, have gradually required publicly traded companies to disclose “sustainability information” in their financial reports or sustainability reports. To establish internationally consistent disclosure standards, the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards Foundation (IFRS Foundation) issued Sustainability Disclosure Standards S1, which is “General Provisions for Disclosure of Sustainability-Related Financial Information” (hereinafter, “S1”), and S2, which is “Climate-Related Disclosures” (hereinafter, “S2”), on June 26, 2023 to enhance the comparability of sustainability information and prevent greenwashing. These standards were recognized by the International Organization of Securities Commissions (IOSCO) on July 25, 2023.
To align with the IFRS Sustainability Disclosure Standards, the Financial Supervisory Commission (hereinafter, the “FSC”) of Taiwan, after consultations with relevant authorities, issued the Roadmap for Taiwan to Align with IFRS Sustainability Disclosure Standards on August 17, 2023. The key disclosures under S1 and S2, as well as the alignment approach explored by the FSC, are analyzed and described below:
I. Content of disclosures:
1. S1: General Provisions for Disclosure of Sustainability-Related Financial Information
The purposes are to stress the link between sustainability information and financial statements, requiring the same scope of reporting entities (using consolidated financial statements), and to apply the definition of materiality used in financial reporting. In addition, major assumptions related to sustainability information must be consistent with those used in financial reporting, and the timing of sustainability information disclosure must align with that of financial reporting.
2. S2: Climate-Related Disclosures
The purpose is to require companies to disclose the impact of climate-related risks and opportunities on their strategies, such as plans for transitioning to a low-carbon economy, climate-related targets, and assumptions and conditions used in formulating transition plans. In addition, enterprises are also required to disclose additional information related to climate-related targets, including methods for setting and reviewing the extent of target achievement, performance against targets, types and scope of greenhouse gases covered, the extent of achieving the total associated target or the net emission target after carbon offsetting is used, the reliance on achieving the target via carbon right, third-party certification of the carbon right, the type of carbon right, etc.
3. Transitional provisions:
To provide enterprises with sufficient preparation time, the FSC will allow exemptions for specific items in the sustainability standards (including only considering climate issues in the first year, delaying disclosure of Greenhouse Gas Scope 3 for one year, exempting comparative period information disclosure in the first year of application, allowing the competent authority to separately establish greenhouse gas calculation standards, etc.). For disclosure items involving great quantification difficulties (e.g., the expected financial impact of climate-related risks, climate scenario analysis, and resilience assessment), qualitative information may be disclosed based on the company’s current technology, resources, and capabilities. For matters involving estimation (e.g., amounts and weightings from the impact of climate risks and opportunities on corporate assets and operating activities, and Greenhouse Gas Scope 3), estimation may be made based on current reasonable and verifiable data.
II. Alignment Approach:
To ensure comparability with international sustainability information, Taiwan will align with the IFRS Sustainability Disclosure Standards by way of direct adoption, and these standards will be applied after the FSC’s recognition. The first-time adoption of the IFRS Sustainability Disclosure Standards in 2026 must include both S1 and S2. In 2027 and thereafter, the FSC will evaluate and recognize each IFRS Sustainability Disclosure Standard based on ISSB’s development of sustainability disclosure standards.
III. Targets of applicable and timeline:
The FSC plans to apply the IFRS Sustainability Disclosure Standards in three stages starting from the 2026 fiscal year:
1. 2026: applicable to listed and OTC-traded companies with capital exceeding NT$10 billion.
2. 2027: applicable to listed and OTC-traded companies with capital between NT$5 billion and NT$10 billion.
3. 2028: applicable to all other listed and OTC-traded companies.
IV. Place and timing of disclosure:
The FSC will amend regulations related to annual report preparation by adding a dedicated chapter for sustainability information. This chapter will stipulate that domestically listed and OTC-traded companies must disclose relevant information in accordance with the IFRS Sustainability Disclosure Standards in the annual report chapter dedicated to sustainability information, which will be released ahead of time simultaneously with the financial report.
As S1 and S2 disclosure scopes should match those of financial reports, companies included in requirements for consolidated financial statements must also be included in their parent companies’ disclosure scope. Since this will substantially affect legal compliance for operators, listed and OTC-traded companies should closely monitor the implementation progress of these regulations and plan accordingly as early as possible.
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