FRC Roadmap on Sustainability Reporting in Nigeria PDF

ADOPTION READINESS WORKING GROUP (ARWG) FOR SUSTAINABILITY REPORTING IN NIGERIA ROADMAP REPORT FOR ADOPTION OF IFRS SUSTAINABILITY DISCLOSURE STANDARDS IN NIGERIA MARCH 2024  TABLE OF CONTENTS 1.0...

ADOPTION READINESS WORKING GROUP (ARWG) FOR SUSTAINABILITY REPORTING IN NIGERIA ROADMAP REPORT FOR ADOPTION OF IFRS SUSTAINABILITY DISCLOSURE STANDARDS IN NIGERIA MARCH 2024  TABLE OF CONTENTS 1.0 Background 2 2.0 International Sustainability and ESG Frameworks 4 3.0 Local Laws, Regulations, and Guidelines that support ESG 13 4.0 Recommended Sustainability framework for Nigerian entities 15 5.0 The IFRS Sustainability Disclosure Reporting Roadmap 15 6.0 Key considerations for effective Adoption 20 7.0 Support and Transitional Reliefs for Preparers 24 8.0 Disclosing Sustainability Information 26 9.0 Assurance 29 10.0 Advocacy and Communication 30 11.0 Monitoring and Enforcement 31 Definition of Terms 32 Members of ARWG 36 1|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  1.0 Background Sustainability reporting globally has evolved from what is considered a business non-essential to a responsible business practice today. Among the key trends shaping the corporate sustainability landscape today are the consolidation among standard-setters; regulation focused on ESG-related disclosures; and maturation of ESG data and disclosures within private markets. Prior to the issuance of the IFRS sustainability disclosure standards (ISSB Standards), Nigerian entities have been disclosing their ESG practices using different frameworks. There is the CBN sustainable banking principles that require Nigerian Banks to emphasize sustainability reporting and disclosures as a means to ensure transparency and accountability in the Banking sector. The NSE (now NGX) sustainability disclosure guidelines which provide a framework for listed companies to disclose their ESG performance and the Nigerian Sustainable Finance Principles issued by the Securities and Exchange Commission which requires public interest/listed entities to integrate ESG considerations in their operations and decision-making amongst others. The challenge with these initiatives is the absence of a common framework across entities which hampers comparability. To address this deficiency, Nigeria supported the establishment of the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions. 2|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  Nigeria went further at Cop 27 through the Financial Reporting Council of Nigeria (FRC) to announce its intention to early adopt the IFRS S1 & S2 which were the first two standards issued by the ISSB. The announcement stated that FRC Nigeria is working in collaboration with the Federal Ministry of Finance and other relevant regulators and professional accounting organisations, to develop a strategy to raise awareness; engage stakeholders around the standards; and develop a roadmap for timely implementation in the Nigerian market. To ensure a robust regulatory framework for Nigeria to adopt the ISSB standards, the Financial Reporting Council Act (FRC Act) of Nigeria 2011 was amended and section 8(h) of the amended Act mandated the FRC to promote compliance with the adopted standards issued by the International Federation of Accountants (IFAC), International Financial Reporting Standards (IFRS) Foundation, International Public Sector Accounting Standards Board (IPSASB), or any other body that may be designated as such and any other standards setting body relating to the mandate of the Council. The decision of Nigeria to adopt the ISSB standards is based on the fact that it represents a global baseline for a single set of high-quality sustainability reporting standards and its adoption has the effect of unlocking capital and generating the much-needed foreign direct investments for Nigeria. Aside from this, the ISSB standards have strong international support with backing by the G7, the G20, the International Organization of Securities Commissions (IOSCO), the Financial Stability Board, African Finance Ministers, and Central Bank Governors from more than 40 jurisdictions and still counting. 3|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  Consequent to the announcement by Nigeria to adopt the ISSB standards at Cop 27, the FRC established the Adoption Readiness Working Group (ARWG) for Sustainability Reporting in Nigeria. The group was inaugurated by the Permanent Secretary, Federal Ministry of Industry, Trade and Investment (FMITI), Dr. Evelyn Ngige, on June 6, 2023, in Abuja. The group which is made up of members from diverse backgrounds, including chief executives, chief finance officers, chief sustainability officers, sustainability reporting professionals and representatives of professional accountancy organisations, audit firms, financial institutions, regulators, investors, and academia is tasked with the role of developing a roadmap for timely and effective implementation of the standards and to support the adoption of the standards through advocacy and engagements. 2.0 International Sustainability and ESG Frameworks Regulators and standard setters in various jurisdictions issued definitive proposals to transform ESG reporting in 2022. The year brought ESG disclosures from; the European Union (EU) as part of the Corporate Sustainability Reporting Directive (CSRD), internationally by the International Sustainability Standards Board (ISSB), and in the United States by the Securities and Exchange Commission (SEC). These proposals each detailed expansive sustainability disclosure requirements – although their proposed scopes and other details varied. Understanding where the frameworks align and diverge will help companies develop the requisite 4|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  reporting strategy, data gathering processes, and related controls, providing for a streamlined process and effective deployment of resources. One of the foundational points of alignment among the frameworks is the incorporation of elements based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. Leveraging this popular framework unites the disclosure frameworks through key themes, including required disclosure of the broad impacts of sustainability-related risks as well as governance and oversight of the related risks and opportunities. We provide an outline which compares and contrasts the key provisions among several frameworks and standards, including the TCFD framework, the European Sustainability Reporting Standards (ESRS), the SEC (US) proposal, and the standards issued on June 26, 2023, by the ISSB. By understanding the different requirements, preparers can develop the appropriate reporting strategy, one designed to capture the right data the first time. 2.1 EU Regulations and Disclosure Requirements The European Commission (EC), the European Parliament, and the Council of the European Union have made strides to ensure that sustainability regulations under the Corporate Sustainability Reporting Directive (CSRD) will be a reality. The CSRD was effective on January 5, 2023; EU Member States had 18 months to incorporatethe CSRD’s provisions into national law. The CSRD resulted in the development of the European Sustainability Reporting Standards (ESRS), as proposed by the European Financial Reporting Advisory Group (EFRAG). 5|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  2.2 IFRS Sustainability Disclosure Standards The ISSB published its first two standards in June 2023: one on climate-related disclosure requirements (IFRS S2) and one on general disclosure requirements addressing governance and other sustainability matters (IFRS S1)”one. IFRS S1 requires companies to “refer to and consider” the applicability of the disclosure topics and related metrics in the industry-based Sustainability Accounting Standards Board (SASB) standards. Other sources, such as the Climate Disclosure Standards Board (CDSB) Framework, pronouncements from other standard setters, and the ESRS and Global Reporting Initiative (GRI) standards may also be considered. IFRS S1 and IFRS S2 are effective for periods beginning on or after January 1, 2024. The ISSB provided transition relief, however, requiring only climate-related disclosures in the first year of reporting. 2.3 SASB Standards In August 2022, the IFRS Foundation assumed responsibility for SASB Standards when it merged with the International Integrated Reporting Council (IIRC) to become (Value Reporting Foundation (VRF). It is important to state that both the SASB and IIRC were integrated into the ISSB standards. SASB Standards enable organizations to provide industry-based sustainability disclosures about risks and opportunities that affect enterprise value. The SASB standards are broken down by industry, making SASB metrics comparable from company to company within an identified peer group. Currently, there are 77 identified industries in the SASB Standards in 11 different Sectors across 5 dimensions of sustainability namely, environmental, social capital, human capital, business model and innovation, leadership, and governance. 6|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  2.4 TCFD Recommendations The Task Force on Climate-related Financial Disclosures (TCFD) was established by the Financial Stability Board (FSB) in 2015, to develop consistent disclosure standards for companies, to enable the assessment of companies’ climate-related financial risk. The recommendations were published in June 2017, and have until now effectively been serving as the industry standard for climate-related disclosures. The TCFD structured its recommendations around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics & targets. The ISSB has taken over the responsibility of the Task Force on Climate-related Financial Disclosures (TCFD) which was previously held by the FSB. 2.5 GHG Protocol Launched in 1998, the Greenhouse Gas (GHG) protocol initiative has a mission to develop internationally accepted GHG accounting and reporting standards for businesses and to promote their broad adoption. The GHG protocol supports various reporting frameworks and standards by providing guidelines for measuring and managing GHG emissions, enabling organizations to track their climate impact. 2.6 GRI Standards The Global Reporting Initiative (GRI) standards are a modular framework that includes sets of universal, sector-specific, and topic-based sustainability reporting standards. The GRI released its formal standards in 2016, then began adding the topic standards in 2019 and the sector ones in 2021. While the GHG Protocol can be used across different frameworks, the GRI has its own set of protocols embedded within its standards for measuring and reporting sustainability 7|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  performance. 2.7 PCAF Recommendations The Partnership for Carbon Accounting Financials (PCAF) is a financial industry led initiative. PCAF developed the Global GHG Accounting and Reporting Standard for the financial industry, focusing on measuring and reporting financed emissions. Published in November 2020, the standard provides detailed methodological guidance to measure and disclose GHG emissions associated with six asset classes: listed equity and corporate bonds, business loans and unlisted equity, project finance, commercial real estate, mortgages, and motor vehicle loans. 2.8 Carbon Disclosure Project Now known simply as CDP, the Carbon Disclosure Project was founded in 2000 to encourage environmental transparency and performance improvements through carbon, water, and forest- related disclosures, as well as new plastics disclosures. CDP gives reporting companies letter- gradescores in each area that can be viewed by various stakeholders. In the following table, we compare and contrast the key features and differences among five of these frameworks including the EU’s CSRD, the IFRS ISSB, the TCFD, the IFRS SASB and the GRI. 8|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  THEME CSRD ISSB TCFD SASB GRI Topics in scope Proposed standards span a Standards address climate Standards address Standards address climate Standard helps organizations broad list of ESG topics, and other sustainability climate-related financial and other sustainability report on their economic, including one dedicated to risks. Additional thematic risks. risks. environmental, and social climate disclosures. standards are expected in impacts. the future. Industry standards Ten sector-specific The ISSB cuts across all The TCFD cuts across all 11 sector-specific The Universal, Sector, and standards in development. industries and sectors. industries with emphasis standards across 77 Topic Standards are the on a Dynamic Risk industries. GRI’s three main standards. Assessment approach. Location Disclosure would be There’s an optional The Task Force Disclosures are industry- Can be produced as a stand- of disclosures included within a dedicated provision to recommends that specific and can be used as alone sustainability report, or section of the management either release the IFRS preparers of climate- additional sources of can reference information report. Sustainability Standards related financial guidance for ESG reporting disclosed in a variety of No financial statement with the General Purpose disclosures provide such purposes. locations and formats. footnote disclosure financial statements or disclosures in their required. separately as a Stand- mainstream (i.e) public alone statement. annual financial filing. Materiality Based on “double Materiality would be Materiality would be The responsibility for Materiality is based on the materiality,” consisting of assessed based on factors assessed based on making materiality most significant impacts of “financial materiality” (an that could reasonably be factors that could impact judgements and activities and business outside in perspective) and expected to influence the enterprise value of the determinations rests with relationships on the “impact materiality” (an decisions that the primary company from the the reporting entity. economy, environment, and inside out perspective). users make based on that standpoint of the investor people. information. and other participants in the world’s capital markets 9|Page Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria Targets and Commitment to and Disclosure would be Disclosure of the metrics Commitment to and Proposed climate change transition plans disclosure of GHG required of any climate- and targets used to disclosure of GHG and energy standard would emissions reduction targets related targets set by the assess and manage emissions reduction targets require disclosures related to would be required in five- company, including how relevant climate-related and timelines for the transition plans, climate year rolling periods. such targets were informed risks and opportunities reduction activity would be change adaptation, emission Disclosure about the by the “latest international where such information is required. reduction targets, GHG transition plan’s agreement on climate material. removal within organizations’ compatibility with the Paris change (currently the Paris value chains and the use of Agreement would also be Agreement). carbon credits. required. Use of scenario Explanation is required of Disclosure of whether the Disclosure of how Disclosure of how GRI leverages the IPCC analysis whether and how scenario company used a scenario strategies might change strategies might change to assessment reports based analysis is consistent with that aligns with the “latest to address potential address potential climate- on a 100-year timeframe. the Paris Agreement and international agreement on climate-related risks and related risks and Which guides on the use of limiting climate change to climate change” would be opportunities including a opportunities including a 2° scenario analysis. 1.5°C. required. 2° Celsius or lower Celsius or lower scenario. scenario. GHG Protocol Consideration of the GHG Use of the GHG Protocol GHG emissions should be Use of the GHG Protocol The reporting requirements Protocol is required. would be required, unless a calculated in line with the would be required but for GHG emissions are different method is required GHG Protocol provide additional based on the requirements of by a jurisdictional authority methodology to allow for guidance, such as industry- the GHG Protocol. or exchange. aggregation and or region specific guidance. comparability across organizations and jurisdictions. GHG emissions - Parent and consolidated Emissions would be Emissions would be Emissions would be The reporting organization organizational subsidiaries’ emissions: reported using either a reported based on climate recorded based on peculiar shall report the consolidation boundaries follow the organizational control or equity share risk profiling for each industry- based models e.g approach for emissions; boundaries of the approach (consistent with organization Energy and Extractive whether equity share, consolidated FS. optionality described in the emissions, Financial financial control, or Associates and JVs GHG Protocol). services lending portfolios, operational control. emissions: presented etc. based on operational control. 10 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria Scope 1 and scope 2 Disclosure of gross Scope Disclosure of gross scope 1 Disclosure of Scope 1, Gross Scope 1 GHG Disclosure of Gross direct GHG emission 1 and Scope 2 emissions and scope 2 GHG Scope 2, and, if emission data shall be (Scope 1) GHG emissions in for Parent, consolidated emissions for the appropriate, Scope 3 consolidated according to metric tons of CO2 subsidiaries, and consolidated group and greenhouse gas (GHG) the approach with which equivalent and Gross associated entities.- separately for the investees emissions, and the related the entity consolidates its location-based energy Separate disclosures of the excluded from risks. financial reporting data, indirect (Scope 2) GHG percentage of Scope 1 consolidation, such as its No requirement to Would require emissions to emissions in metric tons of emissions under regulated associates and joint disaggregate emissions be disaggregated by type of CO2 equivalent are required. emission trading schemes.- ventures. by type of GHG. GHG Separate disclosures of Scope 2 emissions would Scope 2 emissions.- No be disclosed using the requirement to disaggregate location- based method. emissions by type of GHG No requirement to disaggregate emissions by type of GHG. Scope1 and Scope2 Disclosure of total GHG No requirement to disclose Disclosure of industry Disclosure of GHG Disclosure of scopes 1, 2 GHG intensity emissions per net revenue GHG emissions intensity. specific GHG efficiency emissions per unit of total and 3 GHG emissions would be required. ratios e.g. emissions per revenue and per unit of intensity ratio is required. unit of economic output. production would be required. Scope 3 GHG Scope 3 emissions would Scope 3 emissions would Scope 3 emissions would Scope 3 emissions would Disclosure of Gross other emissions be disclosed in total for the be disclosed in total, be disclosed in total, be disclosed in total, indirect (Scope 3) GHG parent and consolidated including component including component including component emissions in metric tons of subsidiaries as well as categories. categories. categories per relevant CO2 equivalent required. entities over which it has industry operational control, including significant scope 3 categories.(i.e., those that are a priority for the undertaking). Scope 3 GHG Disclosure of total GHG No requirement to disclose Disclosure of industry Disclosure of GHG Disclosure of scopes 1, 2 intensity emissions per net revenue GHG emissions intensity. specific GHG efficiency emissions per unit of total and 3 GHG emissions would be required. ratios e.g. emissions per revenue and per unit of intensity ratio is required. unit of economic output. production would be required. 11 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria Assurance excluding Sustainability information Sustainability information Sustainability information Sustainability information Encourages organizations to GHG emissions would initially be subject to would be subject to would be subject to would be subject to use external assurance to limited assurance, assurance based on the assurance based on the assurance based on the increase the confidence of transitioning to reasonable rules of the jurisdictions rules of each jurisdiction rules of each jurisdiction decision-makers in the assurance at an adopting the standards. relation to each industry accuracy and reliability of the unspecified date. within the jurisdiction. reported information. Timing of application Timing is established by the Timing will depend on how Timing will depend on Timing would depend on if CSRD and would be standards are implemented type of preparer with the SASB standards are phased by type of entity. in each jurisdiction. disclosure requirements consulted as additional Disclosure requirements of being the industry sources of guidance for IFRSS2 are effective for standard for climate- reporting purposes. annual reporting periods related disclosures since beginning on or after published in June 2017. January 1, 2024, with early adoption permitted. In the first year of reporting, entities are permitted to apply IFRS S1 only to the extent it relates to the disclosure of Climate-related information. Comparative Comparative information Comparative information Presenting comparative Comparative information The information shall be information would not be required in the would not be required in the information is preferred; would not be required in the presented in a manner that first year of adoption but first year of adoption but however, in some first year of adoption (as an enables analysis of changes required thereafter. required thereafter. situations it may be additional guidance) but in organization’s preferable to include a required thereafter. performance over time, and new disclosure even if relative to other comparative information organizations. cannot be prepared or restated. 12 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  3.0 Local Laws, regulations and guidelines that support ESG Sustainability disclosure practices in Nigeria is gaining importance in recent years as businesses and stakeholders recognize the need for transparency and accountability in addressing environmental, social, and governance (ESG) issues. While Nigeria is still in the early stages of developing comprehensive sustainability reporting frameworks, there are notable efforts to promote sustainability disclosures. The following are local laws, regulations and guidelines, though not exhaustive that support ESG initiatives in Nigeria. The Environmental Impact The Act mandates that an environmental impact assessment must be conducted for Assessment Act, 2004 LFN any project or activity that is likely to significantly affect the environment. The EIA report is required to be submitted to the National Environmental Standards and Regulations Enforcement Agency ("NESREA" – the Federal Environmental Protection Agency) for approval and a certificate issued. The recent and very important regulatory law to Nigeria’s environmental regime is the The National Environmental National Environmental Standards and Regulations Enforcement Agency Standards and Regulations (Establishment) Act (NESREA Act), which came into force in 2007. The Act Enforcement Agency (NESREA) establishes the National Environmental Standards and Regulations Enforcement Act, 2007 Agency (NESREA or Agency), Nigeria’s lead environmental protection agency. The NESREA Act empowers the Agency to be responsible for enforcing all environmental laws, guidelines, policies, standards and regulations in Nigeria, as well as enforcing compliance with provisions of international agreements, protocols, conventions and treaties on the environment to which Nigeria is a signatory. The Companies and AlliedMatters Act, CAMA imposes an environmental obligation on directors of Nigerian companies. 2020 (“CAMA”) T h e A c t mandates directors to consider the impact of the company’s operations on the environment in the community where the company carries out its business operations. 13 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  The Petroleum Industry Act, 2021 Section 239 of the PIA empowers a body known as the Host Community Development (“PIA”) Trust to finance and execute projects for the benefit and sustainable development of host communities. This provision mandates operators to participate in environmental and social sustainability actions in the communities in which they operate such as decommissioning and the abandonment of petroleum wells, installations, structures, etc. NSE (Now NGX) Sustainability The NSE plays a vital role in promoting sustainability reporting among listed Disclosure Guidelines, 2019 companies. In 2017, the NSE launched the NSE Sustainability Disclosure Guidelines, which provide a framework for listed companies to disclose their ESG performance. The guidelines cover key areas such as governance, environmental impact, labor practices, human rights, andcommunity involvement. Nigeria Code of Corporate The FRC has made efforts to incorporate sustainability reporting into financial reporting Governance (2018) requirements. The National Code of Corporate Governance now includes provisions related to sustainability reporting, encouraging companies to disclose ESG information. The Nigerian Climate Change Act The Nigerian Climate Change Act, signed in 2021, aims to address climate change (2021) and promote sustainable development in the country. The National Council on Climate Change(NCCC) is responsible for implementing the act, which could significantly impact ESG Reporting in Nigeria. CBN’s Sustainable Banking In 2012, the Central Bank of Nigeria (CBN) released the Sustainable Banking Principles (2012) Principles,which guide Nigerian banks on integrating sustainability practices into their operations. The principles emphasize sustainability reporting and disclosure as a meansto ensure transparency and accountability in the banking sector. SEC guidelines on In 2021, the SEC approved the Guidelines on Sustainability Financial Principles for the sustainable financial Nigerian Capital Market. The objectives of the guidelines include to stimulate a principles for the Nigerian resilient, competitive and sustainable capital market, and to improve corporate capital market (2021) governance practices. The guideline requires public interest/ listed entities to integrate ESG considerations into their operations and decision-making processes to avoid, minimize oroffset negative impacts. 14 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  4.0 Recommended Sustainability framework for Nigerian entities Nigeria embraced the ISSB standards because of its global baseline and high quality standards which facilitate the disclosure of the sustainability-related risks and opportunities faced by an entity. The adoption of the standard will ensure the streamlining of sustainability disclosures and enhancement of comparability which has the potential to unlock capital flows to Nigeria. The ISSB sustainability standards have also received International commendation and support from a broad range of stakeholders including but not limited to the G7, the G20, the International Organization of Securities Commissions (IOSCO), and the Financial Stability Board, Central Bank Governors from more than 40 jurisdictions. Where the ISSB standards did not address a particular sustainability issue, the IFRS S1 requires entities to “refer to and consider” the applicability of the disclosure topics and related metrics in the industry-based SASB standards. The standard also recommends the consideration of other sources, such as the Climate Disclosure Standards Board (CDSB), European Sustainability Reporting Standards (ESRS), and the Global Reporting Initiative (GRI) standards. There is currently no arrangement to mandate dual reporting of sustainability issues in general- purpose reporting. 5.0 The IFRS Sustainability Disclosure Standards Reporting Roadmap Nigeria has adopted a phased approach to the adoption of the IFRS Sustainability disclosure standards with full application of the mandatory reporting for applicable entities commencing from 15 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  the accounting period beginning on or after January 1, 2028. a. Phase 1 (Early Adopters) - The IFRS sustainability disclosure standards became effective for annual reporting periods beginning on or after January 1, 2024. Entities in this category are required to report their sustainability-related information for the accounting period ending on or before December 31, 2023, and pass the readiness test assessment to qualify as early adopters. b. Phase 2 (Voluntary Adopters) - This Phase is for the accounting period beginning on or after 1 January 2024 and through to the accounting period ending on or before 31 December 2027. During this period reporting entities are required to build capacity and get ready for mandatory adoption. Any entity that desires to report during this period shall be subjected to the readiness test assessment of the FRC. c. Phase 3 (Mandatory Adoption) - From the accounting period beginning on or after 1 January 2028, it will become mandatory for all entities except government and government organizations to adopt the IFRS sustainability disclosure standards. This phase is categorized into two (2) as follows; i. All PIEs (Reporting date: Accounting period beginning on or after January 1, 2028); and ii. SMEs (Reporting date: Accounting period beginning on or after January 1, 2030). The readiness test assessment is compulsory for all entities reporting in these phases and must be carried out before an entity publishes its first sustainability report. 16 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  d. Phase 4 (Governments and government organizations) - A review will be conducted when the sustainability reporting standards for public sector entities currently being developed by the International Public Sector Accounting Standards Board (IPSASB) become available with the aim of determining the appropriate period when sustainability reporting disclosures by public sector entities will be required. Phase 1: Phase 2: Phase 3: Phase 4: Early Adopters Voluntary Adopters Mandatory Adopters Government & Govt. All PIEs: SMEs: Organisations (Dec, 31, 2023) (2024 -2027) 2028 2030 (To be determined) 17 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  5.1 Readiness Test Assessment Readiness test assessment will be conducted to ascertain the preparedness or otherwise of entities to adopt the IFRS sustainability disclosure standards. The following documents will be required to be submitted by reporting entities to the FRC for the assessment. 1. Board resolution approving the adoption of IFRS sustainability Disclosure standards; 2. GAP Analysis Report; 3. Implementation plan; 4. IFRS Sustainability Disclosures Policies; 5. Identification and application of transitional reliefs; 6. Enterprise Risk Management and Sustainability Framework; 7. Evidence of Board Approval of the IFRS Sustainability Disclosure Policies; 8. Evidence of Board-Approval of Enterprise Risk Management and Sustainability Framework; 9. Evidence of Sustainability and ESG-specific training for Board Members, Management, and Preparers by reputable training providers acceptable by the FRC; 10. Evidence of registration of the entity and professionals engaged in the sustainability reporting process with FRC; 11. Description of Models used for scenario analysis; 18 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  12. Identification of sustainability and climate-related risks and opportunities; 13. Evidence of the establishment of a governance structure for sustainability reporting; 14. Targets and metrics set to manage and measure identified risks and opportunities; 15. Identification of aspects of financial reports requiring updates; 16. Identification of current and anticipated effects of sustainability-related risks and opportunities on the entity’s business model and value chain; and 17. Internal control over sustainability reporting. The order of submission of the readiness assessment document is as follows; a. Items 1 to 3 will be required to be submitted at least three (3) months before the beginning of the reporting date. b. Items 4 to 9 will be required to be submitted not more than three (3) months after the beginning of the reporting date. c. All other items are to be submitted not more than six (6) months after the beginning of the reporting date. The FRC would review these documentation and provide appropriate feedback as necessary. 19 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  6.0 Key considerations for effective Adoption 6.1 Materiality Reporting entities in line with IFRS S1 are required to disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. Sustainability information is deemed material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports, which include financial statements and sustainability- related financial disclosures that provide information about a specific reporting entity. 6.2 Governance The objective of sustainability-related financial disclosures on governance is to enable users of general-purpose financial reports to understand the governance processes, controls, and procedures an entity uses to monitor, manage, and oversee sustainability-related risks and opportunities. It is required that disclosures will include information about the governance body responsible for oversight of sustainability-related risks and opportunities and how the company’s governance bodies are involved in overseeing and monitoring sustainability-related risks and opportunities, including an explanation of how this role is incorporated into the company policy and procedures including management’s role in the governance processes, controls and procedures used to monitor, manage and oversee sustainability-related risks and opportunities. 20 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  6. 3 Strategy The objective of sustainability-related financial disclosures on strategy is to enable users of general purpose financial reports to understand an entity’s strategy for managing sustainability-related risks and opportunities. Disclosures relating to an entity’s strategy would include information about the: The sustainability-related risks and opportunities that could reasonably be expected to affect the Entity’s prospects. Current and anticipated effects of risks and opportunities faced by the reporting entity (for the reporting period and over the short, medium, and long term) on the entity’s: Climate resilience of strategy and business model to both transition and physical risks. 6.3.1 Assessing Climate Resilience An entity shall disclose information that enables users of general purpose financial reports to understand its capacity to adjust to the uncertainties arising from sustainability-related risks. An entity shall use scenario analysis for this assessment. While methods of scenario analysis can vary in their sophistication, entities are required to provide a disclosure of the approach used. The recommended approach is one that is commensurate with an entity’s circumstance, and it shall be informed by the assessments of the entity’s exposure to climate-related risks and opportunities and its available skills, capabilities and resources. Entities may be required to use qualitative scenario analysis at the initial period and progress to quantitative scenario analysis for subsequent periods. 21 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  6.4 Risk management The objective of sustainability-related financial disclosures on risk management is to enable users of general purpose financial reports to understand an entity’s processes to identify, assess, prioritise and monitor sustainability-related risks and opportunities, including whether and how those processes are integrated into and inform the entity’s overall risk management process; and to assess the entity’s overall risk profile and its overall risk management process. Entities will be required to disclose information about the processes and related policies the entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities and the extent to which, and how, these processes are integrated into and inform the entity’s overall risk management process. 6.5 Metrics and Targets The objective of sustainability-related financial disclosures on metrics and targets is to enable users of general-purpose financial reports to understand an entity’s performance regarding its sustainability-related risks and opportunities, including progress towards any targets the entity has set, and any targets it is required to meet by law or regulation. An entity will be required to disclose, for each sustainability-related risk and opportunity that could reasonably be expected to affect its prospects: the metrics required by an applicable IFRS Sustainability Disclosure Standard; and the metrics the entity uses to measure and monitor that sustainability-related risk or opportunity; and its performance about that sustainability-related risk or opportunity. As provided in IFRS S1, in the absence of an IFRS Sustainability Disclosure Standard that specifically applies to a sustainability-related risk or opportunity, an entity is expected to apply judgment to 22 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  identify information. In making such judgements, the entity shall refer to and consider the - Applicability of the metrics associated with the disclosure topics included in the SASB Standards; or Refer to and consider the applicability of the CDSB Framework Application Guidance; The most recent pronouncements of other standard-setting bodies whose requirements are designed to meet the information needs of users of general purpose financial reports; and; The information, including metrics, disclosed by entities that operate in the same industry(s) or geographical region. An entity may also refer to and consider the applicability of the Global Reporting Initiative Standards and the European Sustainability Reporting Standards. 6.5.1 Climate-related metrics An entity shall be required to disclose information relevant to the cross-industry metric categories of: Greenhouse gases – (absolute gross greenhouse gas emissions generated classified as scope 1, scope 2 and scope 3 emissions and the approach it uses to measure its greenhouse gas emissions). Climate-related transition risks; Climate-related physical risks; 23 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  Climate-related opportunities; Capital deployment; Internal carbon prices Remuneration — executive remuneration and the percentage of executive management remuneration recognised in the current period that is linked to climate related considerations. 6.5.2 Climate-related targets An entity will be required to disclose the quantitative and qualitative climate-related targets it has set to monitor progress towards achieving its strategic goals, and any targets it is required to meet by law or regulation, including any greenhouse gas emissions targets. The approach used to set and review the targets and how progress is monitored against each target is also required to be disclosed. It is also required that entities should disclose information about its performance against each climate-related target and an analysis of trends or changes in the entity’s performance. 7.0 Support and Transitional Reliefs for Preparers The ISSB is providing support and transition reliefs that will assist both preparers and regulators with implementation of the standards. The following support have so far been provided by the ISSB for reporting entities. 24 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  7.1 Support for Adopters a. Introducing proportionality and scalability mechanisms in IFRS S1 and IFRS S2 by introducing concepts such as ‘reasonable and supportable information that is available at the reporting date without undue cost or effort; and ‘the skills, capabilities and resources available to the entity’ in the determination of anticipated financial effects, Climate-related scenario analysis, Measurement of Scope 3 GHG emissions, identification of risks and opportunities, determination of the scope of the value chain and calculation of metrics in some cross-industry categories. b. Establishment of capacity‑building programmes and Knowledge hub to provide technical support to regulators and to increase the capacity among preparers and other stakeholders to apply IFRS S1 and IFRS S2. c. Developing an Adoption Guide aimed to support regulators in their implementation considerations and to enable the introduction of scalability and phasing‑in of the application of the requirements in IFRS S1 and IFRS S2 at a jurisdictional level. 7.2 Transitional Reliefs The following transitional reliefs as provided in IFRS S1 and IFRS S2 allow entities to deviate from some disclosure requirements when the standards are first applied. The ARWG requires reporting entities in Nigeria to apply the following transition reliefs; Climate-first reporting— entities are allowed to disclose information on only climate- 25 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  related risks and opportunities in the first annual reporting period in which that entity applies IFRS S1. Scope 3 GHG emissions—provides a transition relief in the first annual reporting period from disclosing Scope 3 GHG emissions. Further guidance will be issued by the ARWG/FRC on scope 3 GHG emissions. Timing of reporting— in the first annual reporting period, IFRS S1 permits entities to report their annual sustainability-related financial disclosures after they publish their related financial statements, along with their half-year financial reports. Reporting entities in Nigeria are allowed to issue the first sustainability report as a standalone report under ISSB’s sustainability reporting framework. comparative reporting—if an entity decides to apply the relief to disclose information on only climate-related risks and opportunities in the first annual reporting period, then it does not need to provide comparative information about its sustainability-related risks and opportunities apart from climate in its second year. GHG Protocol—IFRS S2 allows an entity already using a different measurement method to continue to use that method in the first year it applies IFRS S2. Reporting entities in Nigeria are also allowed to continue to use the different measurement methods beyond the first year if there is evidence that it aligns significantly with the GHG Protocol. 8.0 Disclosing Sustainability Information a. Reporting Entity – Sustainability-related financial disclosures shall be for the same reporting entity as for the related general-purpose financial statements. For consolidated entities, the sustainability-related financial disclosures shall enable users of general- 26 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  purpose financial reports to understand the effects of the sustainability-related risks and opportunities for that same parent and its subsidiaries. b. Location of disclosures - In order to align with existing reporting practices, reporting entities in Nigeria will be required to provide disclosures required by IFRS Sustainability Disclosure Standards as part of its general purpose financial reports and this should be presented after the directors report before the financial statements. Entities will be required to include an index or reference within their annual report that displays sustainability-related financial information and the corresponding disclosure section and page number(s) to enhance the user's ability to navigate information. c. Timing of reporting – The timing of sustainability-related disclosures should be consistent with the timing of financial statements. Nigerian entities are required to report their sustainability-related financial disclosures at the same time as their related financial statements and it shall cover the same reporting period as the related financial statements subject to the exemption provided for the first year of reporting. d. Comparative information – An entity is required to disclose comparative information in respect of the preceding period for all amounts disclosed in the reporting period. An entity shall not comply with this requirement where another IFRS Sustainability Disclosure Standard permits or requires otherwise or the entity decides to apply the relief available for comparative reporting for the first year. 27 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  e. Statement of compliance – In line with existing requirements in financial statements, an entity whose sustainability-related financial disclosures comply with all the requirements of IFRS Sustainability Disclosure Standards shall make an explicit and unreserved statement of compliance. An entity shall not describe sustainability-related financial disclosures as complying with IFRS Sustainability Disclosure Standards unless they comply with all the requirements of IFRS Sustainability Disclosure Standards. f. Publishing Requirement - All applicable entities would be subject to the requirement of making their sustainability-related financial disclosures public. 9.0 Assurance The importance of assuring sustainability-related financial disclosures cannot be overemphasized. The assurance roadmap is designed in such a way that there is progress from limited to reasonable assurance and from requiring assurance/verification on some aspects of the disclosures to requiring full reasonable assurance on all the disclosure requirements. Entities that already obtain some form of assurance on their sustainability disclosures should be encouraged to continue and ensure they do not deviate from the provisions of the assurance roadmap. Reporting entities are also allowed but not mandated to require a higher level of assurance than those required at various phases of the roadmap. (For example, an entity may require limited assurance during a period where no assurance is required and reasonable assurance during period of limited assurance). 28 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  a. Assurance Standard Assurance will be based on ISAA 5000 (Proposed International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagements) currently being developed by the International Auditing and Assurance Standards Board (IAASB) to address both limited and reasonable assurance. The standard is expected to become available before the end of 2024. Presently, in use and widely too, are accounting standards such as International Standards on Engagement 3000 and 3402. Therefore, transition to ISAA 5000 will be communicated once it becomes effective. b. Licensing of Sustainability Assurance Providers Assurance/verification of sustainability disclosures is expected to be carried out by a qualified and experienced independent provider. Providers of assurance for sustainability-related disclosures would be required to be independent of the entity being audited in accordance with the International Ethics Standards Board for Accountants (IESBA) code. The assurance providers will be expected to possess requisite professional qualifications and knowledge of assurance processes as may be required by the FRC. Due to the technical and sophisticated nature of the assurance required, it will not be unusual to find professionals who may not possess the skills or technical expertise to assure/verify certain elements of sustainability related information. All professionals involved in assuring sustainability related financial disclosures will be required to be registered with the FRC. c. The Assurance Roadmap Assurance/verification will be required from the third year of reporting. However, entities are permitted to provide assurance before the mandatory third year. For the third and fourth year 29 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  after reporting, limited assurance will be required on all sustainability disclosures except scope 3 emissions, transition plans and scenario analysis. For the Fifth year after reporting, limited assurance will be required for scope 3 emissions, transition plans and scenario analysis while reasonable assurance will be required on all other disclosures. From the sixth year after reporting, reasonable assurance will be required on all sustainability disclosures. The Assurance timeline for government and government organisations will be considered together with the reporting roadmap. Third and Fourth Years Fifth Year After Reporting Sixth Year After after Reporting Reporting Limited Reasonable assurance/verification Reasonable assurance/verification of of S1 and S2 disclosures (excluding assurance/verification S1 and S2 disclosures scope 3 emissions, scenario of all disclosures (full (excluding scope 3 analysis and transition plans). quantitative assurance). emissions, scenario analysis and transition Limited assurance/verification of plans. scope 3 emissions, scenario analysis and transition plans. 10.0 Advocacy and Communication Advocacy and communication are very important requirement for effective adoption. Professional bodies, Regulators, Policy Makers, Specialized Institutions, Academia and the Media (including the social media) have been identified as necessary stakeholders in the adoption process. There is need to create awareness, to enable the stakeholders embrace the implication of sustainability in depths. 30 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  The various mediums of engagement identified are virtual, in-person meetings, hybrid meetings, webinars, workshops, visitations, social media handles, jingles etc. The FRC has also signed an MOU with the Nigerian Integrated Reporting Committee (NIRC) to assist in the advocacy and enlightenment as well as capacity building. 11.0 Monitoring and Enforcement The same Regulator for monitoring and enforcement of financial reporting will be required for monitoring of sustainability related financial disclosures. By the FRC amendment Act of 2023, the FRC is empowered to promote compliance with the adopted standards issued by the IFRS Foundation (which includes the International Sustainability Standards Board that issues the IFRS sustainability standards). The enforcement action of the FRC will be i n i t i a l l y focused on supporting and guiding entities as they navigate their way in implementing the standards. It is not expected that the FRC will apply sanctions especially at the early stage of adoption. Regulatory roundtable will be held to develop a framework that will specify the roles and responsibilities of other relevant regulators and stakeholders in the adoption process to ensure synergy and harmonization of efforts. 31 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  Appendix A Definition of Terms 1. Early adopters: These are entities that have decided to adopt the standard before its effective date. The IFRS Sustainability disclosure standards became effective for accounting period beginning on or after January 1, 2024. For an entity to qualify as an early adopter, it must have indicated its willingness and readiness to adopt the IFRS S1 and S2 for accounting period ending on or before December 31, 2023 and pass the readiness test assessment to be conducted by FRC. 2. Government and government organisations: These are public sector entities that are required to apply the International Public Sector Accounting Standards (IPSAS) in their financial reporting in line with the IPSAS applicability Statement issued by the FRC. Such entities - a. Are responsible for the delivery of services to benefit the public and/or to redistribute income and wealth; b. Mainly finance their activities, directly or indirectly, by means of taxes and/or transfers from other levels of government, social contributions, debt, or fees; and c. Do not have a primary objective to make profits. 3. Limited Assurance: This is an assurance engagement in which the practitioner reduces engagement risk to a level that is acceptable in the circumstances of the engagement but where that risk is greater than for a reasonable assurance engagement as the basis for expressing a conclusion in a form that conveys whether, based on the procedures performed and evidence 32 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  obtained, a matter(s) has come to the practitioner’s attention to cause the practitioner to believe the subject matter information is materially misstated. The nature, timing, and extent of procedures performed in a limited assurance engagement is limited compared with that necessary in a reasonable assurance engagement but is planned to obtain a level of assurance that is, in the practitioner’s professional judgment, meaningful 4. Mandatory Adopters: These entities who have elected to adopt the IFRS sustainability disclosure standards when they become mandatory in Nigeria or at the expiration of the voluntary period. 6. Public Interest Entities is as defined in the FRC Act 2011 (as amended) and includes – a. governments and government organizations; b. listed entities on any recognised exchange in Nigeria; c. non- listed entities that are regulated; d. public limited companies; e. private companies that are holding companies of public or regulated entities; f. concession entities; g. privatized entities in which government retains an interest; h. entities engaged by any tier of government in public works with annual contract sum of N1 billion and above, and settled from public funds; i. licensees of government; and 33 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  j. all other entities with an annual turnover of N30 billion and above. 7. Reasonable Assurance: This is an assurance engagement in which the practitioner reduces engagement risk to an acceptably low level in the circumstances of the engagement as the basis for the practitioner’s conclusion. 8. Small and Medium-sized Entities (SMEs): This refers to entities that may not have public accountability and: a. Their debt or equity instruments are not traded in a public market; b. They are not in the process of issuing such instruments for trading in a public market; c. They do not hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses. d. The amount of its annual turnover is not more than N500 million or such amount as may be fixed by the Corporate Affairs Commission, e. Its total asset value is not more than N200 million or such amount as may be fixed by the Corporate Affairs Commission, f. No Board members are an alien, g. No members are a government or a government corporation or agency or its nominee, and h. The directors among them hold not less than 51 percent of its equity share capital. 34 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  9. Sustainability reporting Standards: This refers to IFRS S1 and S2 and other standards Issued and or adopted by the International Sustainability Standards Board (ISSB). 10. Voluntary Adopters: These are categories of reporters who have elected to adopt the IFRS Sustainability disclosure standards before it becomes mandatory in Nigeria. Adoption of the standard becomes mandatory in Nigeria from accounting period beginning on or after January 1, 2028. 35 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  Appendix B: Members of ARWG The ARWG comprises of professionals from diverse backgrounds, including chief executives, directors, sustainability officers, Auditors, financial institutions, regulators, investors, and the academia. S/N NAME ORGANISATION 1. Dr. Rabiu Olowo (Project Sponsor) Financial Reporting Council of Nigeria 2 Iheanyi Anyahara, PhD (Chairman) Financial Reporting Council of Nigeria 3 Dr. Ndidi Nnoli- Edozien International Sustainability Standards Board (ISSB) 4 Ms. Tinuade Awe Former CEO, NGX Regulations Ltd 5 Dr. Innocent Okwuosa Nigeria Integrated Reporting Committee 6 Mrs. Adekemi Adisa MTN Nigeria Communications Plc 7 Dr. Igaezuema Okorobo Dangote Cement Plc 8 Mrs. Grace Fatogbe NISRAL Plc 9 Nkeiru Chime The Infrastructure Bank Plc 10 Prof. Jane Ande Association of National Accountants of Nigeria (ANAN) 11 Prof. Fatima Alfa University of Maiduguri 12 Dr. A. O. Okunola Institute of Chartered Accountants of Nigeria (ICAN) 13 Dr. Onyinye Eneh Nnamdi Azikiwe University 14 Mr. Ibironke Babajide Abuja Electricity Distribution Company (AEDC) 15 Ms. Rukaiya El-Rufai SA to the President on National Economic Council (NEC) and Climate Change 16 Dr. Oduware Uwadie Deloitte & Touche 17 Mr. Sam Agbavem Ernst & Young 18 Mrs. Tomi Adepoju KPMG 19 Ms. Essien E. E Central Bank of Nigeria (CBN) 36 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria  S/N NAME ORGANISATION 20 Elizabeth Oyinlola Akinboye Seven Pillars 21 Jane Ohadike ACCA 22 Mr. Emmanuel Etaderhi FMDQ Holdings Plc 23 Tarfa M. C. Makyur Securities & Exchange Commission (SEC) 24 John Maguire Interswitch Group 25 Mrs. Kikelomo Fischer Leadway Assurance Compny Limited 26 Dr. Jacob Ame Nasarawa State University 27 Mrs. Ijeoma Ozulumba Development Bank of Nigeria (DBN) 28 Mr. Michael Ivenso Nigerian Council on Climate Change (NCCC) 29 Marilyn Obaisa-Osula PwC 30 Bolanle Adekoya PwC 31 Sa’ad Abubakar Securities & Exchange Commission (SEC) 32 Chioma Orjiako National Pension Commission (PENCOM) 33 Oluwatoyin A. Charles National Insurance Commission (NAICOM) 34 Eunice Sampson Ernst & Young 35 Yomi Adebanjo Institute of Chartered Secretaries and Administrators (ICSAN) 36 Ibe O. Ibe Financial Reporting Council of Nigeria 37 Stanley Aniagbaoso Financial Reporting Council of Nigeria 38 Dr. Abdurazzaq Abubakar (Secretary) Financial Reporting Council of Nigeria 39 Anthonia Odo Financial Reporting Council of Nigeria 37 | P a g e Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria