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Tuesday, October 4, 2022

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CIBAFI submits comments on sustainability-related reporting exposure drafts

The General Council for Islamic Banks and Financial Institutions (CIBAFI) has submitted its comments on two exposure drafts on sustainability and climate-related reporting issued by the International Sustainability Standards Board (ISSB), furthering its efforts to develop the Islamic sustainable finance space.

The exposure drafts on ‘IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information’ and ‘IFRS S2 Climate-related Disclosures’ were published on the 31st March for market feedback until the 29th July 2022. The ISSB expects to issue the new standards by the end of the year.

The ISSB aims to form a comprehensive global baseline of sustainability-related disclosures based on the finalized standards to meet the information needs of investors in assessing enterprise value.

Representing over 130 Islamic financial institutions from over 30 jurisdictions, Bahrain-based CIBAFI highlighted three concerns regarding the ‘IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information’ exposure draft. First, the requirements outlined in the exposure draft may be difficult to meet in full for smaller financial institutions. Accordingly, it recommended additional guidance for smaller institutions. It is noteworthy that CIBAFI did not define ‘smaller institutions’, leaving ambiguity and room for interpretation in its comment.

“Many of CIBAFI’s members are smaller financial institutions, often operating in jurisdictions with very limited experience of sustainability reporting. CIBAFI and its members believe that the requirements could be difficult to meet in full for smaller institutions that might possess limited resources for the identification, assessment and reporting of sustainability-related financial information,” Dr Abdelillah Belatik, the secretary-general of CIBAFI, said in a statement.

Second, it highlighted gaps in the required disclosure information on the governance of sustainability-related risks and opportunities. Finally, CIBAFI members raised concerns over the exposure draft’s proposal that reporting entities of sustainability-related financial information should be the same as for the main financial statements as it may prove to be less straightforward.

In relation to the ‘IFRS S2 Climate-related Disclosures’ exposure draft, CIBAFI also called for additional guidance to ease the application of the standard for smaller institutions. Additionally, CIBAFI commented that the effective date for the standard should take into consideration the limited familiarity with preparing detailed climate-related disclosures which may be present among its members.

The feedback is part of CIBAFI’s wider sustainability drive. It launched its Sustainability Guide for Islamic Financial Institutions in May 2022 to promote sustainable development in the Islamic banking industry by supporting Islamic banks in integrating sustainability into their business activities.

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