Short answer
The answer, before the reasoning
IFRS S1 and IFRS S2 use two distinct proportionality mechanisms in specified requirements. The first limits the information search to all reasonable and supportable information available at the reporting date without undue cost or effort.
The second requires an approach commensurate with the entity’s available skills, capabilities and resources, and in one application can permit an adjustment to the quantitative information required. Neither mechanism is a blanket exemption, a general licence to omit difficult disclosures or a permanent first-year concession. A defensible use identifies the exact paragraph, preserves the disclosure objective, explains any permitted qualitative substitute, records the evidence and is reassessed as data and capability improve.
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Why proportionality matters
The ISSB designed the Standards for entities with very different reporting maturity, data availability and specialist resources. Some requirements involve extensive value-chain information, forward-looking analysis or technically demanding measurement. Proportionality makes those specified requirements operable without lowering the objective of decision-useful information for investors, lenders and other creditors.
The practical risk is that teams treat the words “undue cost or effort” as a universal escape clause or treat limited internal capability as sufficient evidence to omit a disclosure. That reverses the logic of the Standards. Proportionality applies only where the text explicitly provides it, and it changes the information boundary, the sophistication of the approach or—only in particular circumstances—the form of quantitative information. It does not remove the need to report material information.
Quick orientation
- Applies to
- Specific IFRS S1 and IFRS S2 requirements that explicitly contain one or both proportionality mechanisms.
- Primary decision
- What information must be searched for, how sophisticated an approach must be, or whether a permitted qualitative alternative applies.
- Key sources
- IFRS S1 B6 and B8–B10, 37–40; IFRS S2 18–22, 30, B1–B18 and B39; ISSB Proportionality Digest and webcast materials.
- Common confusion
- Resource constraints can shape the specified approach; they do not automatically make a material disclosure optional.
1. The two mechanisms perform different jobs
Figure 1. The two proportionality mechanisms have different functions and apply only where the Standards specify them.
In practice
| Mechanism | What it does | What it does not do — Typical evidence |
|---|---|---|
| Reasonable and supportable information available without undue cost or effort | Sets the information and search-effort boundary for specified requirements. The entity uses relevant internal and external information reasonably available at the reporting date and need not undertake an exhaustive search. | It does not permit the entity to ignore information already used in financial reporting, strategy, business-model operation or risk management, and it does not eliminate the disclosure requirement. — Source inventory; searches performed; internal information already in use; external sources considered; cost/effort assessment; benefit to primary users; gaps and update triggers. |
| Approach commensurate with skills, capabilities and resources | Scales the method to the entity’s circumstances or, in specified financial-effects requirements, can adjust the quantitative information required when capability is unavailable. | It is not a permanent maturity label, a reason to avoid acquiring available expertise or a general permission to provide only qualitative information. — Capability assessment; internal and external expertise; budget and systems; alternatives considered; sophistication decision; qualitative substitute; combined quantitative information; improvement plan. |
2. Where the mechanisms apply
The following matrix is the essential starting point. The team should not discuss proportionality in the abstract; it should first identify the precise requirement being applied.
In practice
| Requirement area | Official anchor | Without undue cost or effort — Commensurate approach — Practical effect |
|---|---|---|
| Identify sustainability-related risks and opportunities | IFRS S1 B6(a); IFRS S2 11 | Yes — No separate general mechanism — Sets the information search boundary for identifying risks and opportunities that could reasonably affect prospects. |
| Determine value-chain scope | IFRS S1 B6(b); IFRS S2 B36 | Yes — No separate general mechanism — Determines breadth and composition of the value chain in relation to each relevant risk or opportunity. |
| Anticipated financial effects | IFRS S1 37 and 39–40; IFRS S2 18 and 20–21 | Yes — Yes — Shapes the approach; lack of skills, capabilities or resources can permit omission of quantitative anticipated financial effects, subject to required explanations and substitutes. |
| Climate-related scenario analysis | IFRS S2 22 and B1–B18 | Yes — Yes—commensurate with circumstances — Scales scenario sophistication after considering exposure and available skills, capabilities and resources. |
| Scope 3 measurement | IFRS S2 B38–B40 | Yes — No separate commensurate mechanism — Guides selection of measurement approach, inputs and assumptions; estimates and secondary data remain expected where appropriate. |
| Transition, physical-risk and opportunity metrics | IFRS S2 29(b)–(d) and 30 | Yes — No separate commensurate mechanism — Sets the information boundary for amounts and percentages of assets or activities vulnerable or aligned. |
3. How to apply 'without undue cost or effort'
The phrase combines four ideas: the information must be reasonable, supportable, available at the reporting date and obtainable without undue cost or effort. It is therefore both a quality filter and an effort boundary. The entity is not required to search indefinitely, but it cannot define “available” only as information already held by the sustainability team.
In practice
| Question | A defensible response | Weak shortcut |
|---|---|---|
| What information is reasonable and supportable? | Information that reflects entity-specific factors and relevant external conditions, including past events, current conditions and forecasts where the requirement is forward-looking. | Use any readily found estimate without checking relevance, representativeness or source quality. |
| What counts as available? | Internal and external information reasonably accessible. Information used in financial statements, the business model, strategy and risk management is considered available without undue cost or effort. | Treat information held by finance, risk, procurement or operations as unavailable because it is not in the ESG system. |
| How much searching is required? | A targeted, documented search that is proportionate to the decision and user benefit; not an exhaustive search. | Stop after the first database or use the absence of a central system as the conclusion. |
| When is cost or effort undue? | When, in the entity’s circumstances, additional cost or effort is not justified by the expected benefit of the resulting information to primary users. The balance is entity-specific and can change over time. | Apply a fixed budget threshold or claim that any new work is undue. |
| How often is the conclusion revisited? | At least when circumstances, systems, exposure, data access or user relevance change, and whenever the underlying requirement requires reassessment. | Carry forward last year’s conclusion without checking improvements or new sources. |
4. How to apply a commensurate approach
The commensurate mechanism focuses on the method the entity is capable of applying. It recognises that a first-time preparer and a mature multinational may reasonably use different analytical sophistication while both seek to meet the disclosure objective. The mechanism considers internal and external skills, capabilities and resources. Where resources are available, the entity can invest in obtaining or developing the required capability; the mechanism is not a reason to ignore accessible external support.
In practice
| Application | How it works | Required discipline |
|---|---|---|
| Scale the approach | For climate-related scenario analysis, the entity determines an approach commensurate with its circumstances, considering exposure to climate risks and opportunities and the skills, capabilities and resources available. A qualitative or simpler quantitative approach may be appropriate in some circumstances; greater exposure generally increases the case for sophistication. | The analysis still has to support an annual resilience assessment. Explain assumptions, scenarios, time horizons, limitations and why the approach is appropriate. |
| Adjust the information required | For anticipated financial effects, an entity need not provide quantitative information if it lacks the skills, capabilities or resources to provide it. This permission applies to anticipated effects, not automatically to current effects. | Explain why quantitative information is absent; provide qualitative information, including likely affected financial-statement line items; and provide combined quantitative effects unless those would not be useful. |
| Improve over time | Experience, systems and available expertise normally develop through repeated reporting cycles, making a stronger approach possible. | Maintain an improvement plan and reassess rather than presenting a first-year limitation as permanent. |
5. A seven-step judgement process
Locate the exact requirement and confirm which proportionality mechanism it contains.
Define the decision: information search boundary, analytical sophistication or permitted adjustment to quantitative information.
Assemble the information already used in financial statements, strategy, business planning, risk management and operations, together with relevant external sources.
Assess entity-specific cost and effort, available internal and external capability, the significance of the exposure and the expected benefit of additional information to primary users.
Consider reasonable alternatives, including simpler methods, ranges, combined quantitative information, external expertise, proxies and staged improvement.
Document the conclusion, assumptions, limitations, disclosure consequence, responsible owner, reviewer and improvement actions.
Obtain governance approval proportionate to the judgement and set a reassessment trigger for changes in systems, exposure, data or capability.
Figure 2. A governed proportionality judgement leaves a traceable record from paragraph-level applicability to reassessment.
In practice
6. Proportionality judgement record
| Field | What to record | Review test |
|---|---|---|
| Requirement and mechanism | Standard, paragraph, reporting period and whether the decision concerns information availability, approach sophistication or quantitative-information relief. | Does the cited paragraph actually contain the mechanism being used? |
| Disclosure objective | What users should be able to understand after the mechanism is applied. | Has the entity preserved the objective rather than only reducing effort? |
| Entity circumstances | Size and complexity, exposure, value-chain breadth, systems, maturity, available internal and external expertise and local requirements. | Are the circumstances current and specific rather than generic? |
| Information considered | Internal systems, risk and strategy information, external datasets, peer or sector evidence and searches performed. | Was relevant information already used elsewhere in the entity included? |
| Cost/effort or capability analysis | Incremental work, cost, time, specialist requirements, alternatives and expected user benefit. | Is the assessment balanced, or does it only describe preparer burden? |
| Decision and disclosure effect | Approach selected, data used, excluded alternatives, qualitative substitute, combined quantitative information and limitations. | Does the published wording accurately reflect the decision? |
| Governance and future action | Owner, preparer, reviewer, approval date, remediation plan and trigger for reassessment. | Is there a realistic path to stronger information when capability improves? |
In practice
8. Illustrative disclosure wording
| Annotation | Why it matters | Evidence required |
|---|---|---|
| Information boundary and date | Shows the reporting-date basis and avoids a vague claim that data were unavailable. | Source register, portfolio extracts, financial-planning data and search record. |
| Specific criterion | Identifies lack of validated methodology and capability rather than treating all uncertainty as the same. | Capability assessment, model inventory, validation status and alternatives considered. |
| Qualitative substitute | Identifies likely affected financial-statement line items as required when quantitative information is omitted. | Finance review and connectivity assessment. |
| Combined quantitative information | Shows whether useful combined effects were provided. | Approved sensitivity or aggregate analysis and reconciliation. |
| Improvement action | Demonstrates that the limitation is managed and will be reassessed. | Model-development plan, owner, milestones and governance minutes. |
In practice
9. Weak versus stronger judgement wording
| Weak wording | Why it fails | Stronger pattern |
|---|---|---|
| “Data were unavailable without undue cost or effort.” | No requirement, search boundary, evidence, cost-benefit analysis or limitation is identified. | Name the paragraph, information considered, searches performed, why further work was undue in the entity’s circumstances, the resulting limitation and the improvement trigger. |
| “The company is too small to conduct scenario analysis.” | Size alone is not the test and scenario analysis remains required. | Explain exposure, available internal and external capability, the selected commensurate approach, scenarios used, limitations and how the approach will develop. |
| “Quantification was not possible due to uncertainty.” | Conflates measurement uncertainty, separability and capability. | Identify the applicable criterion, explain why quantitative information would not be useful or capability is unavailable, provide the required qualitative and combined information and disclose significant uncertainty. |
| “Proportionality relief was used across the report.” | Suggests a blanket exemption that the Standards do not provide. | List each paragraph-level judgement separately and link it to the relevant disclosure and evidence record. |
In practice
10. Common mistakes
| MISTAKE 1 | Treating proportionality as a report-wide waiver. |
|---|---|
| Why it happens | Teams remember the phrase but not the paragraph-level scope. |
| Why it matters | Material information can be omitted without a valid basis, undermining fair presentation and any compliance statement. |
| Correction | Create a proportionality map listing every relevant paragraph and the precise decision permitted. |
| Evidence of correction | Approved paragraph-level map linked to disclosures and judgement records. |
In practice
| MISTAKE 2 | Using lack of a central system as evidence that information is unavailable. |
|---|---|
| Why it happens | The reporting team looks only within its own tools. |
| Why it matters | Information already used by finance, strategy, risk, procurement or operations is ignored even though it is considered available without undue cost or effort. |
| Correction | Run a cross-functional source inventory before assessing additional search effort. |
| Evidence of correction | Source register, data-owner confirmations and records of internal searches. |
In practice
| MISTAKE 3 | Assessing only preparer cost and not investor benefit. |
|---|---|
| Why it happens | The exercise becomes a budget defence rather than a balanced assessment. |
| Why it matters | The “undue” conclusion is unsupported and may not remain reasonable as exposure or user relevance increases. |
| Correction | Document the decision-useful benefit expected from additional information and compare reasonable alternatives. |
| Evidence of correction | Cost-benefit note and reviewer challenge. |
In practice
| MISTAKE 4 | Assuming low capability can be carried forward indefinitely. |
|---|---|
| Why it happens | First-year constraints become institutionalised. |
| Why it matters | The entity fails to improve even when systems, experience or external resources become available. |
| Correction | Set measurable remediation actions and reassess annually and on significant change. |
| Evidence of correction | Capability roadmap, budget, milestones and update record. |
In practice
| MISTAKE 5 | Omitting quantitative financial effects without the required substitute informat |
|---|---|
| Why it happens | The team reads the permission but not the follow-on disclosure requirements. |
| Why it matters | Users cannot understand likely financial-statement effects or combined exposure. |
| Correction | Explain why, identify affected line items, and provide combined quantitative information unless that would not be useful. |
| Evidence of correction | Disclosure checklist and finance sign-off. |
In practice
11. Myth versus reality
| MYTH | “Undue cost or effort” means an entity can omit any difficult or expensive susta |
|---|---|
| REALITY | The mechanism applies only to specified requirements and usually sets the information search boundary. It does not remove the underlying disclosure objective. A separate commensurate mechanism applies in other specified requirements, and only particular financial-effects provisions permit omission of quantitative information subject to additional disclosures. |
| Why the confusion arises | The same phrase appears in several parts of the Standards and is often summarised as “proportionality relief”, obscuring the different functions and conditions. |
| Practical consequence | Reporting teams should replace a generic relief memo with paragraph-level decisions, evidence, disclosure consequences and reassessment triggers. |
In practice
14. Related standards and learning path
| Link role | Instrument or article | Use |
|---|---|---|
| Primary | IFRS S1 B6, B8–B10 and paragraphs 37–40 | Information boundary and anticipated-financial-effects mechanisms. |
| Climate-specific | IFRS S2 paragraphs 18–22 and B1–B18 | Financial effects and commensurate climate-related scenario analysis. |
| Measurement | IFRS S2 B38–B57 | Scope 3 estimation, data hierarchy and rare impracticability. |
| Next step | Estimates, Data Gaps and Uncertainty Under IFRS S1 and S2 | Build the estimate and uncertainty register supporting proportionality judgements. |
| Implementation | How to Prepare an IFRS S1 and IFRS S2 Report | Embed decisions in the reporting programme and controls. |
The entity is not required to conduct an exhaustive or indefinite search. It performs a targeted, documented search for reasonable and supportable internal and external information available without undue cost or effort, including information already used in finance, strategy and risk management.
A commensurate approach scales the analytical method to the entity's climate exposure and its available skills, capabilities and resources; it does not remove the disclosure objective. Depending on the requirement, this can mean a qualitative or simpler quantitative scenario approach, or permitted qualitative information about anticipated financial effects when the entity lacks the skills, capabilities or resources to provide quantitative information.
Record the exact Standard and paragraph, reporting period, mechanism used, disclosure objective, entity circumstances, information considered, cost or capability analysis, decision, limitations, approval and reassessment trigger. The file should show that the objective remains met and include a realistic improvement plan as capability develops.
Questions
Questions people ask
Is undue cost or effort a general exemption?
The first limits the information search to all reasonable and supportable information available at the reporting date without undue cost or effort. The second requires an approach commensurate with the entity’s available skills, capabilities and resources, and in one application can permit an adjustment to the quantitative information required. Neither mechanism is a blanket exemption, a general licence to omit difficult disclosures or a permanent first-year concession.
What information is considered available?
The phrase combines four ideas: the information must be reasonable, supportable, available at the reporting date and obtainable without undue cost or effort. It is therefore both a quality filter and an effort boundary. The entity is not required to search indefinitely, but it cannot define “available” only as information already held by the sustainability team.
Does an entity need an exhaustive search?
The entity is not required to conduct an exhaustive or indefinite search. It performs a targeted, documented search for reasonable and supportable internal and external information available without undue cost or effort, including information already used in finance, strategy and risk management.
What does a commensurate approach change?
A commensurate approach scales the analytical method to the entity's climate exposure and its available skills, capabilities and resources; it does not remove the disclosure objective. Depending on the requirement, this can mean a qualitative or simpler quantitative scenario approach, or permitted qualitative information about anticipated financial effects when the entity lacks the skills, capabilities or resources to provide quantitative information.
Can lack of capability justify no scenario analysis?
The mechanism considers internal and external skills, capabilities and resources. Where resources are available, the entity can invest in obtaining or developing the required capability; the mechanism is not a reason to ignore accessible external support. Neither mechanism is a blanket exemption, a general licence to omit difficult disclosures or a permanent first-year concession.
How should the judgement be documented?
Record the exact Standard and paragraph, reporting period, mechanism used, disclosure objective, entity circumstances, information considered, cost or capability analysis, decision, limitations, approval and reassessment trigger. The file should show that the objective remains met and include a realistic improvement plan as capability develops.
Sources
Primary sources
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