Understanding Nigeria's SEC Circular on IFRS Sustainability Standards

The Securities and Exchange Commission (SEC) of Nigeria issued a circular on 23rd September. This circular explains the Financial Reporting Council (FRC) of Nigeria's plan for adopting IFRS S1 and S2. The plan has three phases: (1) Early Adoption for accounting periods ending on or before 31 December, 2023; (2) Voluntary Adoption for accounting periods starting on or after 1 January, 2024, up to 31 December, 2027; and (3) Mandatory Adoption for accounting periods starting on or after 1 January, 2028. Small and Medium-sized Entities (SMEs) must adopt these standards for accounting periods starting on or after 1 January, 2030.

The circular shows Nigeria's dedication to adopting the IFRS Sustainability Disclosure Standards. The FRC worked with various stakeholders, including SEC, to develop this roadmap. This shows that SEC is supportive in ensuring the adoption of IFRS S1 and S2, which is a positive sign.

The circular stated that all Public Companies and major Public Interest Capital Market Operators must start preparing for sustainability reporting as per the IFRS Sustainability Disclosure Standards. They need to follow the timelines in the FRC Roadmap. Many companies that already adopted these standards may not understand this requirement since they thought they had completed the preparation stage.

To help SEC monitor how companies are preparing and to ensure a smooth shift to mandatory sustainability reporting, the circular requires every Public Company and major Public Interest Capital Market Operator to submit an implementation plan to the Commission by 15 October. This plan should cover at least the following:

(1) Governance arrangements for sustainability reporting, including Board oversight; (2) Gap assessment against IFRS S1 and S2 requirements; (3) Implementation roadmap and timelines; (4) Data collection and reporting systems; (5) Internal control and assurance arrangements; (6) Capacity building and training plans; (7) Expected year for first sustainability reporting as per the FRCN Roadmap; and (8) key implementation challenges.

According to the circular, the Commission will keep engaging with companies and checking their compliance with the timelines. This is part of its job overseeing financial reporting and corporate governance in Nigeria's capital market.

One question that needs clarification is whether the eight items in the SEC's implementation plan are different from the FRC's 17 documents that Early and Voluntary Adopters already submitted. Another question is whether the content SEC wants is the same as what FRC requires. For instance, the FRC documents separate the Implementation Plan from Gap Analysis, while SEC combines them. The Data Collection and reporting system is not part of the FRC documents. The expected year of reporting is also included in the implementation plan, not as a separate document.

These questions are important because SEC's timeline means a Voluntary Adopter must submit all eight documents by 15th October, which seems overwhelming. This requirement is different from the gradual approach in the FRC Roadmap.

The FRC Roadmap spreads the submission of its 17 documents over 12 months, making it easier for companies to meet the requirements. For example, items 1 to 3 in SEC's plan are Phase 1 documents according to FRC, which should be submitted three months before the first financial year of adoption. Item 4 on data is a concern throughout the FRC implementation period. Item 6 on capacity building and training and Item 1 on governance are Phase 2 tasks. Item 5, which discusses internal control over sustainability reporting, is a Phase 3 document.

Another question is why the SEC Circular is asking for all documents by 15 October when FRC has phased submissions. Companies in the capital market need clarification. Many argue that if SEC is asking for what entities have submitted to FRC, the circular could be clearer.

However, asking for documents from FRC is tough for companies that have not chosen to be voluntary adopters. As mentioned, companies can wait to become Mandatory Adopters. Right now, Mandatory Adopters have not submitted any of the 17 documents to FRC. According to the Roadmap, their first three documents are due by October 2027 for those whose financial year is January to December. SEC's circular now requires these companies to submit some Phase 1 to Phase 3 documents by 15 October, 2026. This is not only overwhelming but contradicts the FRC Adoption Roadmap, which SEC is supposed to support.

The fourth question is whether SEC will penalize companies that miss the 15 October deadline. This has raised concerns, especially among banks, as missing the deadline could be seen as a governance failure. They want more clarity from SEC since the FRC Roadmap promised no penalties during the voluntary adoption phase. If SEC imposes penalties for missing the deadline, it contradicts the FRC Roadmap.

This raises concerns about whether complying with the FRC Roadmap is enough and whether companies can still choose to become mandatory adopters. This situation is causing frustration and confusion, highlighting the need for more clarification and education.

Clearly, SEC's intention in that circular is not to cause panic, but more clarification is needed. Listed companies should not worry too much because SEC usually manages these situations well. There is a Regulatory Round Table that allows for discussions between FRC, SEC, and other sector regulators like CBN, NDIC, NAICOM, and PenCom. SEC and FRC are coordinating well to implement the IFRS Sustainability Standards in Nigeria, which is the main goal of the circular.

I believe this provides a good background for the clarifications SEC will give before 15 October.