Sustainability reporting is no longer optional—it’s a critical component of corporate governance and transparency. With the release of IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) by the International Sustainability Standards Board (ISSB), businesses worldwide are set to adopt a new global framework for sustainability-related financial reporting. Here’s what you need to know about these standards and their implications for corporate reporting in 2025.
The Core Objectives of IFRS S1 and S2
IFRS S1 establishes a framework for disclosing sustainability-related risks and opportunities, emphasizing their impact on an entity’s cash flows, financial position, and access to capital. It serves as the foundation for all subsequent sustainability reporting under IFRS standards.
IFRS S2, on the other hand, is a thematic standard focusing exclusively on climate-related risks and opportunities. It builds on the Task Force on Climate-Related Financial Disclosures (TCFD) framework, incorporating its four pillars: governance, strategy, risk management, and metrics/targets.
Key Features and Requirements
1. Materiality as a Guiding Principle
Material information is central to IFRS S1 and S2. Entities are required to disclose sustainability-related risks and opportunities that could reasonably affect their financial prospects. Materiality judgments must align with the needs of primary users, including investors and creditors.
2. Holistic Integration with Financial Reporting
Both IFRS S1 and S2 emphasize the connection between sustainability-related disclosures and traditional financial statements. This includes using consistent data and assumptions across both reporting streams to ensure comparability and coherence.
3. Transition Provisions
To ease adoption, the ISSB allows companies to initially focus on climate-related disclosures under IFRS S2 before expanding to all sustainability-related disclosures under IFRS S1. This phased approach supports entities in building robust reporting systems.
4. Industry-Specific Guidance
IFRS S2 requires entities to consider industry-specific disclosure topics and metrics, particularly for greenhouse gas emissions (Scopes 1, 2, and 3). The standards also draw on frameworks like the SASB standards and GRI for additional guidance.
Practical Implications for Businesses
Conclusion
IFRS S1 and S2 set a new benchmark for sustainability reporting, addressing the fragmented landscape of voluntary disclosures. As we approach 2025, companies must prioritize compliance to stay competitive and meet evolving stakeholder expectations. Early adoption and strategic alignment with these standards will position organizations as leaders in sustainable business practices.
For more detailed guidance, companies should consult the IFRS Foundation’s publications and seek professional advice tailored to their industry and jurisdiction.