Global investors, regulators, and consumers are demanding greater ESG transparency. In response, the International Sustainability Standards Board (ISSB) introduced IFRS S1 and S2, the global frameworks designed to unify how companies disclose sustainability and climate-related risks. These frameworks are quickly becoming the global benchmark, offering a unified approach to sustainability reporting that supports both regulatory compliance and strategic growth.
What Are IFRS S1 and S2?
IFRS S1 and S2 are newly established sustainability disclosure standards developed by the ISSB to help businesses report on ESG-related issues in a consistent and decision-useful manner. IFRS S1 outlines the general requirements for sustainability-related financial disclosures, providing a framework that helps companies communicate how sustainability risks and opportunities could affect their financial performance.
It builds upon the structure of IFRS S1 but narrows in on the identification, measurement, and disclosure of climate-related risks and opportunities. It incorporates the widely adopted recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), creating continuity for companies already familiar with TCFD practices.
IFRS S1
- Covers all sustainability-related risks and opportunities a company faces.
- Requires disclosures about governance, strategy, risk management, and metrics.
IFRS S2
- A subset of S1 that focuses solely on climate risks and opportunities.
- Based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.
Why Should Businesses Pay Attention to IFRS S1 & S2?
IFRS S1 and S2 are a response to fragmented sustainability reporting frameworks. Until now, businesses have juggled between Global Reporting Standards (GRI), Sustainability Accounting Standards Board (SASB), CDP, and other reporting schemes. The ISSB’s standards consolidate and align them into one global framework.
Why this matters:
- Encourages capital flow to sustainable businesses.
- Provides investors with a clear view of sustainability-related financial impacts.
- Reduces confusion and duplication across regions.
Global adoption is already underway, with strong support from G20, IOSCO, and major financial markets.
What IFRS S1 Requires
This establishes a comprehensive framework for disclosing material sustainability-related information that affects a company’s enterprise value. It is structured around four core disclosure areas: governance, strategy, risk management, and metrics and targets.
- Governance: Who is accountable for sustainability risks?
- Strategy: How do sustainability risks/opportunities affect the business model?
- Risk Management: How are these risks identified and addressed?
- Metrics & Targets: What KPIs are used to measure performance?
What IFRS S2 Covers
- Focus: IFRS S2 targets climate-related risks and opportunities specifically.
- Disclosure Requirements: Companies must disclose how climate change affects operations, strategy, and financial results.
- Risk Categories: Includes both physical risks (e.g., extreme weather) and transition risks (e.g., regulatory or market changes).
- Opportunity Reporting: Businesses should disclose potential climate-related opportunities (e.g., green tech or low-carbon markets).
- Scenario Analysis: Firms must evaluate how various climate scenarios could impact their business.
- Emissions Reporting: Disclosure includes Scope 1 (direct), Scope 2 (indirect), and eventually Scope 3 (value chain) emissions.
- Strategic Value: Enables better long-term planning and builds investor confidence through climate transparency.
How IFRS S1 and S2 Align with Global ESG Standards
One of the strengths of the ISSB’s standards is their interoperability with existing reporting frameworks. IFRS S1 and S2 do not seek to replace tools like GRI, SASB, or the GHG Protocol. Instead, they are designed to harmonize with them, providing a bridge that allows companies to continue using familiar standards while elevating the financial relevance of their disclosures.
This alignment helps businesses meet multiple stakeholder needs without duplicating efforts. For multinational companies operating in both the EU and Asia, for instance, the ability to align IFRS disclosures with the EU’s CSRD and ESRS frameworks offers a practical path to comprehensive compliance.
Now is the time to prepare. Whether you’re reporting under CSRD, aligning with TCFD, or scaling sustainability globally, IFRS S1 & S2 are your new foundation. Need help navigating the shift? Fuller Academy Malaysia offers practical, expert-led training in ESG and sustainability reporting.
Source : Overview of IFRS S1 and IFRS S2
