Demystifying IFRS S1 and IFRS S2: The Global Language of Sustainability Disclosures

The landscape of corporate reporting is undergoing a paradigm shift with the advent of IFRS S1 and IFRS S2—two globally harmonized sustainability disclosure standards issued by the International Sustainability Standards Board (ISSB). These standards are designed to bring clarity, consistency, and comparability to the way companies communicate sustainability-related risks and opportunities to investors and stakeholders.

In a world grappling with the intertwined challenges of climate change, resource scarcity, and social inequity, these standards mark a critical turning point. They aim to embed sustainability into the heart of financial reporting, ensuring that material sustainability risks and opportunities are reflected in enterprise value creation.

IFRS S1: The Foundation of Sustainability Disclosures

IFRS S1, titled “General Requirements for Disclosure of Sustainability-related Financial Information”, establishes the overarching framework for sustainability disclosures. It is industry-agnostic and provides the structure within which companies report material sustainability-related information—beyond just climate. IFRS S1 ensures that investors receive a complete, consistent, and comparable picture of the sustainability risks and opportunities that could affect an entity’s cash flows, access to finance, or cost of capital.

Core Principles

At its core, IFRS S1 requires entities to disclose:

• Governance of sustainability-related risks and opportunities;
• Strategy for addressing those risks and opportunities;
• Risk management approach;
• Metrics and targets used to monitor and manage them.

These four pillars are aligned with the TCFD (Task Force on Climate-related Financial Disclosures) framework, reinforcing consistency with widely accepted climate-related disclosure practices.

Key Requirements

1. Materiality and Enterprise Value Focus: Only material information—i.e., sustainability factors that could affect enterprise value—must be disclosed. This leans on an investor-centric materiality lens, different from the broader double materiality perspective of the EU’s CSRD.
2. Interoperability: IFRS S1 is designed to work in tandem with jurisdictional requirements. Companies can use disclosures prepared under frameworks like GRI or ESRS as long as they also meet IFRS requirements, ensuring flexibility and reducing duplicative reporting.
3. Connected Information: IFRS S1 emphasizes the integration of sustainability-related financial disclosures with general purpose financial reports, making the connection between financial and non-financial risks more explicit.
4. Industry-specific Disclosures: While IFRS S1 is sector-neutral, it encourages the use of industry-based guidance such as SASB Standards to improve relevance and comparability.
5. Time Horizons: Entities must explain how short-, medium-, and long-term sustainability risks affect their business models, strategies, and financial planning.

IFRS S2: Climate at the Core

IFRS S2, titled “Climate-related Disclosures”, zeroes in on climate-related risks and opportunities. It builds on IFRS S1 and follows the same four-pillar structure (governance, strategy, risk management, metrics & targets), but with a specific focus on climate.

Given the urgency and widespread impact of climate change, IFRS S2 mandates a deeper and more granular level of disclosure compared to other sustainability topics.

Key Requirements

1. Climate-related Risks and Opportunities: Entities must disclose both transition risks (e.g., policy changes, market shifts, technology evolution) and physical risks (acute and chronic weather events), as well as opportunities arising from climate action (e.g., new markets, energy efficiency).
2. GHG Emissions Disclosure: Scope 1, 2, and—where material—Scope 3 emissions must be reported. Companies must explain the methodologies, estimation techniques, and data sources used.
3. Climate Scenario Analysis: IFRS S2 requires companies to describe the resilience of their strategy to climate-related scenarios, including at least one scenario consistent with the global temperature goal (e.g., 1.5°C pathway).
4. Transition Plans and Decarbonization Targets: Companies must disclose any transition plans aligned with climate goals, including interim targets and progress tracking. Targets must be specific, measurable, and time-bound.
5. Cross-referencing: Entities can refer to other documents (such as annual reports or climate-specific reports) if permitted by jurisdictional regulators, provided the disclosures are easily accessible.

Why IFRS S1 and S2 Matter

The IFRS Sustainability Disclosure Standards are not just a compliance exercise—they are strategic tools. By embedding sustainability into the financial reporting ecosystem, they enable companies to:

• Identify and proactively manage long-term risks;
• Communicate strategy and resilience to investors more effectively;
• Access capital more competitively by building investor trust;
• Benchmark sustainability performance within and across industries.

They also mark a significant leap in the global convergence of sustainability reporting. By aligning with TCFD, leveraging SASB standards, and remaining interoperable with GRI and ESRS, these standards promote a common global language that reduces fragmentation.

Practical Implications for Companies

1. Need for Cross-functional Collaboration

Finance teams must work closely with sustainability, strategy, and risk departments. Reporting under IFRS S1 and S2 is not merely a narrative exercise—it requires data-driven, auditable, and financially material insights.

2. Data Readiness and Technology Integration

Companies will need robust systems to gather, manage, and assure sustainability data, particularly for Scope 3 emissions and scenario analysis. This may require new tools, external expertise, or enhanced internal controls.

3. Board Oversight and Governance

IFRS S1 and S2 emphasize the board’s role in overseeing sustainability-related matters. Companies must document governance structures, frequency of discussions, and oversight mechanisms—making this a matter of leadership accountability.

4. Phased Implementation and Capacity Building

ISSB encourages jurisdictions and companies to adopt a phased approach. Early adoption is voluntary, with several regulators, including those in the UK, Singapore, and Canada, working toward incorporating these standards into local frameworks.

Looking Ahead: Challenges and Opportunities

While IFRS S1 and S2 represent a significant advancement in sustainability reporting, their implementation presents practical challenges. Many companies—particularly those in emerging markets or smaller organizations—may face constraints in terms of resources, data availability, or internal expertise. Complex requirements such as Scope 3 emissions disclosures, scenario analysis, and the integration of sustainability data across functions may necessitate considerable capacity building.

Nonetheless, entities that adopt the standards early may benefit from enhanced stakeholder confidence, improved access to sustainable finance, and better alignment with regulatory expectations as sustainability disclosure requirements continue to evolve globally.

IFRS S1 and S2 redefine the way companies communicate sustainability performance, not as a side note, but as an integral part of enterprise value creation. By focusing on material risks and opportunities that shape long-term financial health, they help close the gap between sustainability and strategy.

These standards are not about ticking boxes—they are about telling a clear, consistent, and investor-relevant story. In a world demanding greater transparency and resilience, IFRS S1 and S2 are the new vocabulary of corporate value. Companies that embrace them not only meet stakeholder expectations but also future-proof their business in an increasingly sustainability-conscious capital market.

• Materiality Assessment and Risk Identification
  We help you identify and prioritize the sustainability and climate-related risks and opportunities that could reasonably impact your company’s cash flows, cost of capital, or access to finance. Our approach is rooted in enterprise value and aligned with IFRS S1’s and S2’s materiality definitions, helping you focus on what matters most to investors.
• Governance and Oversight Frameworks
  Endurisk works closely with boards and senior management to establish or enhance governance processes for sustainability oversight. This includes clarifying roles, integrating sustainability into board-level decision-making, and documenting oversight structures to meet the governance disclosure requirements of IFRS S1 and S2.
• Transition Plans and Scenario Analysis
  We guide companies in preparing transition plans aligned with their climate ambitions and stakeholder expectations. Our scenario analysis support helps you assess the resilience of your business model to a range of plausible climate futures—an essential element of IFRS S2 disclosures.
• Metrics, Targets, and Emissions Reporting
  Our team helps design systems to track and report key sustainability metrics, including GHG emissions (Scope 1, 2, and 3), climate-related targets, and capital deployment. We ensure that your disclosures meet ISSB expectations and are consistent with recognized standards like the GHG Protocol.
• Training and Capacity Building
  Endurisk offers targeted workshops and hands-on training to equip your teams with the knowledge and skills needed to comply with ISSB standards. From finance to sustainability and strategy teams, we foster cross-functional alignment to ensure your disclosures are robust and decision-useful.

Ready to take the next step in your sustainability reporting journey? Contact us now to explore how Endurisk can support your IFRS S1 and S2 implementation.