IFRS S1 and S2 are the inaugural global sustainability disclosure standards issued by the International Sustainability Standards Board (ISSB) in June 2023, designed to provide a consistent, comparable baseline for reporting sustainability-related risks and opportunities to investors. IFRS S1 sets general requirements for disclosing sustainability-related financial information, while IFRS S2 specifically focuses on climate-related disclosures.
IFRS S1: prescribes how a company prepares and reports its sustainability-related financial disclosures. IFRS S2: sets out supplementary requirements that relate specifically to climate-related risks and opportunities.
Who needs to comply with IFRS S1 and IFRS S2? IFRS S1 and S2 apply to companies that operate in jurisdictions where these standards are adopted either as mandatory requirements or as the recommended reporting baseline.
These are: IFRS S1 General Requirements for Disclosure of Sustainability-Related Financial Information; and; IFRS S2 Climate-related Disclosures.
IFRS S2 — Climate-related Disclosures. IFRS S2 sets out the requirements for identifying, measuring and disclosing information about climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.
What are the four pillars of IFRS S1 and S2? The four pillars of IFRS S1 and S2 are governance, strategy, risk management and metrics and targets.
IFRS 2 requires an entity to recognise share-based payment transactions (such as granted shares, share options, or share appreciation rights) in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity.
The former conservative government announced that they would make IFRS S1 and S2 reporting mandatory with amendments to IFRS S1 and S2 for UK specific requirements. The exposure drafts of UK SRS are therefore very similar to the IFRS S1 and S2 save for certain amendments.
The four core financial statements are the Balance Sheet (snapshot of assets, liabilities, equity), the Income Statement (revenues, expenses, profit over time), the Cash Flow Statement (cash inflows/outflows over time), and the Statement of Shareholders' Equity (changes in owner investment over time), all crucial for understanding a company's financial health.
IFRS S1 represents a significant step in the drive to help companies report sustainability information to investors and other stakeholders. Companies need to identify, disclose and measure the widening spectrum of sustainability issues that could affect their performance.
It has not yet been adopted as an official system in the United States. However, any company that does a large amount of international business may need to use IFRS reporting on its financial disclosures in addition to GAAP.
Although IFRS consists of a wide range of standards but its key four primary principles we will summarize below.
A full set of financials include four basic financial statements: the balance sheet, income statement, cash flow statement, and statement of shareholders' equity. All four accounting financial statements accurately portray the company's overall financial situation.
However, environmental, economic, social, and human sustainability focuses on preserving future generations and improving the quality of life. We're exploring the link between these pillars and climate change, and how effectively incorporating them into our processes can help combat the climate crisis.
The three main financial statements are the Income Statement (profitability over time), the Balance Sheet (assets, liabilities, equity at a point in time), and the Cash Flow Statement (cash movement from operations, investing, and financing activities), which together provide a comprehensive view of a company's financial health and performance.
Some examples of core accounting processes include accounts payable, accounts receivable, general ledger management, financial reporting, budgeting, and cost management. These processes are typically carried out on a regular basis to track and record financial transactions.
At the midpoint of 2025, the ESG landscape continues to evolve amid rising political rhetoric and regulatory change. While some believe that ESG is losing momentum, the reality is that the business case for ESG remains strong.
IFRS S1 applies to all businesses that prepare general purpose financial reports, regardless of the accounting framework used, including those following International Financial Reporting Standards (IFRS), generally accepted accounting principles (GAAP), or other local reporting standards.
The U.S., China, Egypt, Bolivia, Guinea-Bissau, Macao and Niger don't allow their domestic publicly traded companies to use International Financial Reporting Standards.
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