IFRS S1 applies to all entities preparing general-purpose financial reports that are required to or choose to disclose sustainability-related financial information. It is designed for companies, including public-sector entities, operating in jurisdictions that adopt ISSB standards, with a focus on companies with significant sustainability or climate-related risks.
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.
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.
The objective of IFRS S1 is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to 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.
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.
ESG reporting is now required for major UK companies (that is those companies that are publicly 'quoted' or 'listed', whose annual turnover exceeds £500 million, or who have more than 500 employees).
The principles set out in IFRS S1, being the four pillars of sustainability: Governance, Strategy, Risk Management, and Metrics & Targets, have been borrowed from the Taskforce on Climate-related Financial Disclosures (TCFD).
IFRS S1 sets out the general requirements for disclosing all material sustainability risks and opportunities, while IFRS S2 focuses specifically on climate-related disclosures such as climate related risks, scenario analysis, climate-risk metrics and ESG performance targets.
A company is required to apply IFRS S1 and IFRS S2 together but paragraph E5 of IFRS S1 allows a company, in its first year of applying ISSB Standards, to disclose information on only its climate-related risks and opportunities (in accordance with IFRS S2)—the so-called 'climate-first' approach: In the first annual ...
However, the AIM rules require any AIM company incorporated in the UK or an EEA country (being any EU member state, Norway, Iceland, Liechtenstein or (for the purposes of the AIM rules) the Channel Islands and Isle of Man) to prepare accounts in accordance with IFRS Accounting Standards.
AASB S1 corresponds to IFRS S1 and covers all sustainability-related risks and opportunities. This voluntary standard has been issued in recognition of the Australian Government's intention to approach mandatory sustainability requirements from a 'climate first, but not only' perspective.
While IFRS compliance is not mandatory for all companies, certain entities are required to follow Ind-AS, including: Listed companies. Unlisted companies with a net worth of Rs. 250 crore or more.
IFRS for Private Entities are intended for any entity that does not have public accountability. In developing IFRS for Private Entities, the IASB focused on the typical needs of a typical mid-size private company; however, IFRS for Private Entities may be used by any non-publicly accountable entity regardless of size.
IFRS S1 addresses general sustainability-related risks and opportunities that can impact enterprise value, while IFRS S2 specifically focuses on climate-related matters. Both standards are built around four key pillars: Governance: Oversight structures for climate and sustainability-related issues.
The "Big 4" in ESG standards generally refers to the leading, complementary frameworks: GRI (Global Reporting Initiative) for broad stakeholder impact, SASB (Sustainability Accounting Standards Board) for investor-focused financial materiality, TCFD (Task Force on Climate-related Financial Disclosures) for climate risks, and CDP (formerly Carbon Disclosure Project) for environmental performance disclosure, often used together for comprehensive reporting, with newer ISSB standards gaining prominence.
Although all public and private companies can apply IFRS S1 and IFRS S2, the ISSB does not have the right to mandate the application of the Standards. Companies can voluntarily apply these Standards, and jurisdictional authorities can decide whether to require companies to apply them.
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.
The information contained in the sustainability report contributes to provide insight into the sustainability risks and opportunities of the undertaking. It is intended primarily for financial stakeholders, such as shareholders, banks, creditors, and other financiers.
The Ps refer to People, Planet, and Profit, also often referred to as the triple bottom line. Sustainability has the role of protecting and maximising the benefit of the 3Ps.
IFRS S1 mandates that entities disclose their governance processes, controls, and procedures for overseeing sustainability-related risks and opportunities. Specifically, companies should: Identify the individual, board, committee, or other body responsible for overseeing these risks and opportunities.
ESG stands for environmental, social and governance, the three most important non-financial factors for a company. It is a strategic and analysis approach that is very widely used by institutional investors and analysts to evaluate sustainability performance.
Discussions around environmental, social, and governance (ESG) reporting tend to focus on public companies, but private companies are starting to witness the relevance ESG has in business strategies and company practices.