IFRS S1 applies to companies preparing general-purpose financial reports, particularly targeting entities in jurisdictions that adopt ISSB standards as mandatory or recommended, often impacting publicly traded companies, large corporations, and those with significant ESG investment exposure. It focuses on disclosing material sustainability-related risks and opportunities affecting financial prospects.
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 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 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 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.
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.
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).
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.
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.
Under Chapter 2M of the Corporations Act (Ch 2M), entities that are required to prepare an annual financial report under Ch 2M for a financial year, and meet one of the sustainability reporting thresholds in s292A, are required to prepare a sustainability report.
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 ...
Current status of ESG reporting mandates in the U.S.
ESG reporting in the U.S. currently combines voluntary guidelines with emerging mandatory regulations. While a comprehensive federal mandate is still under development, state-level regulations are increasingly shaping the reporting landscape.
IFRS S1 and IFRS S2 include transition reliefs that allow a phased introduction of requirements to support those companies that are only beginning to apply the ISSB Standards. These reliefs provide paths for companies to develop disclosure capabilities while enabling consistency and comparability with other companies.
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.
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.
IFRS S1 and IFRS S2 were issued on 26 June 2023 and are effective for annual periods beginning on or after 1 January 2024.
Territories and Countries with Mandatory ESG Reporting
The core of ESG is Environmental, Social, and Governance, but some frameworks add a fourth pillar, often Disclosure, Transparency, or even Economic Performance, to create a holistic view of a company's long-term sustainability and responsibility beyond just profits, covering planet, people, and ethical practices.
Getting started with the 7Rs: Rethink, Refuse, Reduce, Reuse, Repair, Regift, Recycle.
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.