IFRS S1 and S2, issued by the ISSB, are not automatically mandatory everywhere, but are rapidly becoming required as jurisdictions integrate them into local laws. They became effective for annual reporting on January 1, 2024, with many countries, including the UK, Canada, Australia, and others, implementing them as mandatory for specific companies over the following years.
IFRS S1 and IFRS S2 become mandatory when regulators in jurisdictions integrate them into financial reporting frameworks and regulatory requirements.
In 2025, ESG reporting is shifting from voluntary to mandatory in many regions. New regulations in the EU, US, and UK require companies to publish environmental and social performance data alongside financial results.
All companies can start applying IFRS S1/S2 now, which became effective for annual reporting as of January 1, 2024. IFRS S1/S2 will become mandatory when and if regulators integrate them into financial reporting frameworks and regulatory requirements.
IFRS S1 sets out general requirements for the disclosure of material information about all material sustainability- related financial risks and opportunities and other general reporting requirements. IFRS S2 sets out disclosures that are specific to climate-related matters.
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.
The IFRS S1 and S2 are investor focused as they are designed to provide substantial information, to help investors make better investment decisions. As entities adopt S1 and S2 for disclosures, knowing the pulse of investors regarding sustainability governance is crucial.
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.
Deviations from professional auditing standards can lead to regulatory action, reputational damage, and even lawsuits. This can happen due to inadequate staff training, insufficient documentation of audit procedures, or missing internal controls.
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.
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.
ESG is not going away. ESG regulation is largely here to stay, both in the United States and abroad, although there will be uncertainties and bumps in the road as discussed in later predictions. On the voluntary side, stakeholder expectations will continue to increase.
It has announced its intention to develop UK-specific sustainability reporting standards in line with the ISSB standards by Q1 2025. Requirements are anticipated to be effective from 2026 at the earliest.
Use of IFRS instead became mandatory for group accounts of EU listed companies from 2005. It has been the basis of large-company financial statements audited in the UK since then.
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.
Is it mandatory to comply with Accounting Standards (AS)? In India, it is mandatory for companies to follow Accounting Standards. Thus while conducting a statutory audit of a company, a Chartered Accountant has to examine whether AS is complied with while preparing the financial statements.
The Canadian Accounting Standards Board (AcSB) requires publicly accountable enterprises to use IFRS in the preparation of all interim and annual financial statements. Most private companies also have the option to adopt IFRS for financial statement preparation.
The international financial reporting standards (“IFRS”) are the standards applicable to companies who do not apply a local GAAP. These mostly tend to be international companies. IFRS is mandatory for listed companies, but for all other UK companies there is a choice between IFRS and UK GAAP.
It is very unlikely that the U.S. will ever completely converge to IFRS as the financial costs and obstacles to convergence are not insignificant. Not only will the costs of implication be great, but also the costs of training and education of auditors and accountants.
China, India, and Indonesia do not follow IFRS accounting standards but have similar standards, while Japan allows companies to follow IFRS standards if they choose.
The Securities Exchange Committee (SEC) requires the use of US GAAP by domestic companies with listed securities and does not permit them to use IFRS; US GAAP is also used by some companies in Japan and the rest of the world.
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.