Summary Of IFRS S1 And IFRS S2 Sustainability Disclosure Standards

In June 2023, the International Sustainability Standard Board (ISSB) published two sustainability disclosure standards IFRS S1 and S2 that provide an overview of requirements and disclosures related to financial information and climate change.

IFRS S1 sets out general requirements for companies to disclose information about sustainability-related risks and opportunities that are useful for general-purpose users of financial statements in making decisions about providing resources to the company.

Whereas IFRS S2 establishes requirements for companies to disclose information about risks and opportunities related to climate change while extending the requirements described in IFRS S1.

IFRS S1 and S2 will be effective for annual reporting periods beginning on or after January 1, 2024.

The aim of these frameworks is to simplify the global sustainability disclosure landscape, reducing complexity due to multiple sources of reporting guidance while building on established expertise and practices related to market-leading frameworks and standards.

1. IFRS S1 - General Disclosure Requirements for Sustainability-Related Financial Information

IFRS S1 requires companies to disclose information about sustainability-related risks and opportunities that are useful to investors in making decisions about resourcing the company. It sets out the general requirements for how companies should disclose such information and the requirement to provide a complete set of sustainability-related financial disclosures.

IFRS S1 states that information about sustainability-related risks and opportunities is useful to investors because a companys ability to generate cash flows in the short, medium and long term is inseparable from the interactions between the company and its stakeholders, society, the economy and the natural environment throughout the companys value chain.

IFRS S1 does not require companies to provide information on every sustainability-related risk and opportunity. Instead, the Standard requires companies to disclose information about all sustainability-related risks and opportunities that are expected to affect the companys prospects - cash flow, access to funding, or cost of capital in the short, medium, or long term.

IFRS S1 builds on the concept of the Integrated Reporting Framework, which helps companies articulate how they rely on, use and influence different types of resources and relationships (financial, social, human, natural, etc.) to create, preserve or erode value for investors.

2. IFRS S2 - Climate Change Related Disclosures

IFRS S2 requires companies to disclose information on governance, strategy, and risk management, as well as metrics and targets, about climate change-related risks and opportunities. Climate-related opportunities refer to potential positive impacts arising from climate change for companies. Mitigation and adaptation efforts to climate change can provide opportunities for companies, such as opportunities to develop new products or capture new business.

Using relevant concepts from IFRS Accounting Standards, where applicable, IFRS S1 and IFRS S2 integrate recommendations from the TCFD and build on material from the CDSB, IIRC, and SASB.

Like all Standards issued by the IFRS Foundation, IFRS S1 and IFRS S2 have gone through a rigorous and transparent process designed to obtain and integrate feedback from a wide range of stakeholders around the world.

The ISSB is committed to continue supporting the implementation of IFRS S1 and IFRS S2, including developing further guidance and training materials and establishing a Transition Implementation Group on IFRS S1 and IFRS S2 (TIG).

Further discussion on IFRS S1 and IFRS S2 has been summarized in the following paper (pdf paper link).