International Sustainability Standards (IFRS S1 & S2): What should accountants know about them?
International Sustainability Standards (IFRS S1 & S2): What Should an Accountant Know?
International Sustainability Standards (IFRS S1 & S2) represent the most significant shift in corporate reporting since the adoption of IFRS. Issued by the ISSB, these standards aim to unify Sustainability Disclosures globally, making them as disciplined and auditable as financial statements. For an accountant, this means a new role in building data governance and linking environmental and social risks to financial value—Digital Salla.
- Clear definition of IFRS S1 (General Requirements) and IFRS S2 (Climate-related Disclosures).
- The Four Pillars of Disclosure: Governance, Strategy, Risk Management, and Metrics/Targets.
- Accounting logic for linking sustainability risks to the Statement of Financial Position.
- Implementation Roadmap: How to prepare your company for mandatory compliance (SVG).
- Interactive Tool: Sustainability Disclosure Readiness Assessment.
1) What are IFRS S1 and IFRS S2? (The Global Baseline)
In 2023, the International Sustainability Standards Board (ISSB) issued the first two standards to create a “Global Baseline” for sustainability reporting. The goal is to ensure that investors receive comparable and reliable information about sustainability-related risks.
- IFRS S1: Requires disclosure of information about all sustainability-related risks and opportunities that could reasonably be expected to affect the company’s prospects.
- IFRS S2: A thematic standard focused specifically on Climate-related disclosures (emissions, physical risks, and transition plans).
2) The 4 Pillars of Disclosure: The Standard Structure
Both standards follow the structure established by the TCFD, requiring disclosure in four core areas:
| Pillar | Key Requirement | Accounting/Audit Evidence |
|---|---|---|
| Governance | The board’s oversight of sustainability risks. | Board minutes / Charters / Risk committees |
| Strategy | Impact of risks on business model and financials. | Transition plans / Capital allocation targets |
| Risk Management | Processes to identify and manage these risks. | Risk registers / Integrated risk framework |
| Metrics & Targets | KPIs used to measure progress (e.g., Emissions). | Carbon footprint data / ESG dashboards |
3) IFRS S1: General Sustainability Requirements
IFRS S1 is the framework standard. It requires the company to disclose its Sustainability-related risks and opportunities across the entire value chain.
4) IFRS S2: Climate-related Disclosures
This standard is highly technical and focuses on how a company responds to climate change.
Practical IFRS Applications - PDF File
- Physical Risks: Damage to assets from floods or rising sea levels.
- Transition Risks: Financial impact of carbon taxes or changing consumer behavior.
- Emissions Reporting: Mandatory disclosure of Scope 1, 2, and 3 greenhouse gas emissions.
5) Impact on Financial Statements: Where do the numbers meet?
Sustainability issues are not “extra” data; they affect the financial statements directly:
- Asset Impairment: Climate risks may lead to early obsolescence of equipment.
- Provisions: Recognition of future environmental restoration costs.
- Useful Life: Adjusting depreciation rates for assets in carbon-intensive sectors.
6) Implementation Roadmap: From Theory to Report (SVG)
Preparing for IFRS S1 & S2 requires a multi-stage approach similar to a software implementation.
7) The Concept of Integrated Reporting
Applying these standards leads toward Integrated Reporting, where financial capital is presented alongside human, social, and natural capital to show how the company creates value over time.
8) Interactive Tool: Sustainability Disclosure Readiness
Evaluate your company’s preparedness for IFRS S1 and S2 compliance.
Look for the lowest-scoring areas and start there; often the problem lies in the “data system” rather than the narrative text.
9) Frequently Asked Questions
What is meant by IFRS S1 and IFRS S2?
They are disclosure standards aimed at unifying how sustainability risks and opportunities are reported, with IFRS S2 focused specifically on climate.
What is the difference between IFRS S1 and S2?
IFRS S1 provides general disclosure requirements for all sustainability topics, while IFRS S2 provides detailed climate-specific requirements.
Does climate disclosure only mean emissions?
No. It also includes governance, strategy for climate transition, and the financial impact of climate-related risks.
10) Conclusion
International Sustainability Standards (IFRS S1 & S2) are not just a compliance task; they are a strategic shift toward total transparency. By building a governance system for sustainability data and integrating it into the financial mindset, companies build trust with global investors and ensure their long-term resilience—Digital Salla.