IFRS S1 vs. S2: Stakeholder Perspectives

IFRS S1 and IFRS S2 are global standards for sustainability reporting, but they serve different purposes. IFRS S1 provides a broad framework for reporting sustainability risks and opportunities across environmental, social, and governance areas. IFRS S2 focuses specifically on climate-related risks and opportunities, including detailed requirements for emissions reporting and scenario analysis. Together, they aim to improve transparency and consistency in sustainability disclosures, helping organisations meet investor and regulatory expectations.

Key Points:

• IFRS S1: Covers all sustainability-related risks and opportunities that could impact cash flow, financing, or capital costs.

• IFRS S2: Focuses on climate risks, including physical risks (e.g., extreme weather) and transition risks (e.g., policy changes).

• Both standards are designed to work together, with IFRS S1 as the overarching framework and IFRS S2 adding climate-specific details.

• UK organisations must align with these standards as part of the UK Sustainability Reporting Standards (UK SRS), which are rooted in IFRS S1 and S2.

Quick Comparison:

What this means for businesses: Organisations must integrate sustainability and financial data, improve data collection (especially for Scope 3 emissions), and prepare for more detailed disclosures. Early adoption and technology solutions can simplify compliance and improve reporting accuracy.

IFRS S1: General Sustainability Disclosure Requirements

IFRS S1 Scope and Goals

Starting from 1 January 2024, IFRS S1 requires organisations to disclose all material sustainability-related risks and opportunities that could impact cash flows, access to finance, or the cost of capital over short, medium, and long-term periods. This standard covers a broad range of areas, including environmental, social, and governance issues such as water scarcity, biodiversity loss, labour practices, and supply chain disruptions. Disclosures must be organised into four key pillars: governance, strategy, risk management, and metrics and targets.

"IFRS S1 General Requirements for Disclosure of Sustainability‐related Financial Information provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability‐related risks and opportunities they face over the short, medium and long term."

For organisations in the UK, IFRS S1 will serve as the foundation for the UK Sustainability Reporting Standards, ensuring consistent sustainability reporting across capital markets. Companies will need to apply these standards in conjunction with SASB Standards to identify and disclose material sustainability risks and opportunities. This comprehensive approach aims to standardise sustainability information, creating a ripple effect across various industries and stakeholders.

Who IFRS S1 Affects

The introduction of IFRS S1 has far-reaching implications for a wide array of stakeholders. Investors gain access to a unified baseline of sustainability data, which supports better decision-making. CFOs and finance teams are tasked with integrating this data into financial reporting, while sustainability professionals must broaden their focus to include more than just environmental metrics. Additionally, board members, senior executives, lenders, and creditors rely on these disclosures to strengthen governance and improve credit assessments. With over 140 jurisdictions already applying IFRS Accounting Standards, the groundwork for adopting IFRS S1 is well established.

Emmanuel Faber, Chair of the ISSB, highlighted the market-driven nature of these standards:

"we have consulted closely with the market to ensure the Standards are proportionate and will result in disclosures that are relevant for investment decision‐making."

IFRS S1 Implementation Challenges and Benefits

Implementing IFRS S1 presents a mix of operational and strategic hurdles for organisations. Data collection and quality issues, along with gaps in readiness, are some of the primary challenges facing UK businesses. Organisations will need to reassess their governance frameworks, establish new processes, and upskill teams to effectively integrate sustainability and financial data.

While the costs associated with implementing IFRS S1 can be substantial - especially for companies with limited prior reporting frameworks - there are notable advantages. Investments in robust data systems, internal controls, and external assurance processes enhance the consistency of ESG disclosures. This, in turn, enables better peer comparisons and provides stakeholders with a clearer picture of progress.

Platforms like neoeco are already helping organisations streamline compliance by connecting sustainability and financial data seamlessly. To ensure a smooth transition, companies should create a detailed sustainability roadmap, set clear milestones, assign responsibilities, and address potential bottlenecks in their implementation plans.

IFRS S2: Climate-Related Disclosure Requirements

IFRS S2 Focus Areas and Metrics

IFRS S2 zeroes in on climate-related disclosures, requiring organisations to share details about climate risks and opportunities that could impact their cash flows, access to financing, or cost of capital over the short, medium, or long term. Unlike the broader scope of IFRS S1, this standard is specifically tailored to climate issues, marking it as the first topic-specific standard in the ISSB framework.

Structurally, IFRS S2 mirrors IFRS S1 but hones in on climate-related specifics. Companies must disclose both physical risks - like extreme weather events - and transition risks, such as policy changes, technological advancements, and market shifts towards a low-carbon economy.

A particularly challenging element of IFRS S2 is its emphasis on scenario analysis. Organisations are required to test how resilient their business models are under various climate scenarios.

Additionally, the standard demands detailed greenhouse gas (GHG) emissions reporting. Entities must measure and disclose Scope 1, Scope 2, and Scope 3 emissions in line with the GHG Protocol Corporate Standard, with certain transitional reliefs in place.

How IFRS S2 Affects Stakeholders

The introduction of IFRS S2 has far-reaching implications for various stakeholders, particularly given the financial exposure tied to climate-related risks. With over half of global economic output - around $44 trillion - moderately or heavily reliant on nature, the stakes are enormous.

Investors and asset managers gain access to standardised climate risk data, enabling more informed investment decisions. As BlackRock has observed:

"Sustainability is no longer something that can be addressed after strategic investment decisions have been made; it is indispensable to making investment decisions".

For asset managers, this means adapting their reporting, investment analysis, and engagement strategies to align with the evolving IFRS sustainability framework.

UK organisations face particularly intricate obligations, as IFRS S2 builds on existing mandatory climate reporting requirements. Since April 2022, over 1,300 UK-registered large companies and financial institutions have been legally required to conduct climate-related reporting. The UK government is also consulting on UK Sustainability Reporting Standards (UK SRS), which are based on ISSB standards and will form the backbone of the UK's future sustainability disclosure regime.

Finance teams and CFOs are tasked with integrating climate data into financial reporting systems, a technically demanding process. This includes tracking Scope 3 emissions across complex supply chains. The financial stakes are substantial, with Bloomberg New Energy Finance estimating that the UK will need £130 billion in annual investment to remain on track for its Net Zero Scenario by 2050.

This integration highlights the importance of aligned sustainability disclosures across all reporting standards.

How IFRS S2 Works with IFRS S1

IFRS S2 builds on the framework established by IFRS S1, adding a layer of climate-specific detail. Both standards are designed to work together, with IFRS S1 laying the groundwork and IFRS S2 providing the climate-focused specifics. For instance, IFRS S1 allows some flexibility by relieving entities from disclosing commercially sensitive information about opportunities.

IFRS S2 incorporates recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). While IFRS S1 suggests using industry-based SASB Standards for various sustainability topics, IFRS S2 mandates the disclosure of industry-specific climate-related information, offering illustrative guidance based on SASB Standards. This integrated approach situates climate disclosures within the broader context of sustainability reporting.

For UK organisations, implementing both standards means creating systems capable of handling the broad data requirements of IFRS S1 alongside the detailed, climate-specific metrics of IFRS S2. Tools that support ISSB reporting can simplify this process by linking sustainability and financial data in one system.

Effective implementation requires businesses to actively engage stakeholders across their value chains and establish robust systems to support disclosures. This collaborative effort is crucial because climate risks and opportunities often extend beyond individual organisations, necessitating coordinated action across industries and supply chains.

IFRS S1 vs S2: Stakeholder Impact Comparison

Main Differences and Connections

The key distinction between IFRS S1 and IFRS S2 lies in their scope and focus. IFRS S1 provides a broad framework, addressing all sustainability-related financial disclosures that could impact enterprise value. Meanwhile, IFRS S2 narrows its focus specifically to climate-related risks and opportunities. Think of IFRS S1 as the foundation, with IFRS S2 adding detailed climate-specific layers on top.

IFRS S1 lays out the essential structure for sustainability reporting. It defines what constitutes materiality, outlines governance requirements, and provides guidance on when and where disclosures should be made. It also encourages companies to refer to industry-based SASB Standards for topics beyond climate, such as water management and labour practices.

On the other hand, IFRS S2 builds on this framework by demanding more detailed climate-related disclosures. It requires scenario analysis, comprehensive greenhouse gas (GHG) emissions reporting across all three scopes, and specific metrics like internal carbon pricing and climate-related executive remuneration.

These two standards are designed to complement each other rather than function as separate requirements. Organisations must, therefore, implement systems capable of managing both the broad scope of IFRS S1 and the detailed focus of IFRS S2.

For UK organisations, this integrated approach aligns well with existing regulatory expectations and prepares them for upcoming requirements, especially as the UK Sustainability Reporting Standards (UK SRS) evolve, drawing from ISSB standards.

IFRS S1 vs IFRS S2 Comparison Table

What This Means for Organisations and Stakeholders

The dual implementation of IFRS S1 and S2 is reshaping sustainability reporting. Companies can no longer treat environmental, social, and governance (ESG) factors as isolated issues. Instead, these elements must be integrated into core financial reporting processes.

For investors, this shift provides access to consistent and comparable sustainability data. As of May 2024, jurisdictions representing over half the global economy by GDP have announced plans to adopt ISSB standards. This broad adoption enables investors to assess sustainability performance across companies and markets with greater reliability.

Internally, these changes demand a transformation in how organisations collect, validate, and report sustainability data. Finance teams now face the challenge of integrating this information into traditional financial reports. For example, Kreston Reeves, a prominent UK accounting firm, selected neoeco after evaluating over 20 providers. The result? A 10x improvement in emissions data granularity, a 60% reduction in manual data collection time, and an 80% increase in assurance readiness. This case highlights how the right technology can turn compliance challenges into operational advantages.

Sustainability teams must also adapt. Their role is shifting from producing standalone reports to contributing to integrated financial disclosures. This change fosters closer collaboration with finance teams and requires a deeper understanding of materiality from an investment perspective.

The impact extends beyond individual organisations to their supply chains. Companies adhering to IFRS S1 and S2 will need detailed data from their value chains, particularly for Scope 3 emissions reporting. Even smaller suppliers will need to upgrade their sustainability data systems to meet these demands.

Technology plays a crucial role in managing this complexity. Platforms like neoeco simplify the process by linking sustainability and financial data in real time. Advanced tools can validate data 90% faster and automate 99% of transaction matching to global ESG and LCA databases.

Adopting both IFRS S1 and S2 is about more than compliance - it represents a shift towards greater transparency and accountability in corporate sustainability. Organisations that embrace this change early, supported by advanced technology and efficient processes, will be better equipped to meet stakeholder expectations and evolving regulations.

Implementation Guide for UK Organisations

Common Implementation Challenges and Data Issues

When implementing IFRS S1 and S2, many UK organisations encounter several challenges. Key obstacles include difficulties in collecting detailed data, integrating systems, conducting materiality assessments, and addressing a skills gap between finance and sustainability teams. Existing systems often struggle to capture detailed data, particularly for Scope 3 emissions. On top of that, using separate software for different tasks creates data silos, making it harder to achieve seamless reporting and audit readiness.

Materiality assessments under IFRS S1 present their own complexity. Organisations must identify which sustainability issues could reasonably influence their enterprise value. This process demands close collaboration between finance and sustainability teams, which can be difficult when expertise in each other's domains is lacking. Another significant hurdle is ensuring that documentation and data trails are thorough enough to support disclosures during audits.

These challenges highlight the importance of adopting integrated technology solutions to streamline processes and improve reporting accuracy.

Technology Solutions Like neoeco

Technology can help UK organisations tackle these challenges head-on. Platforms like neoeco - a Finance and Sustainability Management (FiSM) solution - bridge the gap between finance and sustainability by integrating ESG impact factors directly into transactions through a double-entry accounting system. With the help of AI-driven automation, these platforms simplify data collection, validation, and reconciliation. This reduces manual work and ensures that organisations are audit-ready.

FiSM platforms also support multi-framework reporting. This means organisations can generate reports for various standards - such as IFRS S1, IFRS S2, CSRD, and GHGP - using a single, unified data source. Additionally, these platforms can integrate seamlessly with popular accounting software like Xero and QuickBooks, as well as ERP systems and other operational tools. This eliminates data silos and ensures consistency across all reporting requirements.

For UK organisations gearing up for ISSB reporting, these platforms offer prebuilt templates and dashboards that can be customised to meet both international standards and emerging UK-specific requirements.

Meeting UK Regulatory Requirements

While leveraging technology like FiSM platforms is essential, UK organisations must also stay informed about local regulatory developments. The UK government is currently consulting on UK Sustainability Reporting Standards (UK SRS S1 and S2), which are based on IFRS S1 and S2 but include six minor amendments to suit the UK context. This consultation is set to close on 17 September 2025, with finalised standards expected to be available for voluntary use later that year. Following this, the Financial Conduct Authority (FCA) may introduce mandatory reporting requirements for specific UK entities.

To navigate these changes, organisations should monitor updates from both the government and the FCA. The government has also established two committees - the Technical Advisory Committee (TAC) and the Policy and Implementation Committee (PIC) - to guide the assessment and endorsement of these standards.

When implementing these standards, UK organisations must ensure their systems can handle pound sterling (£) formatting and metric measurements, aligning with international reporting norms.

The UK government has emphasised the importance of keeping these requirements cost-effective and proportional. This approach aims to align sustainability reporting with broader legislative changes, such as those stemming from the ongoing review of non-financial reporting. According to Bloomberg New Energy Finance, the UK needs an average of £130 billion in annual investment to achieve its Net Zero targets by 2050.

For organisations already complying with TCFD requirements, this provides a useful starting point. However, the more detailed disclosures required by IFRS S1 and S2 will demand improved reporting frameworks. By starting implementation early and using the right technology platforms, UK organisations can better prepare for the transition to mandatory reporting standards.

Mardi Mcbrien. Understanding IFRS S1 and S2 in under four minutes

Key Points for Stakeholders

IFRS S1 and S2 work hand-in-hand to address different aspects of sustainability. While IFRS S1 outlines a general framework for disclosing sustainability-related risks and opportunities, IFRS S2 zeroes in on climate-specific disclosures. These standards are interconnected and meant to be applied together, offering a comprehensive approach to sustainability reporting.

Both standards are built around four key pillars: governance, strategy, risk management, and metrics. This alignment makes it easier for organisations already familiar with the TCFD recommendations to implement these frameworks. Since 2020, 2,839 companies have adopted the SASB standards for sustainability reporting, reflecting the growing trend towards structured and transparent sustainability disclosures.

For financial stakeholders, this structured reporting brings clear advantages. IFRS S1 and S2 deliver actionable insights on financially material sustainability issues. They focus on risks and opportunities that could reasonably impact a company’s cash flow, access to funding, or cost of capital over various time horizons - short, medium, and long term. By prioritising transparency, these standards help combat greenwashing and improve the quality of data used for investment decisions.

In the UK, adopting these standards offers additional benefits. A unified reporting approach simplifies processes and enhances data quality. Integrated tools, such as neoeco, can further reduce complexity by managing both standards on a single platform.

The impact of these standards also varies by industry. IFRS S1 incorporates industry-specific SASB Standards to address sustainability issues beyond climate, while IFRS S2 requires industry-specific climate-related disclosures. This tailored approach acknowledges that sustainability challenges differ significantly across sectors.

To maximise the benefits of IFRS S1 and S2, organisations should treat them as a cohesive system rather than separate obligations. Effective implementation involves aligning strategic goals, deploying the right technology, and actively engaging with stakeholders. Key focus areas include improving data collection, conducting materiality assessments, and preparing for audits. Additionally, the standards encourage organisations to consider their broader value chain, including direct and indirect dependencies and the role of stakeholder relationships.

FAQs

What is the relationship between IFRS S1 and IFRS S2 in sustainability reporting?

IFRS S1 and IFRS S2: A Unified Approach to Sustainability Reporting

IFRS S1 lays the foundation for how organisations should disclose sustainability-related financial information. It covers key areas like governance, strategy, risk management, and performance metrics. The goal? To ensure businesses present a clear and consistent picture of their overall sustainability efforts and impact.

Meanwhile, IFRS S2 zeroes in on climate-specific concerns. It provides detailed guidance for reporting on greenhouse gas emissions, climate scenarios, and resilience strategies. This makes it a crucial tool for organisations looking to address climate-related risks and opportunities in their reporting.

By working together, IFRS S1 and S2 offer a cohesive framework that enables organisations to share transparent and meaningful sustainability information. This approach ensures stakeholders gain insights into both general sustainability practices and climate-focused initiatives.

What challenges might organisations face when adopting IFRS S1 and S2, and how can they address them?

Organisations face several hurdles when transitioning to IFRS S1 and S2, including maintaining data accuracy and reliability, updating existing systems to align with the new standards, and navigating the intricate requirements of compliance. These challenges can make the process feel overwhelming.

One way to tackle these issues is by using ESG software solutions. These tools combine financial and sustainability data, simplifying reporting and improving accuracy. Upgrading systems and rolling out changes gradually can also help ease the burden. Moreover, centralising ESG data and bringing in third-party audits can boost transparency and minimise risks like greenwashing, ensuring organisations stay aligned with reporting standards.

Why should UK organisations comply with IFRS S1 and S2, and how does it affect their sustainability reporting?

Complying with IFRS S1 and S2 is a key step for UK organisations aiming to create sustainability reports that are both transparent and consistent with global standards. These guidelines not only help businesses align with international expectations but also foster trust among stakeholders while addressing regulatory requirements in the UK and internationally.

Adopting these standards allows organisations to pinpoint significant risks and opportunities more effectively, leading to smarter, more informed decisions. It also streamlines reporting processes, minimises duplication of efforts, and boosts credibility with investors and regulators - laying the groundwork for long-term stability and financial resilience.

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