The International Sustainability Standards Board (ISSB), established by the International Financial Reporting Standards (IFRS) Foundation, plays a crucial role in developing global baselines for environmental, social, and governance (ESG) reporting.
One of its key disclosure frameworks, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, sets a structured, transparent standard for entities to report sustainability-related risks and opportunities.
IFRS S1 helps investors make well-informed decisions about providing resources to companies by ensuring clear, reliable sustainability disclosures.
As more jurisdictions adopt IFRS S1, ESG consultants need to understand its requirements and implementation strategies. Mastering this standard not only helps businesses meet compliance obligations but also strengthens corporate ESG initiatives, positioning them for long-term resilience and proactive risk management.
Here, we take an in-depth look at the role of IFRS S1 in ESG reporting.
What is IFRS S1?
IFRS S1 is a global reporting standard designed to enhance transparency in sustainability-related financial disclosures. It has a broad scope, requiring entities to disclose all material information that could impact their cash flows, financial position, and cost of capital over the short, medium, and long term.
Specifically, companies must provide information on:
- Governance: How they track and manage sustainability-related risks and opportunities
- Risk and opportunity management: The processes used to identify, assess, prioritize, and monitor sustainability-related risks and opportunities
- Strategy: Plans for managing identified risks and opportunities
- Performance: Targets related to these risks and opportunities, along with progress toward achieving them
Who IFRS S1 applies to
IFRS S1 applies to all entities that prepare sustainability-related financial disclosures for capital markets. This includes publicly traded companies, multinational corporations, and businesses looking to align with global sustainability reporting standards.
Several countries, including the EU, Australia, and Bangladesh, have already adopted IFSR 1, and many others plan to do so over the next several years. As a result, applicable entities must monitor regional requirements and compliance targets to ensure alignment with local regulations.
When did IFRS S1 requirements come into effect?
The ISSB released IFRS S1 on June 26, 2023. Companies were expected to integrate the standard into their sustainability reporting frameworks for annual reporting periods starting on or after January 1, 2024.
What is the difference between IFRS S1 and S2?
The ISSB released both IFRS S1 and IFRS S2 Climate-related Disclosures in 2023. While both relate to sustainability disclosures, they serve distinct purposes.
- IFRS S1 has a broad scope, covering all ESG factors and establishing general sustainability-related disclosure requirements for entities.
- IFRS S2 is more specific, focusing solely on climate-related disclosures.
Their foundations also differ. IFRS S1 draws from multiple ESG frameworks, while IFRS S2 builds primarily on Task Force on Climate-related Financial Disclosures (TCFD) recommendations and incorporates industry-based disclosure requirements from the Sustainability Accounting Standards Board (SASB).
Despite these differences, both standards share a common goal: to provide investors with deeper insights into companies’ climate and sustainability risk management practices. This emphasis on enhanced transparency is driving companies to shift from TCFD to ISSB standards.
IFRS S1 conceptual foundations for reporting
IFRS S1 is built on core principles that guide entities in preparing and presenting sustainability-related financial disclosures. These include:
- Fair presentation: Entities must provide complete, neutral, and verifiable financial disclosures to give investors an accurate depiction of sustainability-related risks and opportunities.
- Materiality: Companies must disclose all relevant sustainability information. Information is considered material if omitting or misrepresenting it can impact investors’ decision-making.
- Reporting entity: To ensure comparability and credibility, the standard requires that the entity preparing sustainability-related disclosures is the same as the one preparing related financial statements.
- Connected information: Sustainability disclosures must be integrated with financial reports to provide investors with actionable insights.
The four key areas of IFRS S1 reporting
IFRS S1 reporting covers four key disclosure areas:
Governance
IFRS S1 mandates that entities disclose their governance processes, controls, and procedures for overseeing sustainability-related risks and opportunities. Specifically, companies should:
- Identify the individual, board, committee, or other body responsible for overseeing these risks and opportunities
- Highlight their responsibilities, skills, and competencies
- Explain management’s role in governing these risks and opportunities
The goal is to promote transparency in decision-making and corporate responsibility.
Strategy
Entities must outline their strategic approach to managing sustainability-related risks and opportunities. Companies should explain how current and anticipated risks and opportunities impact their prospects, cash flows, financial performance, business model, value chain, and decision-making.
Additionally, IFRS S1 requires entities to assess and report on their strategies’ resilience to identified risks.
Risk management
One of IFRS S1’s key objectives is to help investors assess entities’ risk profiles and mitigation strategies. To achieve this, the standard mandates that companies disclose the processes used to identify, assess, prioritize, and monitor sustainability-related risks.
Entities must also explain how these processes inform their broader risk management frameworks, ensuring potential investors understand how companies mitigate disruptions before making investment decisions.
Metrics and targets
IFRS S1 requires companies to report on their performance in managing sustainability-related risks and opportunities. Entities need to disclose:
- Key metrics
- Progress toward targets
- Compliance with legal or regulatory requirements
These disclosures provide measurable insights into sustainability efforts.
While IFRS S1 encourages the use of IFRS Sustainability Disclosure Standards for performance reporting, it allows companies to use metrics from other sources if IFRS-specific metrics don’t apply to their particular risks and opportunities. In such cases, companies are required to disclose the specific metrics used and their sources to ensure transparency and comparability.
Key IFRS S1 reporting requirements
IFRS S1 provides a structured approach for sustainability-related financial disclosures, promoting consistency and alignment with financial reporting standards.
Note: Individual jurisdictions may modify reporting requirements, leading to variations across regions despite a common ISSB starting point.
Sources of guidance
Entities must apply IFRS Sustainability Disclosure Standards and SASB Standards (where applicable) to identify sustainability-related risks and opportunities that could reasonably affect their financial prospects.
If IFRS Sustainability Disclosure Standards don’t apply to certain risks or opportunities, companies may consider using the Climate Disclosure Standards Board (CDSB) Framework Application Guidance, provided the selected sources don’t conflict with IFRS S1 principles. The goal is to ensure alignment with standardized reporting frameworks.
Location of disclosures
IFRS S1 requires sustainability-related financial disclosures to be included in an entity’s general-purpose financial reports. These disclosures may be placed in management commentaries (also referred to as “management’s discussion and analysis,” “strategic reports,” or “management reports” in different jurisdictions) as long as they remain clear and identifiable.
Ideally, these disclosures should be presented alongside financial statements for comprehensive stakeholder analysis.
Timing of reporting
To ensure consistency and alignment with financial reporting standards, IFRS S1 mandates organizations report sustainability-related financial disclosures for the same period as their related financial statements.
If an entity can’t disclose sustainability-related risks and opportunities at the same time as its financial reports, it must explain why and clarify that the amounts provided in sustainability disclosures are not fully comparable.
Further, the reporting standard requires entities to disclose new sustainability-related information about events occurring after the reporting period as long as this information is released before the authorization of the sustainability-related financial disclosures. This ensures investors receive timely and relevant updates for decision-making.
Comparative information
Unless IFRS Sustainability Disclosure Standards state otherwise, entities must provide comparative sustainability-related information from the preceding reporting period to enhance transparency and track progress.
For example, if a company reports on greenhouse gas (GHG) emissions in 2024, it must also include 2023 emissions for a meaningful comparison. If the basis of measurement changes between the two periods, the company must explain the differences to ensure data reliability and consistency.
Statement of compliance
Entities that comply with IFRS Sustainability Disclosure Standards must provide an explicit and unreserved statement of compliance, ensuring full adherence to all reporting requirements.
However, IFRS S1 grants exemptions for disclosures that:
- Are prohibited by local jurisdictions
- Are deemed commercially sensitive, meaning their disclosure could seriously impact the economic benefits of a sustainability-related opportunity
Companies that qualify for these exemptions can still highlight their compliance with IFRS Sustainability Disclosure Standards where applicable.
How does IFRS S1 affect ESG compliance for consultants?
IFRS S1 introduces both challenges and opportunities in sustainability reporting. Here’s how it impacts ESG compliance for consultants:
- Increased demand for ESG compliance guidance: As more jurisdictions adopt IFRS S1 and investors demand greater ESG data transparency, entities will need guidance to remain compliant and meet investor expectations. This presents an opportunity for consultants to help organizations determine which risks and opportunities are considered material under IFRS S1, perform gap analyses, and develop compliance roadmaps.
- Greater integration between sustainability and financial reporting: IFRS S1 stands out from other frameworks because it requires entities to integrate sustainability-related risks and opportunities into general financial reporting. This shift calls for cross-disciplinary expertise, requiring ESG consultants to collaborate with auditors, financial managers, and other financial report preparers to ensure seamless alignment between sustainability and financial disclosures.
- The need for ESG data strategy and digital reporting solutions: IFRS S1 is highly data-intensive, requiring entities to collect high-quality, verifiable, and accurate sustainability information. This necessitates strong ESG data governance for quality assurance, as well as sustainability reporting tools to ease the workload and improve data accuracy.
Simplify ESG compliance for your clients with Manifest Climate
IFRS S1 establishes comprehensive sustainability-related disclosure requirements, making compliance a complex process for organizations. ESG consultants must not only develop a strong ESG data strategy but also leverage technology to ensure accurate assessments and streamlined reporting.
Manifest Climate simplifies ESG compliance with our AI-powered platform, helping consultants conduct rapid gap analyses for IFRS S1 and other reporting standards. With seamless interoperability across frameworks, our technology provides data-driven recommendations that support the creation of effective compliance roadmaps.
Request a demo today to see how Manifest Climate can help streamline ESG compliance for your clients.
