IFRS S1 & S2

The IFRS Sustainability Disclosure Standards (IFRS S1 and S2) establish the global baseline for sustainability-related financial disclosures, issued by the International Sustainability Standards Board (ISSB) in June 2023. These standards require entities to disclose material information about sustainability-related risks and opportunities that could affect enterprise value, with IFRS S1 providing general requirements and IFRS S2 focusing specifically on climate-related disclosures.¹²

Framework Overview

IFRS S1: General Requirements

IFRS S1 establishes the foundation for sustainability-related financial disclosures across all sustainability topics. The standard requires entities to provide information about sustainability-related risks and opportunities that could reasonably be expected to affect the entity's cash flows, access to finance, or cost of capital over the short, medium, or long term.³

Core disclosure requirements follow a four-pillar structure:

1. Governance — Oversight and management of sustainability-related risks and opportunities
2. Strategy — How sustainability matters affect business model, strategy, and financial position
3. Risk Management — Processes to identify, assess, and manage sustainability-related risks
4. Metrics and Targets — Performance measures and progress toward targets

The standard applies to all material sustainability-related risks and opportunities, not limited to climate. Entities must consider the SASB Standards and industry-specific metrics when determining disclosure topics.⁴

IFRS S2: Climate-related Disclosures

IFRS S2 builds on the general requirements of S1 with specific climate-related disclosure requirements. The standard is aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and incorporates climate-specific metrics from the SASB Standards.⁵

Key climate disclosure requirements:

• Scope 1, 2, and 3 greenhouse gas emissions — Measured in accordance with the GHG Protocol
• Climate resilience — Assessment using scenario analysis for material climate-related risks
• Transition plans — Entity's strategy for transitioning to a lower-carbon economy
• Climate-related targets — Including Paris Agreement alignment and net-zero commitments
• Physical and transition risks — Identification and quantification of climate impacts

IFRS S2 requires disclosure of Scope 3 emissions with a one-year transition relief period, recognizing the complexity of value chain emissions measurement.⁶

Why These Standards Matter

Global Baseline for Investor-Focused Disclosures

The ISSB Standards represent the culmination of years of fragmentation in sustainability reporting. By consolidating the Climate Disclosure Standards Board (CDSB) and Value Reporting Foundation (VRF, including SASB Standards), the ISSB created a unified framework that meets investor information needs while reducing reporting burden.⁷

Key advantages:

• Interoperability — Designed to work alongside jurisdictional requirements (e.g., ESRS, SEC)
• Comparability — Common baseline enables cross-border investment decisions
• Materiality focus — Financial materiality lens aligns with investor fiduciary duties
• Industry specificity — SASB Standards integration provides sector-relevant metrics

Mandatory Adoption Momentum

As of 2026, over 20 jurisdictions have committed to adopting or aligning with ISSB Standards:

The International Organization of Securities Commissions (IOSCO) endorsed the ISSB Standards in July 2023, signaling global regulatory acceptance.⁸

Implementation Guidance

Materiality Assessment

Entities must apply a financial materiality lens: information is material if omitting, misstating, or obscuring it could reasonably influence decisions of primary users (investors, lenders, creditors). This differs from the double materiality approach in ESRS, which also considers impact materiality.⁹

Materiality determination process:

1. Identify sustainability-related risks and opportunities across value chain
2. Assess likelihood and magnitude of effects on enterprise value
3. Consider time horizons (short: 0-1 year, medium: 1-5 years, long: 5+ years)
4. Apply industry-specific guidance from SASB Standards
5. Reassess materiality annually

Scope 3 Emissions Measurement

IFRS S2 requires Scope 3 emissions disclosure using the GHG Protocol Corporate Value Chain (Scope 3) Standard. Entities must disclose:

• Absolute Scope 3 emissions (metric tons CO₂e)
• Categories of Scope 3 emissions included (15 categories per GHG Protocol)
• Measurement approach and significant assumptions
• Reasons for excluding any Scope 3 categories

Transition relief: Entities are not required to disclose Scope 3 emissions in the first year of adoption, but must disclose the reason for omission and timeline for inclusion.¹⁰

Scenario Analysis

For climate-related risks that could reasonably affect financial position, entities must use scenario analysis to assess resilience. This typically involves:

• Physical risk scenarios — Temperature pathways (e.g., 1.5°C, 2°C, 3°C+)
• Transition risk scenarios — Policy, technology, and market changes under different decarbonization pathways
• Time horizons — Analysis extending to at least 2030, ideally 2050 for long-lived assets
• Quantitative and qualitative — Financial impacts where reasonably estimable

The standard does not mandate specific scenarios, but many entities use the Network for Greening the Financial System (NGFS) scenarios or International Energy Agency (IEA) pathways.¹¹

Primary Source Documents

Regional Implementation

Hong Kong

The Hong Kong Exchanges and Clearing (HKEX) requires listed issuers to comply with IFRS S1 and S2 (or equivalent) for fiscal years beginning on or after January 1, 2025. Entities must disclose climate-related information in ESG reports, with Scope 3 emissions required from 2026.¹²

HK-specific requirements:

• Mandatory for all listed entities (no phasing by market cap)
• Climate disclosures in ESG reports (not annual reports initially)
• Comply or explain approach for Scope 3 in first year

Singapore

The Singapore Exchange (SGX) mandates climate-related disclosures aligned with ISSB Standards for all listed entities from FY2025. The Accounting and Corporate Regulatory Authority (ACRA) is developing a sustainability reporting framework based on ISSB Standards for broader corporate adoption.¹³

European Union

While the EU has its own European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD), the European Commission designed ESRS to be interoperable with IFRS S1 and S2. Entities reporting under ESRS can map disclosures to meet ISSB requirements with minimal additional effort.¹⁴

Tools & Resources

• IFRS Sustainability Standards Navigator — Interactive tool for exploring standard requirements
• SASB Standards — Industry-specific metrics integrated into IFRS S1 and S2
• GHG Protocol Corporate Standard — Methodology for Scope 1 and 2 emissions
• GHG Protocol Scope 3 Standard — Methodology for value chain emissions
• TCFD Knowledge Hub — Scenario analysis guidance and case studies

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