The introduction of IFRS and IFRS S2 marks a pivotal development in sustainability reporting.
These new standards, developed by the International Sustainability Standards Board (ISSB), aim to provide a consistent global baseline for sustainability disclosures, enhancing transparency and comparability in the global capital markets. On the other hand, the Task Force on Climate-related Financial Disclosures (TCFD) framework has been widely recognized and adopted for its robust approach to climate-related financial disclosures. The new ISSB standards build upon the foundation established by the TCFD, aiming to further integrate and enhance sustainability reporting globally.
What are the IFRS S1 and S2 ?
IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) outlines the general requirements for disclosing sustainability-related financial information. It covers governance, strategy, risk management, and metrics, providing a comprehensive framework for all sustainability topics that impact a company’s financial performance and prospects.
IFRS S2 (Climate-related Disclosures) focuses specifically on climate-related disclosures, requiring companies to provide detailed information on climate-related risks and opportunities. This includes physical and transition risks, scenario analysis, and greenhouse gas emissions, particularly Scope 1, 2, and 3 emissions.
Key Transition Points
Both IFRS S1 and S2 fully incorporate the recommendations of the TCFD, ensuring a smooth transition for companies already aligned with TCFD. The ISSB standards expand beyond climate to include broader sustainability-related financial information.
While TCFD focuses primarily on climate-related financial disclosures, IFRS S2 requires a more detailed scenario analysis and comprehensive risk management strategies. This includes the disclosure of physical and transition risks, along with their potential financial impacts. Companies will need to disclose Scope 1, 2, and 3 greenhouse gas emissions under IFRS S2, providing a more complete picture of their environmental impact.
6 Strategic Steps for Implementation
- Governance and Leadership Engagement: Establish a governance structure that integrates sustainability reporting with financial reporting. This ensures that sustainability-related disclosures are considered in decision-making processes.
- Conduct Scenario Analysis: This involves evaluating potential impacts of physical risks (e.g., extreme weather events) and transition risks (e.g., regulatory changes) on your business operations and financial performance.
- Focus on Key Metrics and Targets: Identify and report key sustainability metrics and targets relevant to your industry and stakeholders. For climate-related disclosures, this includes Scope 1, 2, and 3 greenhouse gas emissions, energy consumption, and water usage. Ensure these metrics are integrated with your financial performance indicators.
- Foster Stakeholder Engagement: Engage with stakeholders, including investors, regulators, and customers, to communicate your sustainability strategy and performance. Transparency in reporting builds trust and can enhance your company’s reputation.
- Training and Capacity Building: Invest in training and capacity building for your staff to ensure they are well-versed in the new reporting standards and understand the importance of accurate sustainability reporting.
- Monitor and Review: Regularly review your disclosures to ensure they meet the requirements of IFRS S1 and S2 and reflect the latest industry practices and regulatory developments.
Implementing IFRS S1 and S2 will pose challenges, including the need for significant changes in reporting systems and processes and the complexity of gathering and verifying sustainability data. However, by proactively addressing these new standards, companies can not only comply with regulatory requirements, but also demonstrate leadership in sustainability, thereby gaining a competitive edge in the global market.
Update your knowledge on the IFRS S1 and IFRS2 with the Online Certificate on SASB & TCFD Reporting – Alignment with IFRS S1 & S2
The Online Certificate on SASB & TCFD Reporting – Alignment with IFRS S1 & S2 is designed to help the participants acquire or enhance their competency to understand the requirements of the SASB Standards and the TCFD recommendations. It is focused on the acquisition of knowledge of applying the SASB Standards, as well as reporting on the organization’s climate related risks and opportunities based on the TCFD.
The course has been updated with the recently issued ISSB Standards: IFRS S1 and IFRS S2, and provide the participants with an understanding of how these new standards streamline and strengthen the integration of sustainability into corporate reporting practices.
The course is accredited by CPD.
Group registrations allow you to attend our certified courses as a team at the same time. Our group courses are created to tackle present-day problems as well as prepare your company for the future.
Discounts can be applied to a group that registers either to the same course or in a combination of courses. Request more information at [email protected].
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