Navigating the Future of Sustainability: How to Prepare Your Business for IFRS S1 and S2 Implementation

Current Status of IFRS S1/S2 Standards

The IFRS S1 (General Sustainability-Related Disclosures) and IFRS S2 (Climate-Related Disclosures) are global standards aiming to harmonize sustainability reporting. Their objective is to provide a consistent and comparable framework for investors to assess a company’s sustainability risks, opportunities, and their impact on enterprise value.

Several jurisdictions are developing country-specific guidelines to implement these standards:

European Union: The EU’s Corporate Sustainability Reporting Directive (CSRD) aligns closely with IFRS S1 and S2. Companies operating in Europe should expect to comply with dual reporting requirements based on the EU Taxonomy and IFRS standards.

United States: While IFRS is not mandatory for U.S. GAAP reporters, the Securities and Exchange Commission (SEC) has indicated alignment with climate-related financial disclosures in a manner similar to IFRS S2. U.S. companies may voluntarily adopt these standards to attract global investors.

Canada: Canada has emphasized incorporating climate disclosures within existing financial reports, signaling strong alignment with IFRS S1/S2. Canadian firms will need to integrate these sustainability-related disclosures into their financial statements.

Other Countries: Australia just made sustainability reporting mandatory effective Jan 1, 2025. Many countries, including Japan are expected to incorporate IFRS standards into their regulatory frameworks for sustainability, requiring companies to make significant changes to their reporting processes.

Steps Companies Can Take to Implement IFRS S1/S2 Standards

Conduct a Gap Analysis

Companies should begin by assessing the differences between their current sustainability reporting and the requirements of IFRS S1 and S2. This will highlight areas where improvements or changes are needed, such as expanding climate risk disclosures or integrating sustainability data into financial reports.

Build Cross-Functional Teams

Successful implementation requires collaboration across departments. A team comprising finance, legal, sustainability, and operations experts can help ensure that the new standards are embedded into all relevant areas of the business. This team will also lead the development of internal controls to verify data accuracy.

Develop Data Collection Systems

IFRS S1/S2 requires precise tracking of sustainability metrics, such as carbon emissions and resource usage. Companies should invest in technology and systems that can capture these metrics, aggregate them, and present them in ways that align with financial data.

Engage Stakeholders and Consult Experts

Given the complexity of sustainability reporting, consulting external experts (e.g., ESG consultants, legal advisors) can ensure that a company’s approach aligns with national regulations and international standards. Regular stakeholder engagement—particularly with investors—ensures that reporting meets their needs.

Train and Educate Employees

Employees at all levels, particularly those in finance and sustainability roles, need to be trained on the new reporting standards. Providing internal training and education ensures that teams understand the importance of these disclosures and how to implement them.

Align Strategy with Sustainability Goals

Companies should view IFRS S1 and S2 not merely as reporting obligations but as opportunities to integrate sustainability into their overall business strategy. By aligning climate and sustainability goals with operational and financial planning, businesses can gain competitive advantages and improve long-term value.

Monitor Regulatory Developments

As sustainability standards continue to evolve, businesses should stay informed of any additional guidance issued by regulatory bodies in their operating regions. Monitoring updates ensures that companies remain compliant and prepared for future changes.

By following these steps, companies can ensure they are well-positioned to meet the new requirements of IFRS S1 and S2 and demonstrate their commitment to sustainability and transparency to stakeholders and investors.

Please contact me at abhi_lahiri@moneynmind.fun, if you need help with such ESG Rollout for your company.