Code Gaia has added the IFRS sustainability standards to the range of reporting frameworks in the software. The IFRS sustainability standards are primarily used by listed and large multinational companies, particularly those with complex global supply chains or significant environmental and social impacts. They are gaining traction in key markets such as the UK, Canada, Australia, Singapore and Japan, where regulators and stock exchanges are increasingly aligning their disclosure requirements with the ISSB standards. Several countries, including the UK and Canada, have announced plans to make ISSB-based reporting mandatory for large companies, strengthening its role as a global foundation for sustainability disclosure in capital markets. Within the European Union, the CSRD prescribes the use of the European Sustainability Reporting Standards (ESRS), but the two frameworks are designed to be compatible with each other.
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What are the IFRS sustainability standards?
IFRS S1 and S2 were published by the International Sustainability Standards Board (ISSB) in June 2023 and are applicable from the 2024 financial year. The IFRS sustainability standards focus on disclosing sustainability-related risks and opportunities that could have an impact on enterprise value. The standards thus close the gap between traditional financial reporting and non-financial sustainability data and ensure that sustainability performance is assessed with the same rigor as financial results. A key feature of the new standards is their interoperability with existing international frameworks, such as the Sustainability Accounting Standards Board (SASB) standards. This connectivity not only facilitates integration into national legislation, but also promotes harmonization of sustainability reporting across industries and national borders. When revising the ESRS, care was also taken to ensure close compatibility with the IFRS sustainability standards, which is a clear sign of their growing importance as a global reference in sustainability reporting.
What is the aim of the IFRS sustainability standards?
The central objective of the IFRS sustainability standards is to improve the quality and comparability of sustainability information worldwide. They create a uniform basis for the disclosure of relevant data and thus form the global reference framework for future reporting.
As with the traditional IFRS financial standards, IFRS S1 and S2 also pursue the approach of creating a global baseline for sustainability information. They lay the foundation for consistent reporting and ensure that key topics are covered uniformly worldwide. National legislators can build on this and add additional requirements to meet specific political or regulatory needs. Through this baseline approach, the standards promote comparable, reliable key figures and at the same time reduce multiple reporting for companies that are subject to different disclosure requirements. IFRS S1 and S2 thus make a significant contribution to creating transparency and reducing the effort involved in international reporting.
Contents of the IFRS sustainability standards
IFRS S1 sets out the general requirements for the disclosure of all material sustainability risks and opportunities, while IFRS S2 focuses on climate-related information.
IFRS S1: General requirements for sustainability information
The IFRS S1 standard (“General Requirements for Disclosure of Sustainability-Related Financial Information”) defines the basic requirements for sustainability reporting. It calls on companies to disclose all material sustainability risks and opportunities that could affect their financial position, cash flows or access to capital.
The central reporting elements are
- Governance: responsibilities and decision-making structures
- Strategy: Dealing with sustainability risks and opportunities
- Risk management: identification and management of sustainability issues
- Key figures & targets: Key figures for performance measurement and target tracking
IFRS S1 thus forms the overarching framework for all future ISSB standards.
IFRS S2: Climate-related disclosure requirements
The IFRS S2 standard (“Climate-Related Disclosures”) focuses on climate risks and opportunities. Companies are required to report on how climate change and climate policy affect their strategy, business models and financial position.
The main contents are
- Transitional and physical climate risks
- Scenario analyses to assess the resilience of the business model
- Emissions (Scope 1 to 3) and other climate-related key figures
- Targets and progress in reducing emissions
Both standards are structurally based on the recommendations and pillars of the TCFD (Task Force on Climate-related Financial Disclosures). In the first reporting year, companies can make use of the transitional arrangement (“climate-first” approach) and initially focus on climate-related disclosures.
IFRS sustainability standards in practice
Before IFRS S1 and IFRS S2 can be applied on a mandatory basis, they must first be officially adopted by the respective national or regional legislators. Until then, their application remains voluntary, but they already provide companies with valuable guidance for future reporting obligations.
The United Kingdom provides a first example of national implementation in Europe: the government there has published its own draft sustainability standards (the UK Sustainability Disclosure Standards “UK SDS”), which are based directly on the IFRS requirements. The United Kingdom is thus sending a clear signal for the international orientation and early integration of the new standards into national regulations. Even if the regulatory landscape is currently developing dynamically, now is the right time for companies to expand their sustainability reporting in a targeted manner. Those who act early not only strengthen their own credibility, but are also better prepared for future requirements, both nationally and internationally.
IFRS sustainability standards in the Code Gaia software
The IFRS standards S1 and S2 are now available in the Code Gaia software.
