IFRS Sustainability Disclosure Standards

The International Financial Reporting Standards (IFRS) are a set of accounting rules and standards maintained by the International Accounting Standards Board (IASB) that cover a range of accounting topics related to financial reporting. The International Sustainability Standards Board (ISSB), created by the IFRS, have expanded these standards to include the IFRS Sustainability Disclosure Standards, offering guidance for financial statements to include climate-related disclosures along with financial information. While these standards are voluntary, their rapid adoption by jurisdictions worldwide signals an increasing influence.

According to the IFRS, as of September 2024, 30 countries are already taking steps to legally implement the IFRS S1 and S2 standards.¹ Some countries, including Brazil, Canada, Japan and the UK, have announced their decisions to adopt or otherwise use the standards.² This widespread adoption indicates that these voluntary standards are quickly becoming requirements.

These standards provide a global framework for companies to disclose sustainability-related information in a consistent and comparable way to help foster transparency for investors. Following a structure similar to the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations—governance, strategy, risk management and metrics, the IFRS Sustainability Disclosure Standards are structured into two key components:

• IFRS S1 (sustainability): S1 focuses on general requirements for disclosing sustainability-related risks and opportunities, enabling users of financial reports to assess an entity’s exposure and management of these risks over the short, medium and long term. To support industry-specific and comparable reporting, IFRS S1 also requires companies to integrate the Sustainability Accounting Standards Board (SASB) Standards into their reporting.
• IFRS S2 (climate change): While also aiming to enable users to assess company exposure and management of material issues, S2 specifically targets climate-related disclosures. These disclosures focus on greenhouse gas (GHG) emissions, climate resilience and the transition to a low-carbon economy, in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

The IFRS Sustainability Disclosure framework is expected to evolve beyond IFRS S1 and IFRS S2 as work continues to build out the global baseline of sustainability-related financial disclosures.³

ISSB directs organizations to adopt IFRS S1 and IFRS S2 for annual reporting periods beginning on or after 1 January 2024.⁴ Adoption timelines might vary by jurisdiction.

While IFRS S1 does not mandate the direct use of Sustainability Accounting Standards Board (SASB) Standards, companies are required to, at least, assess their relevance as part of the reporting process.⁵ The SASB Standards provide industry-specific guidance on sustainability topics and metrics, offering companies a practical framework for addressing sustainability-related disclosures. By promoting the adoption of SASB Standards, the ISSB aims to streamline the application of IFRS S1 by providing industry-specific guidance.⁶

The industry-specific focus of SASB Standards helps organizations identify relevant disclosure topics and metrics tailored to their operations, fostering consistent and transparent reporting. In addition to the climate-related risks covered under IFRS S2, SASB Standards expand the scope of sustainability disclosures to include areas such as human capital and natural resource management. This broader perspective can help organizations produce a comprehensive assessment of material risks and opportunities.

To meet IFRS S1 requirements effectively, companies can leverage SASB Standards through a structured approach:

1. Identify relevant industry standards: Evaluate which SASB Standards correspond to the company’s business operations sector to pinpoint applicable disclosure topics and metrics.
2. Select appropriate disclosure topics and identify relevant metrics: Use SASB disclosure topics and metrics to measure and disclose sustainability performance in a way that helps ensure quantitative, decision-useful reporting.
3. Develop comprehensive disclosures: Apply SASB’s technical protocols to craft industry-specific disclosures that provide stakeholders with transparent, comparable insights into sustainability-related risks and opportunities. This approach helps organizations build robust sustainability reports, aligning with global frameworks and delivering meaningful insights to stakeholders.

IBM® Envizi™ offers a comprehensive software solution to help organizations align their sustainability reports with the reporting standards of IFRS S1 and IFRS S2. Our software suite supports companies in gathering, managing and analyzing sustainability data, and supports the efficient generation of reports with:

• Embedded IFRS questions and question guidance: Keep all questions, answers and supporting documents in one system.
• Integrated reporting: Structure your reports to align with IFRS requirements.
• Real-time sustainability data: Track, manage and report on key sustainability metrics and practices.
• Sector-specific insights: Easily integrate industry-specific SASB metrics into your disclosures.

With Envizi, businesses can efficiently work to meet the requirements of sustainability reporting standards while maintaining transparency and fostering investor and customer confidence.

CTA: Request a demo to learn how IBM Envizi can seamlessly support businesses to integrate IFRS S1 and IFRS S2 into their ESG reporting.