How will IFRS S1 and S2 improve company sustainability disclosures?

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IFRS S1 and S2 Will Enhance Corporate Sustainability Reporting Through Standardised Language and Auditing

The International Sustainability Standards Board (ISSB) has introduced its inaugural standards, IFRS S1 and IFRS S2, set to be implemented from next year. These standards are designed to foster greater trust and confidence in corporate sustainability disclosures, thereby aiding investment decisions. A significant advancement is the establishment of a common language for reporting the impact of climate-related risks and opportunities on a company's future prospects.
Establishing a Common Language for Climate Impact

For the first time, IFRS S1 and S2 provide a universal framework for companies to articulate how climate-related factors affect their business. This common language aims to ensure that the details of a company's actual practices are communicated consistently across all organisations, moving beyond disparate reporting methods. This standardisation is crucial for investors and stakeholders seeking to understand a company's environmental, social, and governance (ESG) performance.
Mandating Greenhouse Gas Protocol for Emissions Measurement

The new standards dictate the methodology for companies to measure both their direct and indirect emissions. Specifically, they require the adoption of the Greenhouse Gas Protocol, a widely recognised framework for quantifying and reporting greenhouse gas emissions. This ensures a consistent and credible approach to assessing a company's carbon footprint.
Requiring Emissions Data Audits and Top Management Adoption of Climate Strategy

Beyond measurement, IFRS S1 and S2 impose stringent requirements for accountability. Companies will be mandated to conduct audits of their emissions data, verifying its accuracy and reliability. Furthermore, these standards necessitate that a company's climate strategy receives formal adoption and oversight from its top management, underscoring the strategic importance of sustainability initiatives.
Designing Standards with Anti-Greenwashing in Mind

A core objective of IFRS S1 and S2 is to combat greenwashing, a practice where companies misleadingly portray their environmental efforts. By creating detailed, common reporting requirements and mandating audits, the standards are intentionally designed to hold firms accountable for their sustainability claims, thereby increasing the integrity of corporate disclosures.

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How will IFRS S1 and S2 improve company sustainability disclosures?

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