When companies talk about sustainability, the question is no longer “What have we done?”, but rather, “Is this information truly relevant for investors and reflected in the financial statements?”
This is where the focus of IFRS in sustainability report becomes crucial. It’s ensuring that environmental, social, and governance (ESG) issues do not stand as separate narratives, but are disclosed as factors that can affect financial aspect and long term company value.
IFRS S1 dan IFRS S2
IFRS S1 sets out the general requirements for disclosing sustainability report related information that could affect a company’s financial prospects.
It requires companies to disclose material sustainability report related risks and opportunities and explain how these issues impact financial performance and position. In other words, IFRS S1 provides the foundational framework linking sustainability matters directly to financial reporting.
IFRS S2, on the other hand, focuses specifically on climate related disclosures. It requires companies to explain how climate related risks and opportunities affect their strategy, business model, cash flows, and the valuation of assets and liabilities.
IFRS S2 also promotes the use of standardized metrics to enhance comparability across companies and industries.
The key difference lies in scope. IFRS S1 covers all relevant sustainability related risks and opportunities, while IFRS S2 concentrates specifically on climate issues. However, the two standards are designed to complement each other in building an integrated reporting framework.
Alignment with Other ESG Frameworks
Before the introduction of IFRS S1 and S2, companies relied on various reporting frameworks such as SASB Standards, TCFD recommendations, and GRI guidelines. Differences in approach often resulted in duplicated disclosures and confusion for report users.
IFRS seeks to align these frameworks by providing a global baseline that can be applied across jurisdictions. IFRS S1 adopts a financial materiality approach, focusing on sustainability matters that could reasonably affect a company’s prospects, an approach closely aligned with investor needs.
IFRS S2 incorporates governance, strategy, risk management, and metrics and targets related to climate, elements that were previously familiar in international reporting practices. Through this alignment, companies can reduce fragmented reporting and integrate ESG information directly into their annual reports.
The adoption of IFRS standards in sustainability report encourages companies to strengthen governance structures and data management systems.
Non financial information is now expected to reach a level of reliability comparable to audited financial statements. One of the main challenges lies in assessing materiality and quantifying the financial impact of ESG risks, particularly those related to climate change.
Nevertheless, implementing IFRS S1 and S2 offers significant benefits. Reports become more transparent, comparable, and relevant for investors. At the same time, integration reduces duplicated data collection processes and enhances stakeholder trust.
Learn more :
IFRS Sustainability Standards Navigator
In practice, the biggest challenge is not just understanding IFRS S1 and S2, but translating them into reports that are truly connected to business conditions and easily understood by investors.
Many companies have started collecting data, yet still struggle to organize it in a way that is consistent, relevant, and aligned with financial reporting. Without the right structure, the full value of sustainability report often remains unrealized.
Through Validerra’s Sustainability Report development services, your company can be supported in refining reporting structures, ensuring alignment with IFRS standards, and presenting stronger, more decision useful information to enhance business decisions and build market trust.
Author: Ainur
Editor: Shoofi
Reference:
Wahyuni, P. D. (2025). The role of IFRS S1 and S2 in enhancing transparency and accountability of ESG reports: A systematic review. Asian Journal of Economics, Business and Accounting, 25(1), 1-12.
Skrypnyk, M., & Demenok, V. (2025, November). ESG REPORTING AND IFRS: INTEGRATING SUSTAINABILITY INDICATORS INTO FINANCIAL STATEMENTS. In International Conference on economics, accounting and finance-2025.