IFRS S1 and its Climate-focused Companion, IFRS S2: Sustainability-Related Financial Disclosures

The growing emphasis on sustainability has spurred the need for standardized reporting practices. In response, the International Financial Reporting Standards (IFRS) Foundation introduced IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2: Climate-related Disclosures. These comprehensive standards, issued in June 2023, work together to provide a framework for entities to disclose sustainability-related risks and opportunities within their general-purpose financial reports.

Aligning Sustainability with Financial Reporting

IFRS S1 recognizes the crucial role sustainability plays in financial reporting. It aligns with the Conceptual Framework for Financial Reporting issued by the International Accounting Standards Board (IASB) to ensure consistency and coherence in financial disclosures. The standard focuses on providing users with relevant, reliable, comparable, and understandable information about an entity's sustainability-related risks and opportunities, empowering them to make informed decisions.

Identifying Material Information: Applying Judgment

Entities are required to exercise judgment in identifying and reporting material sustainability-related risks and opportunities. Materiality refers to information that could significantly impact users' decisions based on the financial reports. IFRS S1 allows entities to leverage external sources like the Global Reporting Initiative (GRI) Standards and the European Sustainability Reporting Standards, as long as they do not conflict with the IFRS Sustainability Disclosure Standards.

Key Characteristics for Effective Disclosures

IFRS S1 emphasizes several qualitative characteristics for impactful sustainability-related financial disclosures:

• Relevance: Information should influence user decisions, providing either predictive or confirmatory value.
• Faithful Representation: Information must accurately depict the reality it portrays, being complete, neutral, and accurate.
• Comparability: Users should be able to compare information within an entity's reports and across different entities or periods.
• Verifiability: Users should have confidence in the information's completeness, neutrality, and accuracy, allowing for independent verification.
• Timeliness: Information needs to be available in a timely manner to influence decision-making, emphasizing the importance of up-to-date data.
• Understandability: Information should be clear, concise, and presented coherently, avoiding unnecessary complexity.

Enhancing Disclosures for User Benefit

In addition to the fundamental characteristics, IFRS S1 outlines enhancing characteristics to further improve the value of sustainability-related financial disclosures:

• Consistency: Using consistent approaches over time enhances comparability, enabling users to identify trends and changes.
• Verifiability Enhancements: Providing information about calculation methods, input data, and reviews by governing bodies strengthens verifiability.
• Timeliness Considerations: While information should be timely, entities must balance this with the need for ongoing analysis, potentially extending relevance beyond reporting periods.
• Enhanced Understandability: Clear and concise disclosures, avoiding generic or duplicated information, facilitate user comprehension of complex sustainability-related issues.

Implementation and Effective Date

IFRS S1 became mandatory for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted as long as IFRS S2: Climate-related Disclosures is also applied. The standard provides detailed transition requirements, including the option to report sustainability-related financial disclosures after publishing financial statements in the first year of application.

Global Recognition and Sustainable Future

The endorsement of IFRS S1 by all members of the International Sustainability Standards Board (ISSB) in June 2023 highlights its global significance in standardizing sustainability reporting practices. By adhering to the principles outlined in this standard, entities can provide stakeholders with transparent, reliable, and comparable information on their sustainability performance. This fosters informed decision-making, promoting a more sustainable and transparent future for businesses and investors alike.

Further Insights: IFRS S2 and Beyond

While IFRS S1 establishes the general framework for sustainability-related financial disclosures, it's crucial to note the existence of IFRS S2: Climate-related Disclosures. This specific standard focuses on the disclosure of climate-related risks and opportunities, complementing the broader scope of IFRS S1. As the sustainability reporting landscape continues to evolve, additional sector-specific or issue-specific standards may be developed to further enhance the comprehensiveness and detail of disclosures.

To read more about IFRS please visit the official IFRS website .