Decarbonization: what it is and why it matters
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What is decarbonization, and why is it urgent? Learn practical steps companies can take to support the global move toward net zero emissions.
What Is IFRS S2? The IFRS Sustainability Disclosure Standards
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By Kara Anderson, UK Copywriter, on 09/04/2026
Updated by Agnès Potier-Murphy
IFRS S1 and IFRS S2 are the ISSB’s global sustainability disclosure standards: S1 sets the general framework for reporting sustainability-related risks and opportunities, and S2 focuses specifically on climate. Developed by the ISSB, the two standards exist because access to capital is changing. Investors used to take a balance sheet at its word, and now they want to know whether a business can withstand a warming, more volatile world. IFRS S1 and IFRS S2 translate that question into consistent, comparable reporting, tied directly to a company’s financial performance rather than treated as a separate sustainability exercise.
Since their publication in 2023, IFRS S1 and S2 have moved from proposal to active global reference point. As of mid-2026, 35 jurisdictions have adopted them on a voluntary or mandatory basis, with 11 more in the pipeline. For companies and regulators in those markets, the sustainability disclosure standards are becoming a normal part of doing business, though full global convergence, including in major markets like the United States, is still a work in progress.
In this article, we'll explore:
What the IFRS Foundation and the ISSB do
Why IFRS introduced sustainability disclosure standards in the first place
What IFRS S1 and IFRS S2 require companies to disclose
How the standards approach materiality, risk, and financial impacts
When the standards apply and how adoption works across different countries
Why do we need sustainability disclosures?
Sustainability now carries real financial weight. Investors want concrete answers to tough questions: How vulnerable is a company to supply chain shocks or sudden regulatory shifts? Is the business built to remain resilient in a changing climate?
For a long time, getting those answers was difficult. The reporting landscape was fragmented, and without consistent definitions, disclosures were often impossible to compare. This lack of clarity created a "compliance burden" for companies and a data gap for investors.
Recognizing this friction, the IFRS Foundation opened a 2020 consultation that drew broad support from investors, regulators, and standard-setters worldwide. The response confirmed what the industry increasingly needed: information reliable and comparable enough to genuinely shape investment decisions. That work became the foundation for what we now know as the IFRS Sustainability Disclosure Standards.
What exactly is the IFRS Foundation?
For decades, the IFRS Foundation has been the backbone of global corporate reporting. Most know them as the architects of international accounting standards, the universal rules that allow an investor in London to trust a financial statement from Sydney.
The Foundation’s mission is built on a straightforward principle: better information leads to better decisions. By providing a common financial language, they’ve brought a level of transparency and efficiency to capital markets that simply didn't exist before.
Today, IFRS Standards are the global benchmark, required in more than 160 jurisdictions and treated as the baseline for how international business gets done.
Now, the Foundation is applying that same rigor to the world of sustainability. By bringing the same principles of consistency and comparability to ESG data, they’re ensuring that sustainability disclosures are treated with the same seriousness as the balance sheet, carrying real financial weight of their own.
What is the ISSB?
To turn the demand for better data into action, the IFRS Foundation established the ISSB (International Sustainability Standards Board) in 2021. It operates as a direct counterpart to the International Accounting Standards Board (IASB). If the IASB handles the traditional books, the ISSB handles the sustainability-related financial information that now dictates a company’s value.
The ISSB’s mandate is to build a global baseline. In practice, this means creating a clear, comparable framework for reporting how climate risks and social shifts actually impact cash flow, resilience, and long-term performance.
Crucially, these standards set a universal foundation that jurisdictions build on top of, adding their own specific requirements without needing to replace what’s already there. The core stays consistent, so investors end up looking at the same set of essential facts no matter where a company is based.
What are the IFRS S1 and IFRS S2 Sustainability Disclosure Standards?
IFRS S2 is the ISSB’s climate-related disclosure standard, and IFRS S1 is its companion general-requirements standard. Together, they make up the IFRS Sustainability Disclosure Standards, a single framework for reporting the sustainability risks and opportunities that affect a company’s financial performance.
In practice, a company applying IFRS S1 and S2 discloses climate and sustainability risks with the same rigor it applies to financial statements: governance, strategy, risk management, and metrics, reported alongside the numbers investors already use. You may also see IFRS S1 and S2 referred to as the IFRS ESG standards, since they cover much of the same ground as broader ESG reporting. The ISSB’s own framing centers on financial materiality rather than ESG generally, but the two terms are often used interchangeably in practice.
📘 IFRS S1 — The framework
🧭 Acts as the overarching sustainability reporting framework
🔍 Defines how companies identify and assess sustainability-related risks and opportunities
🧩 Applies across all sustainability topics — from labour practices to water scarcity
📐 Ensures disclosures follow a consistent, disciplined logic regardless of the issue
🌍 IFRS S2 — The climate lens
🌡️ Focuses specifically on climate-related risks and opportunities
📊 Fully integrates the TCFD recommendations into a formal global standard
🏭 Designed to be applied consistently across all industries
🔎 Reflects climate change as the most immediate sustainability priority for capital markets
What does IFRS S1 require?
IFRS S1 is built on the reality that a company doesn’t operate in a vacuum. Its financial health depends on how it interacts with stakeholders, society, and the environment across its entire value chain, well beyond its own offices.
The standard requires companies to disclose the sustainability-related risks and opportunities that directly impact their ability to generate cash over the short, medium, and long term. Whether it’s a dependency on a scarce natural resource or a vulnerability in a global supply chain, these factors have a tangible effect on a company's cost of capital and its attractiveness to investors.
Importantly, IFRS S1 is designed to be targeted and proportionate: companies only need to disclose information that could reasonably be expected to influence an investor’s decision. This ensures that reporting remains focused on what truly matters for financial performance, rather than becoming a checklist of every possible ESG metric.
The four pillars of disclosure
To ensure investors get a complete picture, both IFRS S1 and S2 are organized around four core pillars that describe how a business actually integrates sustainability into its DNA:
🏛️
Governance
Who is in charge?
Shows how the board and leadership oversee sustainability risks - including roles, controls, and the processes that drive accountability at the top.
🧭
Strategy
How does this change the plan?
Explains how sustainability factors influence the business model and long-term decisions - the big picture of how the company plans to stay resilient.
🛡️
Risk management
How are threats spotted?
Covers how sustainability risks are identified and prioritized - and how those steps are built into the company’s wider risk management system.
📏
Metrics & targets
How is progress measured?
Sets out the metrics used to track performance, the targets a company has set (or must meet), and a clear-eyed view of progress so far.
Defining "material" information
At the heart of IFRS S1 is the principle of materiality. In short, if a piece of information could change an investor’s mind or influence their decision, it must be disclosed. Whether it’s omitted, buried, or misrepresented, if it matters to the financial story of the company, it belongs in the report.
This is fundamentally about quality: the standard demands a complete, neutral, and accurate account of a company’s position. In practice, that means applying the same level of rigor to sustainability data that has always been reserved for the balance sheet.
To make this transition easier, the reporting mechanics (how often you report, how you handle estimates, how you show year-over-year comparisons) are designed to mirror traditional financial statements. For companies already used to IFRS accounting, these requirements will feel familiar, allowing sustainability and financial data to sit naturally side-by-side.
What does IFRS S2 require?
While S1 provides the framework, IFRS S2 zooms in on the most pressing financial challenge of our time: climate change. It’s structured around the same four pillars we just covered, but it adds a sharp focus on the specific ways climate shift impacts a company’s outlook.
1. Identifying the impact: Risks and opportunities
Under S2, companies are expected to look at climate through two distinct lenses:
🌪️
Physical risks
The immediate and long-term impacts of a changing climate — from extreme weather events to gradual shifts in temperature, rainfall, and sea levels.
🔄
Transition risks
The financial risks linked to the shift to a low-carbon economy, including new regulations, emerging technologies, and changing market expectations.
🚀
Climate-related opportunities
Potential sources of growth, such as new products, services, or business models that benefit from climate action and a more sustainable economy.
2. The disclosure requirements
To give investors a clear view of the future, S2 requires transparency across the business:
🏛️
Governance
Goes beyond naming a committee. Companies must explain how the board and management actively drive climate-related oversight, controls, and decision-making.
🧭
Strategy
This is the climate "stress test." Companies describe how climate factors reshape their business model, including transition plans, targets, and whether their finances and operations are resilient enough to withstand the shift.
🛡️
Risk management
Climate risk can’t sit in a silo. Companies must show how climate risks are identified, monitored, and managed as a core part of their wider risk management framework.
📊
Metrics and targets
The hard data. This covers climate targets and a full accounting of greenhouse gas emissions — including Scope 1, 2, and Scope 3 where these are a material part of the story.
When do IFRS S1 and S2 apply?
The transition to IFRS Sustainability Disclosure Standards is already underway. IFRS S1 and S2 became effective for reporting periods starting in January 2024, and the first IFRS-aligned disclosures reached the market in 2025.
Now, in 2026, we’ve moved past the "first-look" phase. For many organizations, these standards are embedded into the regular, annual reporting cycle, whether as a strategic choice or a regulatory requirement.
Are these IFRS sustainability disclosure standards mandatory?
The ISSB sets the global baseline for these standards, but only national and regional regulators can decide whether to make them mandatory.
Since their launch, we’ve seen a wave of jurisdictions move to adopt or align with the IFRS framework, and that trend has only accelerated. For companies, the mandatory question usually has two answers:
📜
Regulatory adoption
Many countries are now embedding IFRS S1 and S2 directly into local sustainability
reporting rules, using the ISSB standards as the foundation for legal requirements.
📈
Market-driven adoption
Even where they aren’t mandatory, companies are adopting the standards voluntarily
to meet investor expectations and stay ahead of the next wave of regulation.
What are the advantages of adopting the IFRS S1 and S2 Standards?
Adopting IFRS S1 and S2 delivers real benefits beyond compliance: a more disciplined approach to data that gives companies a clear path to both regulatory stability and investor confidence.
🌍
A universal language for capital
Using an investor-focused baseline helps companies “speak the same language” across borders — making disclosures clearer and comparisons across sectors and countries far more credible.
🛡️
Future-proofing your reporting
As more jurisdictions align with ISSB standards, early adoption helps companies stay ahead — and avoid costly reporting whiplash when new rules arrive.
🎯
From storytelling to strategy
These standards push disclosures toward financially grounded insights. The focus on material risks and opportunities makes reporting leaner — and more useful for capital allocation decisions.
♻️
Leveraging what you’ve built
IFRS S1 and S2 build on frameworks like TCFD, SASB, and CDSB, so existing work carries forward and builds directly into compliance.
🧩
Cutting through complexity
For multinationals, the goal is "report once, use often." A shared global foundation reduces duplication — even when local requirements add extra layers.
Frequently asked questions about IFRS S1 and IFRS S2
What’s the difference between IFRS S1 and IFRS S2?
IFRS S1 covers general sustainability-related disclosures, while IFRS S2 focuses specifically on climate. S1 sets the overarching framework, covering how a company identifies and reports on any material sustainability risk or opportunity. S2 builds on that same framework but narrows in on climate specifically, requiring detailed disclosure on physical risks, transition risks, and greenhouse gas emissions. Companies typically apply both together, since S2 relies on S1’s foundational requirements.
Are IFRS S1 and S2 mandatory in the US?
The US does not require companies to apply ISSB standards directly. The SEC did adopt its own climate-related disclosure rule in March 2024, but the rule was stayed almost immediately pending litigation, and the SEC withdrew its legal defense of it in 2025. As of September 2026, the SEC has proposed to rescind the rule entirely, and it has never taken effect. Separately, state-level rules add another layer: California’s SB 253 requires large companies doing business in the state to report Scope 1 and 2 emissions starting in 2026, regardless of the SEC’s position. Its companion law, SB 261, was paused by a Ninth Circuit injunction in November 2025 and isn’t currently being enforced. IFRS S1 and S2 still matter for US companies with international operations, overseas listings, or global investor bases, who often use the ISSB baseline as a reference point.
What countries require IFRS S1 and S2?
As of mid-2026, 35 jurisdictions have adopted IFRS S1 and S2 on a mandatory or voluntary basis, according to the IFRS Foundation’s own tracking, with 11 more moving toward adoption. Early adopters span Asia-Pacific, the Middle East, and parts of Latin America. The United States is a notable exception: the SEC hasn’t mandated ISSB alignment, though individual states like California are moving ahead with their own climate disclosure requirements.
How do IFRS S1 and S2 relate to CSRD and ESRS?
They serve different, but complementary, purposes. IFRS S1 and S2 focus on financial materiality: what sustainability and climate issues matter for enterprise value and investor decision-making. CSRD/ESRS apply a double materiality approach, covering both financial impacts and a company’s impacts on society and the environment. Note that the EU’s Omnibus I Directive, in force since March 2026, has substantially narrowed CSRD’s mandatory scope (roughly 90% fewer companies now fall under it) and simplified ESRS itself, so fewer companies now face the double-reporting question described here. Those that remain in scope, however, will still need to reconcile ISSB-aligned financial-materiality disclosures with the EU’s broader double-materiality requirements.
Are SMEs expected to report under IFRS S1 and S2?
Not in the same way as large companies. The ISSB standards are not designed for small, non-listed SMEs, and most jurisdictions applying them are doing so with proportionality thresholds. That said, SMEs that sit within large value chains may still be asked to provide data that supports IFRS-aligned disclosures at the group level.
Do companies need to disclose Scope 3 emissions under IFRS S2?
Scope 3 emissions are required where they are material. IFRS S2 expects companies to disclose Scope 1, 2, and 3 greenhouse gas emissions where they form a significant part of the company’s climate-related risks or opportunities. The standard recognizes data challenges and allows for proportionality, but Scope 3 is increasingly unavoidable for many sectors.
Is third-party assurance required under IFRS S1 and S2?
The standards themselves do not mandate assurance. However, in practice, many regulators are introducing or considering assurance requirements for sustainability disclosures. Investors also increasingly expect externally assured climate and sustainability data.
Do private companies need to comply with IFRS S1 and S2?
That depends on jurisdiction, size, and capital market exposure. IFRS S1 and S2 are primarily designed for capital markets, so they are most relevant to: listed companies, companies with external investors, and companies seeking financing or preparing for future listing. However, many large private companies are choosing to align voluntarily, particularly where lenders, insurers, or investors expect ISSB-aligned climate and sustainability information.
What about Greenly?
Streamlined ESG Data Management & Compliance
Greenly streamlines the complex process of ESG data collection, consolidation, and management all in 1 platform.
📥 Import qualitative & quantitative data — platform processes & flags errors
🤖 AI-powered data processing & auto-filling of answers
🔗 Integrated connectivity: map & connect data points across indicators, eliminate redundancy
📂 Centralized platform for all ESG data & supporting docs
⏱️ Track collaborator progress, set reminders & deadlines for compliance
🛡️ Audit-ready traceability: instantly track every change
📊 ESG dashboards to track all key KPIs
🏢 Multi-entity task management & data ingestion at all levels
🧠 AI-powered pre-filling from documentation saves weeks of manual work
🧮 Automatic calculations handle dependencies & speed up consolidation
📈 Multi-entity data collection simplified by mirroring company structure
Strategic ESG Impact & Risk Mitigation
Greenly empowers companies to move beyond reporting to develop strategy, identify risks, and unlock opportunities.
📋 Automated Double Materiality Assessment (DMA) built with CSRD experts
🤖 AI-powered climate risk forecasting integrated into DMA with site-level detail
💰 Translate climate risk into quantified financial opportunities
📍 Location-specific financial risk breakdowns with IPCC-backed data
🔎 Data gap analysis from DMA to improve future reporting
📈 Automated Climate KPI integration
📊 Advanced Materiality Module: benchmarks & specialized add-ons (e.g., CSA)
Tailored & Future-Ready Reporting
Flexible reporting with interoperability across 15+ frameworks.
📝 Custom framework creation with tailored reports
🔀 Interoperability across 10+ frameworks with harmonized database
⚡ Accelerated report creation with AI-powered generation and pre-filling
📄 Auto-generation of complete ESG reports (qualitative & quantitative data)
🛡️ Audit-ready guaranteed reports
💻 Automated ESG report gen incl. XHTML & XBRL for CSRD
📂 Centralized audit trails & attachments per indicator
🤝 Collaborative workflows managing full indicator lifecycle
Expert Guidance & Continuous Support
Comprehensive support & training to empower ESG teams and ensure successful, autonomous reporting.
🧑💼 Dedicated Project Managers & ESG Experts for each framework
📚 Extensive training & resources available on the platform
🤖 AI-powered in-app chatbot (24/7) for instant answers
Greenly, "Our Guide to European Sustainability Reporting Standards (ESRS),"
Greenly, "What is the Corporate Sustainability Reporting Directive (CSRD)?,"
Greenly, "What is a materiality assessment?,"
Greenly, "What is the International Sustainability Standards Board (ISSB)?,"
IFRS, "IFRS S1 General Requirements,"
IFRS, "IFRS S2 Climate-related Disclosures,"
IFRS Foundation, "IFRS Sustainability Disclosure Standards around the world,"
IFRS Foundation, "International Sustainability Standards Board (ISSB),"
IFRS Foundation, "Consultation Paper on Sustainability Reporting,"
U.S. Securities and Exchange Commission, "SEC Proposes Rescission of Climate-Related Disclosure Rules,"
California Air Resources Board, "Climate-Related Financial Risk,"
European Union, Directive (EU) 2026/470 (Omnibus I)
European Commission, "Commission adopts revised sustainability reporting standards,"
S&P Global Sustainable1, "Where does the world stand on ISSB adoption? (August 2026),"
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