What Is IFRS? A Finance & Sustainability Leader's Guide to S1 and S2

Investors no longer separate a company's financial health from its exposure to climate risk, and regulators are catching up. Thus, the accounting framework that governs financial reporting globally, the International Financial Reporting Standards, has expanded to include sustainability.

For finance controllers, CFOs and sustainability leads, this changes what gets reported, who owns the data, and what level of rigour climate information must meet. This guide explains the IFRS framework, what the new sustainability standards require, and what that means for your organisation right now.

What is the IFRS?

IFRS stands for International Financial Reporting Standards. These are globally recognised accounting standards developed by the International Accounting Standards Board (IASB), operating under the IFRS Foundation. Their purpose is to ensure that financial statements are consistent, transparent and comparable across different markets and jurisdictions. When investors evaluate companies across borders, IFRS gives them a common basis for comparison.

More than 140 countries — including all EU member states, Australia, Canada, the UK, and many countries across Asia and Africa — require IFRS for publicly listed companies. The United States remains the most notable exception, using US GAAP, though many US-listed multinationals report under IFRS for international subsidiaries.

In practical terms, IFRS standards govern:

• When and how revenue is recognised (IFRS 15)
• How financial instruments and risk exposures are disclosed (IFRS 9)
• How leases appear on the balance sheet (IFRS 16)
• How the overall financial statements are structured and presented (IAS 1)

They translate economic activity into structured, auditable financial information. Until recently, sustainability disclosures sat outside this framework entirely. That is changing.

How sustainability entered the IFRS framework

In November 2021, the IFRS Foundation established the International Sustainability Standards Board (ISSB). This body sits alongside the IASB and is responsible for developing sustainability-related disclosure standards that connect to the financial reporting framework.

In June 2023, the ISSB issued its first two standards:

• IFRS S1 — General Requirements for Disclosure of Sustainability-related Financial Information
• IFRS S2 — Climate-related Disclosures

Both standards are effective for annual reporting periods beginning on or after 1 January 2024, subject to adoption by individual jurisdictions. Australia, Canada, Japan, Singapore, and others are actively progressing domestic adoption. In the UK, the recently released UK Sustainability Reporting Standards (UK SRS) are substantially based on IFRS S1 and S2, making early alignment valuable for UK businesses regardless of when mandatory requirements take effect.

IFRS S1: The foundation for all sustainability disclosures

IFRS S1 sets the general requirements that apply across all sustainability topics, not just climate. It establishes a consistent baseline for how companies should disclose sustainability-related risks and opportunities that could reasonably affect their cash flows, financing or cost of capital.

Four disclosure areas under IFRS S1

1. Governance: How the board and management oversee sustainability-related risks and opportunities. This includes which committees have oversight, how often they receive information, and how sustainability factors into strategy and remuneration.
2. Strategy: How sustainability risks and opportunities affect the company's business model, value chain, financial position and planning horizon. Disclosure should cover both short and long-term implications.
3. Risk Management: The processes used to identify, assess, prioritise and monitor sustainability-related risks, and how these integrate with the organisation's overall risk management framework.
4. Metrics and Targets: The quantitative and qualitative measures used to track performance, including any targets set and progress against them.

IFRS S1 draws heavily on the concept of financial materiality,meaning companies disclose sustainability information that could reasonably influence investor decisions, not simply information that demonstrates good intentions. This is a meaningful distinction for scoping what needs to be reported.

IFRS S2: Climate-specific disclosure requirements

IFRS S2 builds on the S1 framework and applies it specifically to climate-related risks and opportunities. It is closely aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, which many large companies have already been using voluntarily.

Four pillars of IFRS S2

1. Governance: Board and management oversight of climate-related risks and opportunities, with specific detail on how climate is integrated into decision-making structures.
2. Strategy: How climate risks (both physical and transition) affect the business, including the impact on business model, strategy and financial planning. Importantly, IFRS S2 requires companies to assess and disclose the resilience of their strategy under different climate scenarios, including a scenario aligned with limiting warming to 1.5°C where relevant.
3. Risk Management: How climate-related risks are identified, assessed and managed, and how this process is integrated into broader enterprise risk management.
4. Metrics and Targets: Disclosure of greenhouse gas emissions across Scope 1 (direct emissions), Scope 2 (purchased energy) and, where material, Scope 3 (value chain emissions). Companies must also disclose climate-related targets, the methodologies used, and progress against them.

Physical risks under IFRS S2 include the impact of extreme weather events, flooding, water stress and long-term climate shifts on assets and operations. Transition risks include policy changes such as carbon pricing, shifts in customer demand, stranded assets and the capital expenditure required for decarbonisation.

Why climate risk is now a financial reporting issue

This is the question finance teams are asking most often: why does emissions data now belong in the same reporting process as revenue and asset values? The answer is that climate risk already affects financial outcomes; it’s just not always disclosed in a structured or comparable way. Consider:

• Carbon pricing and regulation directly affect operating costs and capital allocation decisions
• Stranded assets, particularly in energy-intensive industries, represent real balance sheet risk as transition accelerates
• Supply chain disruption from physical climate events affects revenue, margins and inventory valuations
• Decarbonisation capital expenditure must be factored into financial forecasting and funding strategies
• Access to capital is increasingly tied to climate disclosure quality, with institutional investors and lenders making decisions based on climate risk assessments

Investors want forward-looking information: not just what happened last year, but how climate risk could affect future cash flows and enterprise value. IFRS S1 and S2 are designed to provide that information in a rigorous, auditable format rather than a narrative sustainability report. The practical implication: sustainability information now requires the same governance, internal controls and documentation standards as financial data.

What IFRS means for your organisation

Complying with IFRS S1 and S2 (or preparing for jurisdictions where adoption is imminent) requires cross-functional change. Here is what that looks like in practice.

Governance and accountability structures must expand. Boards and audit committees are expected to have clear oversight of sustainability-related financial disclosures. This is not purely a sustainability team responsibility; it requires finance leadership engagement and board-level ownership.

Internal controls must extend to emissions data. The same principles that govern financial data must apply to carbon and climate data. If emissions figures cannot be traced to source data and reviewed independently, they will not meet the standard of disclosure IFRS S2 anticipates.

Finance and sustainability teams must align on methodology. Inconsistencies between what the finance team reports and what the sustainability team reports — different boundaries, different assumptions, different base years — create credibility risks with investors and auditors. Cross-functional alignment on definitions and methodology is not optional.

Scenario analysis requires structured assumptions. IFRS S2 expects companies to assess how their strategy holds up under different climate futures. This requires clear documentation of the scenarios used, the assumptions within them, and the methodologies applied.

Data infrastructure must be fit for purpose. Spreadsheets shared across teams introduce errors, version control issues and audit trail gaps. Meeting IFRS sustainability disclosure requirements at scale requires centralised, structured data management.

Building the data infrastructure for IFRS-aligned reporting

The gap between current reporting practice and IFRS S1 and S2 requirements is, for many organisations, primarily a data infrastructure gap. Meeting the standards requires:

• Centralised emissions data collection across entities, geographies and Scope categories
• Consistent methodology application — the same calculation approaches applied across all business units
• Clear audit trails linking reported figures back to source data
• Integration with financial systems so that climate risk assumptions feed into financial planning and scenario modelling
• Management oversight capability — the ability to review, query and verify data before disclosure

This is particularly important for internationally operating businesses, where data may sit across multiple ERP systems, geographies and third-party suppliers.

How Zevero can help

As sustainability disclosures become subject to the same scrutiny as financial statements, data quality and traceability become non-negotiable. Zevero helps finance and sustainability teams centralise emissions data, apply consistent methodologies across global operations and generate clear audit-ready reports. By strengthening carbon data infrastructure now, organisations are better positioned to meet IFRS S1 and S2 requirements, satisfy investor expectations, and prepare for domestic regulatory requirements as they come into force.

Preparing your emissions data for IFRS-aligned disclosure? Get in touch with the Zevero team to understand where your current data infrastructure stands.