IFRS S1 & IFRS S2: PwC In depth – Comprehensive Notes
IFRS Sustainability Disclosure Standards (S1 and S2): PwC In depth – Comprehensive Notes
Origins and purpose
The International Sustainability Standards Board (ISSB) issued its first two sustainability reporting standards on 26 June 2023:
IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information (core framework for material sustainability-related risks and opportunities across an entity’s value chain).
IFRS S2: Climate-related Disclosures (first thematic standard, with requirements for climate-related risks and opportunities).
The IFRS Foundation established the ISSB to address the fragmented landscape of voluntary sustainability standards, reducing cost, complexity and risk for companies and investors.
Objective: develop and issue a comprehensive global baseline of sustainability reporting standards (IFRS Sustainability Disclosure Standards) for consistent, comparable, high-quality reporting designed to meet investor needs.
IFRS S1 focuses on all sustainability-related risks and opportunities; IFRS S2 provides climate-specific requirements due to global emphasis on climate.
IFRS Sustainability Disclosure Standards are based on the four-pillar TCFD framework: governance, strategy, risk management, and metrics and targets.
The TCFD framework is used or required in several jurisdictions; IFRS S1/S2 are designed to be familiar to users of TCFD-based reporting.
Adoption mechanics: like IFRS, local securities exchanges and regulators may require adoption; many jurisdictions are likely to mandate. Entities can voluntarily apply IFRS Sustainability Disclosure Standards even if not applying IFRS.
These in-depth notes should be read alongside the IFRS Sustainability Disclosure Standards; they are not a standalone substitute. PwC In depth references and examples provide illustrative guidance.
What’s inside (structure of IFRS S1 and IFRS S2)
General requirements for disclosure of sustainability-related financial information (IFRS S1)
1.1 Overview
1.2 Identification and disclosure of sustainability-related risks and opportunities
1.2.1 Step 1: identify sustainability-related risks and opportunities
1.2.1.1 Reasonable and supportable information
1.2.1.2 Assessing materiality
1.2.2 Step 2: determine which disclosures to provide in relation to the identified risks and opportunities
1.3 Other important concepts in IFRS S1
1.3.1 Fair presentation
1.3.2 Reporting entity
1.3.3 Connected information
1.3.4 Core content
1.3.4.1 Governance
1.3.4.2 Strategy
1.3.4.3 Risk management
1.3.4.4 Metrics and targets
1.3.5 Current and anticipated effects
1.3.6 Location of disclosures
1.3.7 Timing of reporting
1.3.8 Comparative information
1.3.9 Statement of compliance
1.3.10 Judgements, uncertainties and errors
1.3.10.1 Judgements
1.3.10.2 Measurement and outcome uncertainties
1.3.10.3 Errors
Climate-related Disclosures (IFRS S2)
2.1 Overview
2.2 Core content
2.2.1 Governance
2.2.2 Strategy
2.2.2.1 Climate-related scenario analysis
2.2.3 Risk management
2.2.4 Metrics and targets
2.2.4.1 GHG emission disclosures
Effective date
Transition provisions
Disclosures in the absence of specific guidance
Next steps
Contacts (PwC | ISSB In depth)
General requirements for disclosure of sustainability-related financial information (IFRS S1) – overview
IFRS S1 requires disclosure of information about sustainability-related risks and opportunities that is useful to the primary users of general purpose financial reporting (investors, lenders, creditors).
Primary users: existing/potential investors, lenders, and other creditors.
To identify sustainability-related risks and opportunities, entity must understand its resources and relationships along its value chain; these form an interdependent system affecting cash flows in the short, medium, and long term.
Dependencies and impacts on resources and relationships give rise to sustainability-related risks and opportunities that could affect cash flows, access to finance, or cost of capital.
The analysis to identify risks and opportunities is the first step in determining what to disclose.
Resources and relationships are a source of value; understanding value helps identify sustainability-related risks/opportunities.
Example: bee health and pesticides illustrating how today’s value decisions can affect future cash flows through pollination and crop yields.
Step 1 and Step 2: identification and materiality (IFRS S1)
1.2 Identification and disclosure of sustainability-related risks and opportunities
Step 1: identify sustainability-related risks and opportunities that could affect prospects over short/medium/long term.
Step 2: determine which disclosures to provide in relation to identified risks and opportunities.
Entity must consider not only its own activities but its value chain.
1.2.1 Step 1: identify sustainability-related risks and opportunities
Entities must refer to IFRS Sustainability Disclosure Standards (IFRS S1 and thematic standards) first.
In addition, refer to SASB standards to consider industry-based topics and metrics; however, SASB alone does not cover all sustainability topics and should not be used in isolation.
The SASB topics may not be applicable; if not, clearly document how applicability was assessed (BC131 guidance).
Other guidance sources may include CDSB, other standard-setters, and sustainability risks identified by similar entities in the same industries/geographies.
Judgement is required; use all reasonable and supportable information available at the reporting date; consider cost/benefit.
1.2.1.1 Reasonable and supportable information
No exhaustive search is required; determine what information is reasonable and supportable, including entity-specific facts and external conditions; sources include risk management, industry experience, peer experiences, external ratings/reports/statistics; effort should be proportional to usefulness of information to primary users.
1.2.1.2 Assessing materiality
After identifying risks/opportunities, determine which are material.
Material information: omitting, misstating, or obscuring could influence decisions of primary users.
Only material information needs to be disclosed (im-material information can be omitted).
1.2.2 Step 2: determine disclosures for the material risks and opportunities identified in step 1
When determining material disclosures, refer to the IFRS Sustainability Disclosure Standards addressing the risk or opportunity.
If a risk/opportunity is not specifically addressed by a standard, apply judgement with guidance:
Refer to SASB metrics; CDSB guidance for water/biodiversity; most recent pronouncements of other standard-setters; sustainability information disclosed by entities in same industries/geographies.
PwC observation: SASB considerations are mandatory in a sense (shall refer to SASB topics) but not all SASB disclosures may be applicable; entities should document how SASB applicability was assessed.
1.3 Other important concepts in IFRS S1
1.3.1 Fair presentation: disclosures must be complete, neutral, and accurate. If IFRS disclosures are insufficient, entities must disclose additional information to enable primary users to assess effects on prospects.
1.3.2 Reporting entity and value chain
Sustainability disclosures must align with the same reporting boundary used for financial reporting.
Entities must separately provide sustainability-related information regarding risks and opportunities arising from the entity’s value chain (upstream and downstream).
1.3.3 Connected information: disclosures should help users understand connections between sustainability risks and opportunities and connections between sustainability information and financial statements.
Use the same data and assumptions as used for financial reporting where possible; some scenarios may require different assumptions.
1.3.4 Core content (four pillars)
Governance, Strategy, Risk management, Metrics and targets.
1.3.5 Current and anticipated effects: describe how risks and opportunities affect business model and value chain; use reasonable information without undue cost; qualitative information may be used where quantitative is not feasible.
1.3.6 Location of disclosures: disclosures may be in various locations in the general purpose financial report; cross-referencing to other reports is allowed if certain conditions are met.
1.3.7 Timing of reporting: publish sustainability disclosures at the same time as annual financial statements; cover the same reporting period; interim disclosures are not required by IFRS S1 but may be required by local regulators.
1.3.8 Comparative information: provide comparative information for previous period for all current period amounts; narrative disclosures may also require comparatives; transition provisions apply.
1.3.9 Statement of compliance: entities compliant with IFRS Sustainability Disclosure Standards must include an explicit and unqualified statement of compliance.
1.3.10 Judgements, uncertainties and errors
1.3.10.1 Judgements: disclose the most significant judgements affecting sustainability disclosures (excluding estimates).
1.3.10.2 Measurement and outcome uncertainties: estimates and assumptions may be used; describe the reasons for changes and update comparative disclosures if new information exists (retrospective correction per B50; forward-looking metrics may be restated only in limited circumstances per B51).
1.3.10.3 Errors: prior-period errors corrected retrospectively; distinguish errors from changes in estimates; follow IAS 8 approach.
Climate-related Disclosures (IFRS S2) – overview
2.1 Overview
IFRS S2 builds on S1 and focuses specifically on climate-related disclosures.
Entities must identify climate-related risks and opportunities that could affect prospects over short/medium/long term.
In identifying climate-related risks/opportunities, entities should refer to Industry-Based Guidance on Implementing IFRS S2 (based on SASB climate-related disclosures).
Use all reasonable and supportable information (1.2.1.1) when identifying climate-related risks and opportunities.
IFRS S2 recognizes two types of climate-related risk: physical risks and transition risks.
Appendix A defines physical risks (acute: event-driven like storms, floods; chronic: long-term climate shifts) and transition risks (policy, legal, technology, market, reputational).
2.2 Core content
Disclose material information related to identified climate-related risks and opportunities consistent with S1 core pillars: governance, strategy, risk management, metrics and targets.
PwC observation: aim to avoid duplication with S1 where possible by integrating disclosures if governance/oversight is integrated across sustainability topics.
2.2.1 Governance
Governance disclosures align with S1 requirements but are climate-focused.
2.2.2 Strategy
Disclose climate-related strategy and how it addresses identified risks/opportunities.
Include current/anticipated financial effects, how targets are achieved, and key assumptions in transition plans.
Disclosures should enable users to understand resilience of strategy and business model to climate-related changes.
2.2.2.1 Climate-related scenario analysis
Evaluates range of hypothetical outcomes via scenarios; not a forecast.
Requires use of scenario analysis commensurate with entity's circumstances and climate risk exposure; consider skills and resources available.
Must explain which scenarios were used and whether a diverse range of scenarios was used.
Not required to perform scenario analysis at every reporting date; at minimum, update the scenario analysis in line with strategic planning cycle; annual resilience assessment is required.
2.2.3 Risk management
Align with S1 risk management requirements but focused on climate-related risks/opportunities; includes inputs/parameters, scenario analyses, risk assessment, prioritization, monitoring, changes from prior year.
2.2.4 Metrics and targets
Disclose how metrics and targets are used to measure, monitor, and manage climate-related risks/opportunities.
Include cross-industry metrics and industry-based metrics (IFRS S2 Part B guidance).
Seven cross-industry metric categories (qualitative and quantitative):
Greenhouse gas (GHG) emissions in absolute terms, measured in metric tonnes of CO2e.
Climate-related transition risks: vulnerability of assets/business activities in absolute terms and percentages (e.g., revenue from coal).
Climate-related physical risks: vulnerability of assets/business activities in absolute terms and percentages (e.g., proportion of property portfolio in flood-prone areas).
Climate-related opportunities: revenue/assets aligned with climate-related opportunities.
Capital deployment: amount spent on climate-related risks/opportunities (as a percentage of revenue).
Internal carbon prices: carbon pricing used in decision-making.
Remuneration: share of executive remuneration linked to climate-related considerations; qualitative considerations also required.
2.2.4.1 GHG emission disclosures
Measure and disclose Scope 1, Scope 2, and Scope 3 GHG emissions per the GHG Protocol Corporate Standard, with transition reliefs.
Boundary and reporting: disclosures for consolidated accounting group vs. ‘other investees’ (associates, juntas, unconsolidated subsidiaries) must be separately reported for Scope 1 and 2 emissions.
Measurement boundary options: equity share or control approach per GHG Protocol; disclose method and rationale.
Equity share approach: proportionate share of emissions in investees.
Control approach: 100% of emissions for controlled investments; sub-models within control include financial control or operational control.
Disaggregation details: may require disaggregation by Scope 3 categories in specific circumstances; not always required to disaggregate by category; disaggregation by gas may be relevant in certain cases per industry guidance.
2.2.4.1 Continued – joint operations and unconsolidated structured entities
Emissions from joint operations should be included in the consolidated group (not in ‘other investees’).
Guidance for unconsolidated structured entities is not explicit; entities may include associated emissions with ‘other investees’ when applying paragraph 29(a)(iv).
Disaggregation example IE5 helps illustrate perspective of the investee for disaggregation.
For each GHG target disclosure, include: whether Scope 1/2/3 are covered, whether the target is gross or net, whether decarbonisation approaches are sector-informed, use of carbon credits to meet targets (including verification and whether credits are nature-based or technological), and any other factors to aid credibility.
Scope 3 emissions: additional disclosures if asset management, commercial banking, or insurance exposures; financing emissions require additional detail.
Effective date, transition provisions, and transitional reliefs
Effective for annual reporting periods beginning on or after 1 January 2024; early adoption permitted.
In the first year, entities may report only the S1 requirements to the extent they relate to climate-related information; S2 application is unaffected.
In the second year of adopting IFRS Sustainability Disclosure Standards, entities would provide S1 disclosures for other sustainability-related risks and opportunities.
Transition reliefs include:
Timing: first sustainability reporting within nine months after the end of the annual period; in the second year, align with timing in 1.3.7.
Comparative information: not required in the first annual reporting period for S1/S2; optional for early adopters depending on local regulator guidance.
GHG measurement: if a different measurement method was used than the GHG Protocol in the first year, can continue with that method for the first year of application.
Scope 3: no requirement to disclose Scope 3 GHG emissions in the first year of applying IFRS Sustainability Disclosure Standards.
Disclosures in the absence of specific guidance
If there is no explicit guidance for a particular situation, apply IAS 8-like approach: use principles of financial reporting to sustainability disclosures where symmetry exists; consider applying the principles of the entity’s own financial reporting framework where appropriate and where there is alignment between financial and sustainability reporting.
Consider other sustainability reporting frameworks (SASB, CDSB, ESRS, GRI) to develop an approach that does not conflict with IFRS S1, especially for non-material guidance gaps.
Next steps and contacts
Next steps: ISSB exploring next thematic standards; agenda priorities consultation open prior to IFRS S1/S2 release; comment period closes 1 September 2023.
Contacts: PwC ISSB In depth team – named contacts (Andreas Ohl, Katie Woods, Thamesha Chetty, Raihazah Shaikh, Tingting Shi, Jan-Ben Wiese).
Additional cross-cutting observations and examples
Avoid duplication: S1 and S2 guidance encourage integrated governance disclosures where oversight is managed on an integrated basis; this avoids duplicating information across topics.
Illustration of data alignment: several examples show aligning sustainability data with financial reporting data where possible (e.g., scenario analysis units matching production projections used in impairment testing).
Value chain considerations: responsibility to disclose risks/opportunities arising from the entire value chain, both upstream (sourcing) and downstream (use/disposal).
Materiality and decision-usefulness: materiality is defined by the potential influence on primary users’ decisions; immaterial information should be omitted even if required by the standard.
Transition and business planning: climate strategy disclosures emphasize resilience of strategy to climate changes and the integration of climate planning into financial planning.
Governance and controls: governance disclosures cover the oversight and roles of those responsible for monitoring sustainability-related risks/opportunities; control processes and data quality are central across both S1 and S2.
Practical reporting considerations: location of disclosures in the annual reporting package; cross-referencing to other reports; timing alignment; and ensuring consistency of data and assumptions between sustainability and financial reporting.
Materiality assessment and documentation: explicit documentation of SASB applicability and the rationale for excluding non-applicable SASB topics is recommended.
Scenario analysis disclosure: beyond results, entities should disclose the methodologies and scenarios used, including any limitations or diverse scenario considerations to demonstrate resilience.
GHG measurement details: Scope 1/2/3 coverage, boundary, and method ( equity share vs. control) are critical; consider disaggregation by category and gas only when helpful for materiality and decision-usefulness.
Transitional reliefs: first-year practicalities include nine-month reporting windows and partial comparatives; entities should plan to manage subsequent events and ensure continuity of disclosures post-adoption.
Key terms and concepts to remember
IFRS S1 = General requirements for sustainability-related financial information.
IFRS S2 = Climate-related Disclosures.
TCFD four-pillars = Governance, Strategy, Risk Management, Metrics and Targets.
SASB = Industry-based sustainability topics and metrics guidance referenced by IFRS S1.
CDSB = Climate Disclosure Standards Board guidance referenced for water/biodiversity.
ESRS/GRI = additional frameworks considered for interoperability.
Value chain = upstream and downstream activities, resources, and relationships affecting the entity’s prospects.
Scope 1/2/3 = direct emissions, indirect electricity/heat, and other indirect emissions in the value chain.
GHG Protocol = standard referenced for calculating and reporting GHG emissions, including boundary decisions (equity share vs control).
Materiality = information that could influence the decisions of primary users.
Scenario analysis = climate-related analysis used to assess resilience; not a forecast, but a set of plausible outcomes.
Quick references (topic anchors)
1.2.1.1 Reasonable and supportable information
1.2.1.2 Assessing materiality
1.3.4 Core content and its sub-parts (Governance, Strategy, Risk management, Metrics and targets)
1.3.5 Current and anticipated effects
1.3.6 Location of disclosures
1.3.7 Timing of reporting
1.3.8 Comparative information
1.3.9 Statement of compliance
1.3.10 Judgements, uncertainties and errors
2.2.4.1 GHG emission disclosures
4 Transition provisions
6 Next steps and contacts
(Note: All LaTeX formatting is used for chemical names and emission metrics where appropriate, e.g., CO₂e as the unit for GHG emissions: .)