ESG Reporting Under IFRS: New Standards and Implementation Guide
Last Update On 28th January 2025
Duration: 6 Mins Read
Sustainability as well as corporate transparency have now become the top concerns and expectations of all businesses around the world. ESG reporting has become a key part of financial reporting where investors, regulators, and stakeholders expect much more and better about a company’s sustainability efforts.
This means the International Financial Reporting Standards (IFRS) Foundation now introduces new sustainability disclosure standards via the International Sustainability Standards Board, or ISSB. Such an effort in a standardised approach towards ESG reporting is an initiative to align and harmonise the various forms of reporting, ensuring more comparable and transparent data and information useful for financial decisions.
This guide covers in detail ESG reporting under IFRS, the new standards IFRS S1 and IFRS S2, their business implications, implementation strategies, key challenges, and future trends.
What is ESG Reporting?
ESG reporting refers to the act of reporting the sustainability performance of an organisation in front of several stakeholders, which include investors, customers, regulators, and sometimes the public at large. It provides a structured framework for companies to report their ESG-related risks, strategies, and progress toward sustainable business practices. ESG reporting is essential for ensuring corporate transparency, managing sustainability risks, and demonstrating a company’s commitment to ethical and responsible business conduct.
The focus of ESG reporting will mainly depend on three significant areas, namely environmental factors like carbon emissions, energy consumption, or resource efficiency; social factors that include employee welfare, diversity, human rights, and community engagement; and governance factors, addressing business ethics, board diversity, corporate policies, and complying with regulations. This integration of ESG disclosures into financial reports will improve investor confidence, meet regulatory standards, and compete better to achieve long-term success.
You can also read our blog on: What is ESG Reporting Vs ESG Compliance
Curious About What is ESG Reporting?
Understand ESG Reporting
ESG reporting refers to a formalised disclosure of Environmental, Social, and Governance factors that influence the operations, risks, and finances of a company. It provides stakeholders with detailed insights into an organisation’s approach to sustainability and ethical governance.
Three Pillars of ESG Reporting
Environmental Factors
- Carbon emissions and climate change mitigation
- Energy consumption and renewable energy use
- Water conservation and waste management
- Pollution control and biodiversity protection
Social Factors
- Diversity, equity, and inclusion (DEI) policies
- Employee health and safety
- Community engagement and corporate social responsibility
- Ethical supply chain practices
Governance Factors
- Board diversity and executive compensation
- Business ethics and anti-corruption policies
- Risk management frameworks
- Transparency in decision-making
Why is ESG Reporting Important?
- Build and enhance corporate transparency and trust investors.
- Aligns businesses with regulatory requirements in different jurisdictions.
- Assists in the assessment of sustainability risks toward long-term financial performance.
- Strengthens the brand reputation through responsible corporate practices.
The Importance of IFRS in ESG Disclosure
Financial standardisation has primarily been driven through the IFRS Foundation, which ensures businesses located within different countries of the world employ uniform reporting principles.
IFRS and ESG: The Growing Connection
The formation of the International Sustainability Standards Board (ISSB) in 2021 emphasised the IFRS Foundation’s commitment to sustainability.
ISSB’s IFRS S1 and IFRS S2 provide a global framework for ESG reporting, ensuring consistent and comparable disclosures.
Many jurisdictions are harmonising national ESG reporting requirements with IFRS standards.
The adoption of IFRS-based ESG reporting is a way of providing clear, investor-focused sustainability disclosures to companies while meeting the increased demand for corporate responsibility.
New IFRS Standards for ESG ReportingÂ
IFRS S1 General Requirements for Sustainability-Related Financial Disclosures
IFRS S1 represents a comprehensive framework for ESG disclosures, as it ensures consistency, reliability, and comparability of sustainability data from businesses.
Key Requirements of IFRS S1
- Companies should present material sustainability-related risks and opportunities affecting their financial position.
- Disclosures have to be reported against four themes, which include governance, strategy, risk management, and metrics/targets.
- Businesses need to adopt industry-specific sustainability information based on existing ESG reporting frameworks.
- IFRS S2—Climate-Related Disclosures
- IFRS S2 addresses the risks and opportunities specifically associated with climate change and follows the recommendation of the task force on climate-related financial disclosures.
Key Requirements of IFRS S2
- Disclosure of climate-related risks and financial impacts.
- Reporting on greenhouse gas (GHG) emissions, including Scope 1, Scope 2, and Scope 3 emissions.
- Description of a company’s climate resilience strategy.
- By implementing IFRS S1 and S2, businesses can enhance their ESG credibility, investor confidence, and regulatory compliance.
Key Changes in ESG Reporting Standards
The introduction of IFRS S1 and IFRS S2 marks a significant shift in ESG reporting:
Change Impact: Mandatory ESG disclosures of sustainability risks and opportunities must be integrated into financial reports.
Standardised Climate Metrics: The businesses have to report emissions and climate-related financial impacts using the IFRS guidelines.
Industry-specific Disclosures: Companies should disclose sector-specific ESG risks and opportunities.
Financial Integration: Reporting needs to establish ESG factors to be directly associated with financial performance.
The changes, while promoting the cause, do enhance transparency and bring sustainability disclosures to a similar level of rigour as financial reporting.
Business Implications of New IFRS GuidelinesÂ
Entities adopt more than one IFRS ESG standard through the following channels:
1. More Stringent Compliance Obligations
Companies have to make improvements in collecting and reporting ESG data in the wake of IFRS guidelines.
2. Increased Scrutiny of Investors
With critical scrutiny of ESG disclosures, investors will be more likely to make changes in capital allocation and the stock market.
3. Enhanced Corporate Image
Especially through good ESG performance, organisations will be capable of gaining an edge over competition and attracting sustainable investments.
4. Harmonisation with Regulations
Most governments harmonise local rules with IFRS ESG standards. In this regard, early adoption will be important.
There is a lot of pressure to adjust to this change to ensure competitiveness in this changing sustainability space.
Implementation of ESG into Financial Reports
In compliance with the IFRS S1 and S2 requirements, companies shall:
Identify Key ESG Factors—Identify their sustainability risks and opportunities that would affect their business in a particular industry.
Design a Structured Reporting Framework—Make sustainability reporting congruent with the reporting of financial statements.
Apply Standardised Metrics—Use ESG indicators recommended by IFRS.
Make Transparent Disclosure—Disclose clear, fact-based information on ESG performance.
Tools and Technology for Effective ESG Reporting
- ESG Reporting Software—Workiva, SAP, Sphera, etc.—will collate data automatically.
- Blockchain for transparent, tamper-proof ESG disclosures
- AI-driven Analytics to improve sustainability performance tracking
- Companies can also use technology to enhance the accuracy of data and efficiency in reporting.
Challenges in ESG ReportingÂ
- Data Collection and Accuracy Issues
- Inconsistent ESG data sources across business units.
- Challenges in quantifying indirect emissions (Scope 3).
Addressing Reporting Consistency Issues
- Use standardised ESG frameworks, such as IFRS, GRI, and TCFD.
- Automate ESG data collection systems.
- Train staff on best practices for ESG reporting.
- Ensuring accurate and reliable ESG disclosures is a key enabler of investor confidence and compliance.
- Inconsistent ESG data sources across business units.
- Challenges in quantifying indirect emissions (Scope 3).
Addressing Reporting Consistency Issues
- Use standardised ESG frameworks, such as IFRS, GRI, and TCFD.
- Automate ESG data collection systems.
- Train staff on best practices for ESG reporting.
- Ensuring accurate and reliable ESG disclosures is a key enabler of investor confidence and compliance.
Data Collection and Accuracy Issues
- Inconsistent ESG data sources across business units.
- Challenges in quantifying indirect emissions (Scope 3).
Overcoming Reporting Consistency Challenges
- Use standardised ESG frameworks, such as IFRS, GRI, and TCFD.
- Automate ESG data collection systems.
- Train staff on best practices for ESG reporting.
- Ensuring accurate and reliable ESG disclosures is a key enabler of investor confidence and compliance.
The Future of ESG Reporting Under IFRS
Anticipating Trends in ESG Disclosure
- Increasing ESG regulations across the globe.
- Rising pressure from investors for ESG reporting.
- Increased ESG involvement in the financial reporting activities.
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Conclusion
IFRS ESG reporting has changed corporate sustainability disclosure. The IFRS S1 and S2 standards offer a structured framework by which businesses integrate ESG in financial reporting; this ensures that there is a high level of transparency, increased investor confidence, and regulatory compliance.
By using the best practices, technology, and trends, companies can get the upper hand and make the right strategies that may lead them to long-term success. Interested in the ever changing world focusing towards sustainability? Explore our ESG Course and discover how to drive positive change by integrating sustainability into your business practices—making the world a better place while achieving success!
FAQs on ESG Reporting Under IFRS
What is IFRS in ESG?
IFRS has issued worldwide standards on sustainability reporting by the ISSB in a bid to have ESG reporting consistency.
What are the IFRS sustainability reporting standards?
IFRS S1 General sustainability disclosures and IFRS S2 Climate-related disclosures.
What is the S1 IFRS Standard?
IFRS S1 is about establishing general disclosures in sustainability within the financial reporting aspect.
Is IFRS S1 and S2 mandatory?
Though mandatory in many territories, regulators elsewhere include them in the national framework. As their deployment increases globally, businesses must begin preparing for such compliance.