IFRS S1 vs IFRS S2: the short answer
IFRS S1 sets the general requirements for disclosing material sustainability-related risks and opportunities that could affect a company’s financial prospects. IFRS S2 is the climate-specific Standard: it requires disclosure of climate-related risks and opportunities, including greenhouse gas (GHG) emissions.
The two Standards are not alternatives. IFRS S2 is designed to be applied alongside IFRS S1.
Under Malaysia’s National Sustainability Reporting Framework (NSRF), many organisations will initially focus on climate-related disclosures. This climate-first approach makes IFRS S2 the immediate operational priority for many reporting entities. However, IFRS S1 remains essential because it provides the overarching concepts for materiality, connected information, reporting boundaries and the presentation of sustainability-related financial information.
In simple terms:
- IFRS S1 asks: What sustainability-related risks and opportunities could affect the company’s prospects?
- IFRS S2 asks: What climate-related risks and opportunities could affect the company’s prospects, and how is the company managing, measuring and responding to them?
Takeaways
- IFRS S1 covers material sustainability-related risks and opportunities broadly, while IFRS S2 focuses specifically on climate-related risks and opportunities.
- The Standards work together, not separately: IFRS S1 provides the overarching disclosure principles, while IFRS S2 sets detailed climate-related requirements.
- Both Standards require disclosures across four areas: governance, strategy, risk management, and metrics and targets.
- IFRS S2 has more prescriptive requirements for Scope 1, Scope 2 and Scope 3 GHG emissions, climate resilience, scenario analysis and climate-related targets.
- Malaysian companies should treat implementation as a cross-functional programme involving the board, sustainability, finance, risk, operations and procurement teams—not simply an ESG reporting exercise.
Table of Contents
What are IFRS S1 and IFRS S2?
The International Sustainability Standards Board (ISSB) developed IFRS S1 and IFRS S2 to create a globally consistent baseline for sustainability-related financial disclosures.
Malaysia’s NSRF adopts the ISSB Standards as its reporting baseline. This means affected Malaysian companies need to understand not only the content of each Standard, but also how the two Standards connect with governance, business strategy, enterprise risk management, financial planning and annual reporting.
The Standards are intended to provide decision-useful information to investors, lenders and other providers of capital. They focus on sustainability-related matters that could reasonably be expected to affect a company’s prospects over the short, medium or long term.
In this context, prospects refers to expected effects on:
- Cash flows
- Access to finance
- Cost of capital
This is an important distinction. IFRS S1 and IFRS S2 are not simply ESG questionnaires or corporate-responsibility reports. They are sustainability-related financial disclosure Standards.
IFRS S1 vs IFRS S2: key differences
Area | IFRS S1 | IFRS S2 |
Full title | General Requirements for Disclosure of Sustainability-related Financial Information | Climate-related Disclosures |
Primary focus | All material sustainability-related risks and opportunities | Climate-related risks and opportunities |
Scope | Broad sustainability matters, including climate, workforce, water, biodiversity, supply chain and human capital where financially material | Physical climate risks, transition risks and climate-related opportunities |
Financial lens | Effects on cash flows, access to finance and cost of capital | Applies the same financial lens specifically to climate |
GHG emissions | Does not prescribe detailed GHG disclosure requirements itself | Requires disclosure of Scope 1, Scope 2 and Scope 3 GHG emissions, subject to applicable transition reliefs |
Climate resilience | May be relevant where material | Requires assessment of climate resilience using climate-related scenario analysis |
Industry-based information | Uses industry-based guidance where relevant | Includes specific cross-industry and industry-based climate disclosure requirements |
Relationship between Standards | Provides the overarching disclosure concepts and architecture | Builds on IFRS S1 for climate-specific disclosure requirements |
Both Standards are organised around the same four disclosure pillars: governance, strategy, risk management, and metrics and targets.
What does IFRS S1 require?
IFRS S1 requires a company to disclose material information about sustainability-related risks and opportunities that could reasonably be expected to affect its prospects.
The Standard requires the company to identify relevant sustainability-related matters, assess whether they are material, and explain how they affect the organisation’s governance, strategy, risk-management processes and performance measures.
Sustainability matters that may be relevant under IFRS S1
The matters that are material will vary by company, sector, operating location and value chain. Examples may include:
- Workforce availability, skills, labour practices or occupational health and safety
- Water availability, water quality or operational dependency on water-intensive processes
- Biodiversity and land-use impacts that may affect permits, operations or stakeholder acceptance
- Human-rights and supplier-management risks in the value chain
- Product design, product stewardship or changing customer sustainability requirements
- Resource efficiency, waste, circular-economy regulation or material scarcity
- Climate-related risks and opportunities, which are addressed in greater detail under IFRS S2
Not every sustainability topic is automatically reportable. A matter becomes relevant under IFRS S1 where it could reasonably be expected to affect the company’s financial prospects.
What IFRS S1 means in practice
IFRS S1 requires companies to connect sustainability information to business and financial decision-making. For example, if water restrictions could reduce manufacturing output, increase operating costs or require capital expenditure for water-efficiency infrastructure, the company should consider whether the matter is material for disclosure.
Companies should avoid treating IFRS S1 as a narrative exercise. Effective implementation requires documented assessments, data owners, governance processes, financial analysis and evidence that supports the final disclosures.
What does IFRS S2 require?
IFRS S2 applies the same financial-materiality lens specifically to climate-related risks and opportunities.
It requires companies to disclose climate-related matters that could reasonably be expected to affect their prospects, including potential effects on strategy, business model, value chain, financial position, financial performance and cash flows.
Climate-related risks and opportunities
IFRS S2 distinguishes between three broad types of climate-related matters:
- Physical risks: Risks from acute or chronic climate hazards, such as floods, heat stress, drought, sea-level rise, extreme rainfall and severe weather events.
- Transition risks: Risks arising from the transition to a lower-carbon economy, including regulatory change, carbon pricing, technology disruption, customer preferences, market changes and litigation.
- Climate-related opportunities: Potential benefits from energy efficiency, low-carbon products, renewable energy, climate-resilient operations, innovation or improved access to finance.
IFRS S2 GHG emissions disclosures
IFRS S2 has more specific metrics requirements than IFRS S1. It requires disclosures relating to:
- Scope 1 GHG emissions from sources owned or controlled by the company
- Scope 2 GHG emissions associated with purchased or acquired energy
- Scope 3 GHG emissions across the value chain, subject to the applicable implementation timetable and transition reliefs
- Methodologies, assumptions, emission factors and calculation approaches
- Climate-related targets and performance against those targets
- Internal carbon prices, where used
- Capital deployment, where relevant to climate-related risks and opportunities
IFRS S2 also requires companies to assess climate resilience using climate-related scenario analysis. The aim is to explain how resilient the organisation’s strategy and business model are under different climate-related conditions and assumptions.
For support on GHG data collection, calculation methodologies and assurance preparation, explore Bernard Business Consulting’s sustainability reporting insights.
What do IFRS S1 and IFRS S2 have in common?
IFRS S1 and IFRS S2 use the same four disclosure areas. Companies should therefore create one connected implementation programme rather than treating the two Standards as separate projects.
Governance
Companies must explain how the board oversees relevant sustainability-related or climate-related risks and opportunities. Disclosures should describe management’s role, responsibilities, competencies, reporting lines and decision-making processes.
Key questions include:
- Which board committee has oversight responsibility?
- How often does the board receive sustainability or climate-related information?
- Who in management is accountable for implementation?
- How are climate and sustainability matters incorporated into business decisions?
Strategy
Companies must explain how relevant risks and opportunities affect, or could affect, their business model, value chain, strategy, financial position, financial performance and cash flows.
This requires more than listing risks. Companies should consider potential effects on revenue, operating costs, capital expenditure, asset values, insurance, financing, supply chains and long-term competitiveness.
Risk management
Companies must describe how relevant risks and opportunities are identified, assessed, prioritised, monitored and managed.
The process should connect with the company’s broader enterprise risk-management framework. A separate climate-risk register that is never considered by the board, finance team or operational leadership is unlikely to support credible disclosure.
Metrics and targets
Companies must disclose the metrics used to measure performance and progress, along with targets, methodologies, assumptions and performance against those targets.
For IFRS S2, this includes specific climate metrics such as GHG emissions and, where applicable, climate-related targets, capital deployment and internal carbon prices.
Who should own implementation?
IFRS S1 and IFRS S2 implementation should not sit solely with the sustainability team. ESG and sustainability professionals may coordinate the programme, but credible reporting requires cross-functional accountability.
Function | Typical implementation role |
Board and board committees | Oversee risks, opportunities, strategy, targets and disclosure governance |
Senior management | Allocate resources, establish accountability and approve key decisions |
Sustainability or ESG team | Coordinate assessments, disclosures, data requirements and implementation activities |
Finance | Assess financial effects, connect disclosures to financial reporting and operate reporting controls |
Risk management | Integrate sustainability and climate matters into enterprise risk management |
Operations and engineering | Provide operational data, assess site-level risks and identify mitigation actions |
Procurement and supply chain | Support supplier engagement, value-chain assessment and Scope 3 GHG data collection |
Legal, compliance and internal audit | Review regulatory alignment, evidence, controls and assurance readiness |
A practical implementation example
Consider a logistics company that operates warehouses and transport fleets in flood-prone areas.
Under IFRS S2, the company may need to assess:
- Flood risks to warehouses, delivery routes and customer-service continuity
- Heat-related effects on vehicles, employees and energy use
- Fleet-transition requirements and the potential cost of low-emission vehicles
- Changes in fuel prices, carbon regulation or customer decarbonisation requirements
- Scope 1 emissions from the fleet and Scope 2 emissions from facilities
- Relevant Scope 3 categories, including upstream fuel and energy activities or purchased transport services
- The resilience of its business strategy under different climate-related scenarios
Under IFRS S1, the same company may also consider other sustainability-related matters outside climate. These could include driver safety, labour availability, supplier standards, technology changes or community impacts, where those matters could reasonably affect financial prospects.
This illustrates why IFRS S1 is broader, while IFRS S2 is more detailed and climate-specific.
How should Malaysian companies prepare?
Malaysian companies should use the NSRF transition period to develop a practical, evidence-based reporting capability.
Confirm NSRF applicability. Identify whether the organisation is within scope, its reporting group and the transition reliefs that may be available.
Define governance and accountability. Establish board oversight, management responsibility, decision rights and escalation processes.
Conduct sustainability and climate assessments. Identify sustainability-related and climate-related risks and opportunities that could affect financial prospects.
Establish reporting boundaries. Confirm relevant legal entities, operations, business segments, assets and value-chain activities.
Strengthen GHG data. Develop robust Scope 1 and Scope 2 inventories, then establish a structured roadmap for Scope 3 data.
Assess financial effects. Connect sustainability and climate matters to revenue, expenditure, asset values, financing, cash flows and business planning.
Build an evidence trail. Retain source data, calculation files, methodologies, assumptions, management reviews and approvals.
Prepare for assurance. Design controls that can support future verification and assurance requirements.
For a practical assessment of your organisation’s scope and reporting obligations, read Does NSRF Apply to Your Company? A Malaysian Decision Tree for Reporting Groups, Timing and Reliefs.
Frequently asked questions
Is IFRS S1 broader than IFRS S2?
Yes. IFRS S1 covers sustainability-related risks and opportunities broadly, while IFRS S2 focuses specifically on climate-related risks and opportunities.
Can a company apply IFRS S2 without IFRS S1?
No. IFRS S2 is designed to be used together with IFRS S1. During Malaysia’s climate-first transition period, companies may focus on climate-related information, but they still need to apply relevant IFRS S1 concepts to those disclosures.micpa.
Does IFRS S2 require Scope 3 GHG emissions disclosure?
Yes. IFRS S2 includes Scope 3 GHG emissions disclosure requirements. Under Malaysia’s NSRF, the timing of Scope 3 reporting depends on the relevant reporting group and available transition reliefs.
Are IFRS S1 and IFRS S2 ESG reporting standards?
They are sustainability-related financial disclosure Standards. Their purpose is to provide decision-useful information about sustainability-related risks and opportunities that could affect a company’s financial prospects.
What to do next
Implementing IFRS S1 and IFRS S2 is not a stand-alone ESG reporting exercise. It requires connected decision-making across the board, leadership, finance, risk, operations, procurement and sustainability teams.
Bernard Business Consulting can help your organisation assess NSRF readiness, identify material sustainability-related and climate-related matters, strengthen GHG data processes, and develop a practical, evidence-based implementation roadmap. Contact us to discuss how to prepare your people, data and decision-making processes for IFRS S1 and IFRS S2.
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