Unpacking IFRS Reporting: How Many Data Metrics Are Covered?

In a world increasingly driven by the need for transparency and sustainability, businesses are under more pressure than ever to disclose their environmental, social, and governance (ESG) impacts. But with so many frameworks and standards, consistency has often been a challenge. Enter the International Financial Reporting Standards (IFRS) S1 and S2, developed by the International Sustainability Standards Board (ISSB), to address these gaps.

IFRS S1 and S2 are paving the way for standardized sustainability and climate-related disclosures, offering a cohesive framework to report on material risks and opportunities. But one key question arises: how many metrics do these standards actually cover? To answer this, let’s explore the principles, structure, and scope of IFRS S1 and S2—and why metrics play such a vital role in sustainability reporting.

Why Standardized Reporting Matters

Without standardized reporting, it becomes difficult for investors, regulators, and other stakeholders to compare one company’s sustainability performance to another’s. Inconsistencies in data collection, metric definitions, and reporting styles complicate the task of assessing risks and opportunities accurately.

Standardized reporting is not only about uniformity—it’s about creating a shared understanding. It reduces the burden on businesses by offering a common framework, making it easier to comply with multiple regulatory environments. More importantly, it enhances market transparency, driving investment toward companies committed to sustainable practices. For stakeholders, including NGOs, customers, and governments, standardized data is a vital tool for informed decision-making and targeted action.

The Importance of IFRS S1 and S2

IFRS S1 and S2 serve as a universal benchmark for ESG disclosures, providing businesses with a structured approach to communicate their sustainability risks and opportunities. This framework is increasingly critical as investors demand more:

• Reliable Data: Built on consistent methodologies and principles.

• Comparable Metrics: Allowing businesses to be assessed across sectors and geographies.

• Relevant Information: Focused on material risks that could affect a company’s long-term financial stability.

By embedding climate-related financial disclosures into broader sustainability frameworks, IFRS S1 and S2 help organizations meet stakeholder expectations while navigating an evolving regulatory landscape.

Breaking Down IFRS S1 and S2

The Role of ISSB

The ISSB was created to simplify and consolidate global sustainability reporting frameworks. By combining key principles from well-established frameworks such as TCFD (Task Force on Climate-related Financial Disclosures) and SASB (Sustainability Accounting Standards Board), the ISSB has created a unified structure. This structure enhances the usability and consistency of sustainability reports across industries and borders.

Key Objectives of IFRS S1 and S2

• IFRS S1: Provides general guidance on sustainability-related disclosures, enabling companies to identify and report on material ESG risks and opportunities that may affect their financial performance.

• IFRS S2: Focuses specifically on climate-related disclosures, detailing the financial impacts associated with climate change.

The combination of both general (S1) and climate-specific (S2) guidance allows businesses to craft tailored reports while maintaining comparability across sectors.

How IFRS Defines Metrics

One of the most significant aspects of IFRS reporting is its principles-based approach. Instead of prescribing a one-size-fits-all list, IFRS relies on high-level principles to guide companies in identifying metrics that are material to their business.

Principles-Based Reporting

This approach provides flexibility, ensuring that organizations focus on metrics that reflect their unique risks, opportunities, and operational realities. For instance:

• A technology company might prioritize energy efficiency metrics for its data centers.

• An agricultural firm could emphasize water usage and crop yield intensity.

Integration with Existing Frameworks

• TCFD Recommendations: IFRS S2 mirrors TCFD’s four pillars: governance, strategy, risk management, and metrics/targets, ensuring alignment with globally recognized best practices.

• SASB Standards: IFRS S1 incorporates SASB’s sector-specific standards, helping companies identify metrics that are relevant to their industry.

Categories of Reporting Metrics

To understand the breadth of IFRS S1 and S2, let’s delve into the categories of metrics these standards encompass:

1. Climate-Related Metrics

These metrics focus on how a company impacts—and is impacted by—climate change.

• Greenhouse Gas (GHG) Emissions: Companies must report on Scope 1 (direct emissions), Scope 2 (indirect emissions from energy use), and Scope 3 (emissions from the value chain).

• Energy Intensity: This metric tracks energy consumption relative to output or revenue, enabling companies to assess their energy efficiency.

• Transition Risks: These include financial and operational risks linked to changes in regulations, market dynamics, and technologies as the world moves toward a low-carbon economy.

2. Financial Impact Metrics

These metrics assess the financial consequences of sustainability risks and opportunities.

• Revenue and Costs: Companies are required to analyze how climate-related risks might affect their income and expenditures.

• Asset Valuations: This metric addresses how climate risks could impact the long-term value of company assets.

• Liabilities: This category includes obligations related to environmental restoration or compliance with climate-related regulations.

3. Governance and Strategy Metrics

These metrics focus on how a company governs and manages ESG risks. They provide insight into a company’s commitment to sustainability and how this is integrated into its core business strategy.

• Board Oversight: Companies must disclose how their boards of directors integrate sustainability into decision-making processes.

• Risk Management: This includes detailed descriptions of processes used to identify and mitigate ESG risks.

• Strategic Goals: These disclosures highlight the alignment between a company’s sustainability goals and its business strategy.

How Many Metrics Are Covered?

The exact number of metrics in IFRS S1 and S2 is not fixed, but estimates suggest 90+ metrics, derived from:

• Explicit Mentions: Metrics directly outlined in IFRS standards.

• Indirect Influences: Metrics adapted from TCFD, SASB, and other frameworks.

For instance, a mining company may report on biodiversity and water use alongside GHG emissions, while a financial institution may focus on credit risk related to climate events. The diversity of industries and material risks means the metrics can vary widely.

Challenges and Opportunities in Reporting

Challenges

• Materiality Assessment: Determining which metrics are truly material to stakeholders and regulators can be difficult, especially in sectors with complex or diverse impacts.

• Data Collection: Collecting accurate and timely data for certain metrics, particularly Scope 3 emissions, remains a major challenge for many organizations.

• Alignment: Integrating IFRS principles with other frameworks while maintaining consistency can require significant effort, particularly for companies reporting across multiple jurisdictions.

Opportunities

• Investor Trust: Transparent, consistent reporting helps build investor trust by ensuring that companies can be evaluated on comparable, reliable data.

• Operational Efficiency: Streamlining reporting processes through standardized data improves operational decision-making and reduces the risk of errors.

• Regulatory Readiness: Proactively aligning with IFRS standards ensures that companies are well-positioned for future regulatory mandates, thus reducing the risk of non-compliance.

Conclusion

As sustainability reporting continues to evolve, IFRS S1 and S2 represent a crucial step toward global harmonization. Their principles-based approach, coupled with integration of established frameworks like TCFD and SASB, ensures both flexibility and comparability.

Metrics are the cornerstone of these standards—not merely tools for compliance but for driving informed decision-making and sustainable value creation. By leveraging advanced tools like Newtral’s sustainability software, businesses can simplify their reporting processes, ensure data accuracy, and stay ahead of the regulatory curve.