IFRS S2 Readiness: A First-Year Guide for CSOs

An IFRS S2 readiness guide for the CSO or sustainability lead, step by step.

If you lead your company’s first report under IFRS S1 and IFRS S2, most of the work happens before anyone writes a sentence. IFRS S1 sets the general rules for sustainability-related financial disclosures, and IFRS S2 applies them to climate.

In year one, you decide which reliefs to take, confirm the boundary and the timetable, and judge what is material. You also need other functions to deliver: finance to connect the climate work to the accounts, risk to bring climate into the risk register, and the board to oversee and approve. Then you need records that show each step happened.

Continuuiti has worked with companies in Brazil, Australia and the Middle East that report under IFRS S2 and standards aligned with it. We have assessed physical climate risk across thousands of their sites and prepared the documentation for their assurance reviews. This guide draws on that work.

Each section covers one step and ends with the questions you should be able to answer. The guide applies in any jurisdiction that has adopted the ISSB standards. Where your local version differs, follow it. References are to IFRS S1 (“S1”) and IFRS S2 (“S2”).

Your first decisions are which transition reliefs to take

Decide early which reliefs to take, and have the board or audit committee approve the choice, because it shapes the whole report. The reliefs sit in S1 Appendix E and S2 Appendix C, and each is optional and time-limited.

No comparatives in year one. You do not show prior-year figures in your first report (S1 E3, S2 C3). Comparatives start in year two.

Publishing after the financial statements. S1 E4 lets a first-year reporter publish its sustainability disclosures with its next half-year interim report, or within nine months of year end if it publishes no interim report. Local versions differ. UK SRS S1 drops this relief, and some other versions drop it too.

Climate first. S1 E5 lets a first-year reporter disclose only climate-related risks and opportunities. The next section covers what stays in place.

Emissions. S2 C4 lets a first-year reporter keep a prior measurement method and leave out Scope 3 emissions. S2 C5 lets those choices carry into later comparatives. Some jurisdictions extend these reliefs. Scope 1 and Scope 2 emissions are still required.

Relief	What it lets you do	What still applies	What you must disclose	Check locally
No comparatives (S1 E3, S2 C3)	Skip prior-year figures in year one	Every current-year requirement	Nothing extra	Yes
Late publication (S1 E4)	Publish after the financial statements, with the next interim report or within nine months	Same reporting entity, same period, all content	Nothing extra under S1 E4	Some local versions drop it
Climate first (S1 E5, E6)	Report on climate only in year one	IFRS S1 general requirements as they apply to climate	The fact that you used the relief (S1 E5)	Some local versions change its length
Emissions method (S2 C4(a))	Keep a prior measurement method	Scope 1 and 2 disclosure	Nothing extra under S2 C4	Durations vary
Scope 3 (S2 C4(b))	Leave out Scope 3 in year one	Scope 1 and 2 disclosure	Nothing extra under S2 C4	Durations vary

Questions to answer before you start:

• Which reliefs does your jurisdiction allow, and for how long?
• Which reliefs has the company decided to take, and who approved that decision?
• Where in the report will you state that the climate-first relief was used?
• Is the year-one data being kept in a form that gives you next year’s comparatives?

The climate-first relief narrows the topics and keeps the IFRS S1 rules

If you take this relief, plan for every IFRS S1 requirement as it applies to climate. Some first-year plans treat IFRS S1 as switched off once the company reports on climate only. The ISSB staff’s January 2025 educational material on the climate-first approach says the relief “temporarily narrows the scope of reporting” to climate and “does not otherwise alter the requirements of IFRS S1.”

In plain terms: you report on fewer topics, under the same general rules. These are the S1 requirements that carry the most first-year work:

• Same reporting entity as the financial statements (S1 20, B38)
• Connected information, including consistency with the financial statements’ data and assumptions (S1 21 to 24, B39 to B44)
• Materiality and the rule against obscuring material information (S1 17 to 19, B13 to B30)
• Judgments that most affect the disclosures (S1 74 to 75)
• Measurement uncertainty for estimated amounts (S1 77 to 81)
• Timing, period, location and cross-references (S1 60 to 68, B45 to B47)
• Errors and, from year two, comparatives (S1 70, B49 to B59, 83 to 86)

Under the ISSB text, a company reporting only on climate can state full compliance in its first year only (S1 72, read with E5). From year two, the wider sustainability topics come in, and E6 spares only their comparatives in that year. Local versions can set a different end date. Some jurisdictions write the S1 general requirements into their climate standard, so their preparers have no climate-first relief to take or disclose, and the same general requirements apply.

Questions to answer:

• Does your project plan include each S1 requirement listed above, with an owner?
• When does your jurisdiction expect topics beyond climate, and what does that mean for next year’s plan?
• Does your statement of compliance match what you have done and what your jurisdiction allows?

The report covers the same entity as your financial statements

Your deliverable here is a boundary that matches the financial statements, reconciled entity by entity. S1 20 requires the same reporting entity as the related financial statements, which for consolidated accounts means the parent and its subsidiaries as one entity (S1 B38).

The boundary is fixed by the financial statements. A first-year team that reports only on the sites where data is easiest to get, and explains the gap, has not met S1 20. Where data inside the boundary is thin, you use reasonable and supportable information, estimate, and disclose the measurement uncertainty (S1 77 to 81).

The value chain is a separate decision. For each climate risk, you decide how far into suppliers, distribution channels, associates, joint ventures and sources of finance you look (S1 B5, B6(b)).

Some local laws let a parent report for the parent entity alone. Where yours does, the boundary follows that choice.

Question	Evidence that answers it	Rule
Which financial statements does the report relate to?	Named in the report; same legal entity and period	S1 20, 22, B38
Does every subsidiary in the consolidation appear in the climate assessment?	Reconciliation of the entity list used for the climate work to the consolidation list	S1 20, B38
Where data is missing for part of the group, how is it filled?	Estimation method, data sources, and the measurement uncertainty disclosure	S1 77 to 81
How far into the value chain does each material risk reach?	Value-chain scoping record per risk, with the reasoning	S1 B6(b)
Is the reporting currency the financial statements’ presentation currency?	Report review checklist	S1 24

Publishing with the financial statements sets your timetable

Your key date is when the climate disclosures freeze, set back from the date the accounts are signed. S1 64 requires the sustainability disclosures to be published at the same time as the related financial statements and to cover the same period. Unless you take the E4 relief where it is available, your climate work, financial-effects analysis and metrics have to be final when the accounts are, and go through the same approval.

Information received after year end about conditions at year end has to be reflected until the disclosures are authorized for issue (S1 67), and significant later events may need disclosure (S1 68). A report you cross-refer to must be available on the same terms and at the same time (S1 B45), and the approving body takes the same responsibility for it (S1 B46).

Timetable questions to answer:

• When are the financial statements signed, and when must the sustainability disclosures be final to meet the same date?
• When is the climate risk assessment frozen, and when do the financial-effects figures get reviewed by finance?
• Who checks for events after year end that affect the climate disclosures, and up to what date?
• Which documents are cross-referenced, and will each be published on the same day and terms?
• Which body approves the sustainability disclosures, and is it the same body that approves the financial statements?

Materiality and judgments need a written record

You own two records here: a materiality assessment and a log of significant judgments. Under S1, information is material if leaving it out, misstating it or obscuring it could reasonably be expected to influence the decisions of investors, lenders and other creditors (S1 18). The standard sets no thresholds (S1 B19), and you reassess at each reporting date (S1 B28). Your materiality record should show how you judged which climate information those users need. A stakeholder topic list can be one input to that record.

S2 10 asks you to classify each climate risk as physical or transition, give its time horizon, and link your definitions of short, medium and long term to your planning horizons. S2 12 asks you to consider the industry-based topics in the ISSB’s Industry-based Guidance. Some local versions do not require industry-based disclosures for now, so check yours. You then disclose the judgments that most affected the report (S1 74, 75).

Question	Evidence that answers it	Rule
How did you identify the climate risks and opportunities that could affect the company’s prospects?	Identification method, inputs, workshop or model outputs, sign-off	S2 10, 11; S1 B6 to B10
Which industry-based topics did you consider, and which did you conclude apply?	Record of the Industry-based Guidance volumes reviewed and the conclusion for each topic	S2 12, 32
How did you decide which information is material?	Materiality assessment focused on investors and lenders, with reasoning	S1 17, 18, B13 to B28
How are short, medium and long term defined, and how do they tie to your business and capital plans?	Definitions mapped to the strategic plan and capital allocation cycle	S2 10(d)
Which judgments had the biggest effect on the report?	Judgment log, reviewed by the approving body	S1 74, 75
If something required is left out as not material, where is that decision recorded?	Materiality record for each omitted item	S1 B25

In year one, governance, strategy and risk management need evidence that the process ran

Your deliverable here is evidence, kept during the year, that each process ran. The first-year gap is usually evidence that the process the report describes existed and ran during the period: governance (S2 6), strategy (S2 13, 14) and risk management (S2 25). If oversight and risk management are integrated across sustainability topics, you can describe them once (S2 7, 26).

Question	Evidence that answers it	Rule
Who oversees climate risk, and where is that written down?	Board or committee terms of reference; role descriptions	S2 6(a)(i)
How often was the board or committee briefed this year, and on what?	Meeting calendar, agendas, minutes, briefing papers	S2 6(a)(iii)
Where did climate affect a strategic or major transaction decision this year?	Board papers or decision records that show the consideration	S2 6(a)(iv), 14
Which management role or committee runs the process, and what controls support it?	Delegation records; control descriptions; review evidence	S2 6(b)
Where are the climate risks concentrated?	Asset and site register linked to the risk assessment	S2 13(b)
How is climate risk ranked against other enterprise risks?	Risk register entries using the same scoring as other risks	S2 25(a)(iii), (iv), 25(c)
What changed in the process since last year?	Change log (from year two)	S2 25(a)(vi)

Scenario analysis is required in year one, scaled to your exposure

You decide the scenario approach and own the resilience findings. S2 22 requires climate-related scenario analysis to assess the resilience of your strategy and business model, and no first-year relief removes it. The method scales with your exposure and your skills, capabilities and resources (S2 B1 to B18). A company with high exposure and access to the necessary resources is required to use a more advanced quantitative approach (S2 B17).

You can run the scenario analysis on your planning cycle, but the resilience assessment and its disclosed results are updated every year (S2 B18). Write up the findings under S2 22(a), including the significant uncertainties and your capacity to adjust.

Questions to answer:

• Which scenarios did you use, from which sources, and why are they relevant to your business?
• Did your scenario analysis cover physical risks, transition risks or both, and over which time horizons and operations?
• How did you decide the approach matches your exposure and resources, and is that reasoning written down?
• What did the analysis tell you about your strategy, and what would you do differently under each scenario?
• What are the significant uncertainties in your assessment?
• Which assets could you redeploy, upgrade or decommission, and what financial headroom do you have to respond?
• When will the scenario analysis next be refreshed, and how does that match your planning cycle?
• Does your local law set a minimum number or type of scenarios?

Financial effects connect the report to the accounts

Plan a joint finance and climate review before the accounts are signed, because this is the part of the report that links most directly to audited numbers. S2 16(a) asks how climate affected financial position, performance and cash flows this year. S2 16(b) asks which climate risks carry a significant risk of a material adjustment to the carrying amounts of assets and liabilities in the next annual reporting period. S2 16(c) and (d) cover anticipated effects over the short, medium and long term, taking account of investment, disposal and funding plans.

S1 adds the connection rules. Data and assumptions must be consistent with those in the financial statements to the extent possible under the accounting standards (S1 23), and significant differences must be disclosed (S1 B42(c)).

Where climate reaches the financial statements. The IFRS Foundation’s educational material on climate-related matters in financial statements (republished July 2023) names the areas most relevant to physical risk:

• Impairment (IAS 36). Climate-related matters can indicate that an asset is impaired. Value-in-use cash flows rest on management’s best estimate of the range of future economic conditions.
• Useful lives and residual values (IAS 16). These are reviewed at least annually, and climate-related matters can affect them, for example when an asset becomes inaccessible.
• Provisions (IAS 37). Climate-related matters can affect recognition and measurement, for example for remediation or onerous contracts.

S1 B44(a) uses the same terms, “the useful lives of its assets and on impairment assessments”, in its own example of connected information. Check the accounting standards for the full requirements.

Scenario assumptions and best estimates can differ. Scenario analysis explores a range of plausible futures, including severe ones, and impairment testing uses management’s best estimate. The ISSB accepted that there can be legitimate reasons for data and assumptions to vary between the two reports (S1 BC90). Where a severe scenario shows heavy damage to a group of assets and the impairment test assumes none, the report explains why (S1 B42(c)).

Question	Evidence that answers it	Rule
How did climate affect this year’s results, cash flows and balance sheet?	Analysis of climate-related costs, losses, insurance recoveries and capital spend from the ledger	S2 16(a)
For which climate risks is there a significant risk of a material adjustment to carrying amounts next year, and which assets or liabilities are affected?	Finance and climate team review; link to the accounting estimates disclosures	S2 16(b)
Were climate risks considered in this year’s impairment indicators review?	Impairment indicator assessment that records the climate inputs considered	S1 21, 23; IAS 36
Were climate risks considered in the annual review of useful lives and residual values?	Useful-life review record with climate inputs	S1 21, 23; IAS 16
Do any climate risks give rise to provisions or contingent liabilities?	Provisions review with climate inputs	S1 21, 23; IAS 37
Are the asset values, discount rates and growth assumptions used in the climate analysis the same as those in the financial statements?	Reconciliation of key data and assumptions, with differences listed	S1 23, B42
Where they differ, what does the report say about why?	Disclosure text explaining significant differences	S1 B42(c), BC90
How do the investment and funding plans in the report tie to the approved business plan?	Board-approved plan and capital budget	S2 16(c)

Skipping a quantification requires an explanation

For every financial effect you cannot put a number on, you need a documented reason and three disclosures. You may leave out quantitative financial effects if they are not separately identifiable, or if measurement uncertainty is so high that a number would not be useful (S2 19). For anticipated effects only, lacking the skills, capabilities or resources is also a ground (S2 20).

S2 21 then requires:

1. Explain why you have not provided quantitative information.
2. Give qualitative information, including the line items, totals and subtotals in the financial statements that are, or are likely to be, affected.
3. Give the combined quantitative effect of that risk with other risks and factors, unless that figure would not be useful either.

A range can replace a single number (S2 17), and high measurement uncertainty does not by itself make an estimate useless (S1 79). These grounds cover financial effects only. Scenario analysis under S2 22 is required in all cases.

Question	Evidence that answers it	Rule
For each material climate risk, did you quantify current and anticipated effects?	Financial-effects schedule by risk	S2 16
Where you did not, which ground did you rely on?	Documented reason: not separately identifiable, too uncertain, or (anticipated only) lacking skills or resources	S2 19, 20
Does the report explain why, name the affected line items, and give a combined figure or say why that is not useful?	Disclosure text checked against S2 21(a) to (c)	S2 21
Could a range work where a single figure cannot?	Range estimate and method	S2 17
For each amount with high measurement uncertainty, are the sources of uncertainty and key assumptions disclosed?	Measurement uncertainty note	S1 77 to 81
What will make quantification possible next year?	Capability plan with owners and dates	S2 20, B17

Year-one metrics cover all seven categories, including the physical-risk number

You decide which metrics are material and own the method behind each one. S2 29 lists seven cross-industry metric categories, each required subject to materiality:

• Greenhouse gas emissions (29(a)): Scope 1, 2 and 3, with the first-year reliefs above. This guide does not cover emissions measurement.
• Transition risks (29(b)), physical risks (29(c)) and opportunities (29(d)): the amount and percentage of assets or business activities vulnerable to each risk type or aligned with opportunities.
• Capital deployment (29(e)).
• Internal carbon prices (29(f)) and remuneration (29(g)).

For 29(b) to 29(d), S2 30 sets the information basis: all reasonable and supportable information available at the reporting date without undue cost or effort. A required metric can be left out when the information is not material, and that judgment goes in your materiality record (S1 B25). Two narrow exceptions also apply: information that law prohibits you from disclosing (S1 73, B33), and commercially sensitive information about an opportunity (S1 B34 to B37).

Building the physical-risk metric (29(c)). Published reviews of the first mandatory climate reports in Australia and New Zealand found this metric often missing or unquantified. The work has four parts, and each needs evidence:

1. The asset or activity list, from the same entity as the financial statements, showing where risks are concentrated (S2 B65(b)).
2. The values, consistent with the carrying amounts in the financial statements, with the connections explained (S2 B65(e)).
3. The exposure: location-level hazard data under the scenarios and time horizons used elsewhere in the report (S2 B65(a)).
4. The cut-off: a stated rule for when an asset counts as “vulnerable”, applied consistently and disclosed with its judgments and assumptions (S1 74, 78).

Continuuiti supplies physical climate risk data and analytics at asset level for this exposure step: hazard scores, flood depths and flood damage estimates under different scenarios and time horizons, for each location. We are not an assurer, and the vulnerability cut-off and the disclosure remain the company’s own judgments.

Industry metrics. Where your local version keeps them, S2 32 requires industry-based metrics, and for some industries one can satisfy part of 29(c) (S2 B65(d)). Name the source of any metric taken from elsewhere (S1 49), and disclose the definition, method and assumptions of any you built yourself (S1 50).

Question	Evidence that answers it	Rule
Do you have information for each of 29(a) to (g), or a recorded materiality judgment for any you omit?	Metrics index mapped to S2 29; materiality record	S2 29; S1 B25
Which first-year emissions reliefs did you use?	Relief decision record	S2 C4, C5
Does the asset list for 29(c) match the reporting entity?	Reconciliation to the fixed asset register and consolidation list	S1 20; S2 B65(b)
Do the asset values tie to the financial statements?	Reconciliation to carrying amounts, with differences explained	S2 B65(e); S1 23
Which hazards, scenarios and time horizons does the metric use, and do they match the scenario analysis?	Data source documentation and scenario mapping	S2 B65(a); S1 21
What is the rule for “vulnerable”, and is it applied consistently?	Written method, with thresholds and rationale	S1 74, 78
Which industry metrics did you consider, and do any cover part of 29(c)?	Industry-based Guidance review record	S2 32, B65(d)

A first assurance engagement starts with whether the process can be evidenced

Agree early with your practitioner which parts of the report the engagement covers and whether it gives limited or reasonable assurance (ISSA 5000 paragraphs 16(a), 75(b)). Whether your first report needs external assurance, at what level and from which year, is set locally. Check your local version. Where assurance applies, the IAASB’s ISSA 5000 is the general standard. It is effective for periods beginning on or after 15 December 2026, and earlier use is permitted (paragraph 15). Some jurisdictions adopted it earlier through a local version. For earlier periods, check which assurance standard your practitioner will apply.

Before accepting the engagement, the practitioner considers whether the company has a process to identify the information it reports and whether management has a reasonable basis for it (paragraph 76). Where a specialist’s work was used to prepare the report, such as climate data or scenario modeling, the practitioner evaluates the specialist’s competence, capabilities and objectivity. The specialist can be inside or outside the company. The practitioner also seeks to understand the work and how management used it, including any changes management made, and judges whether it is appropriate evidence (paragraph 92). Management also gives written representations, including that the significant assumptions behind estimates and forward-looking information are appropriate (paragraph 165(d)).

Evidence a first-year preparer should be able to hand over:

• The relief decisions and the board or committee approval of them
• The reconciliation of the reporting entity to the consolidation
• The risk identification record, materiality assessment and judgment log
• Board and committee papers and minutes showing climate oversight during the year
• Scenario analysis method, sources, assumptions and results, with the reasoning for the approach chosen
• The financial-effects schedule, the finance review, and the reconciliation of data and assumptions to the financial statements
• For each skipped quantification, the reason and the S2 21 disclosures
• Metric methods, data sources, the asset reconciliation for 29(c) and the vulnerability rule
• For each specialist: engagement terms, qualifications, method documentation, how the output was used, and management’s own review of it, including any adjustments
• Controls over source data, key assumptions, the risk register and the minuting of board discussions
• Review and sign-off records for the disclosures

First-year preparers get stuck in the same places

Where teams get stuck	What the standard requires	Fix
Treating IFRS S1 as optional under climate first	S1 applies as far as it relates to climate (S1 E5)	Plan the S1 requirements
Using the climate-first relief without saying so	Disclose that the relief was used (S1 E5)	State it in the basis of preparation
Reporting on a smaller perimeter than the financial statements	Same reporting entity (S1 20, B38)	Cover the full consolidation
Running materiality as a stakeholder topic list	Material to investors’ and lenders’ decisions (S1 18)	Assess for providers of capital
Time horizons with no link to planning	Link horizons to planning (S2 10(d))	Map to the strategic plan
Scenarios described without resilience findings	Implications, uncertainties, capacity to adjust (S2 22(a))	Write the findings first
Leaving out the carrying-amount question	Risks of material adjustment next year (S2 16(b))	Joint finance and climate review
Skipping quantification with no explanation	Why, line items, combined figure (S2 21)	Apply S2 21 to each gap
Reading “consistent” as “identical”	Consistent to the extent possible, differences disclosed (S1 23, B42(c))	Reconcile and disclose differences
Treating the 29(c) cost basis as an opt-out	Reasonable and supportable information (S2 30); omission when immaterial (S1 B25) or prohibited by law (S1 73)	Produce the metric or record the judgment
Metric asset values that do not tie to the balance sheet	Consistency with carrying amounts (S2 B65(e))	Reconcile to the asset register

Year two starts while year one is still being written

• Comparatives begin (S1 70). Revised estimates, redefined metrics and errors have their own restatement rules (S1 B50 to B59), so keep year-one data and methods reusable.
• Topics widen once the climate-first relief ends, under the ISSB baseline or your local version (S1 E5, E6).
• Emissions reliefs can carry into comparatives (S2 C5), and some jurisdictions extend them.
• The resilience assessment is redone every year, even when the scenario analysis is not (S2 B18).
• Process changes are disclosed from year two (S2 25(a)(vi)).
• Scenario methods mature. A high-exposure company that started simple is expected to move to a more advanced quantitative approach over time (S2 B17).

A first report built on recorded decisions, a reconciled boundary and clear links to the financial statements makes year two an update of evidence you already hold.

Sources

• ISSB, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (June 2023), including Appendix E transition reliefs and the Basis for Conclusions.
• ISSB, IFRS S2 Climate-related Disclosures (June 2023), including Appendices B and C.
• ISSB staff educational material, Applying IFRS S1 when reporting only climate-related disclosures in accordance with IFRS S2 (January 2025).
• IFRS Foundation educational material, Effects of climate-related matters on financial statements (republished July 2023).
• IAASB, ISSA 5000 General Requirements for Sustainability Assurance Engagements.

Frequently asked questions about a first IFRS S1 and S2 report

Does IFRS S1 still apply if we report on climate only in our first year?

Yes. The climate-first relief in S1 E5 narrows the topics to climate, and the S1 requirements still apply as far as they relate to climate. That includes the reporting entity, connected information, materiality, judgments and measurement uncertainty. You must also disclose that you used the relief.

Do we need comparative figures in our first report?

No. S1 E3 and S2 C3 remove the need for prior-year comparatives in the first annual reporting period. Comparatives start in year two (S1 70), so keep year-one data in a form you can reuse.

Is scenario analysis required in the first year?

Yes. S2 22 requires climate-related scenario analysis from the first year, and none of the transition reliefs removes it. The approach can be simpler or more advanced depending on your exposure and resources (S2 B1 to B18), and high-exposure companies with the necessary resources must use a more advanced quantitative approach (S2 B17).

Can we leave out the physical-risk metric in paragraph 29(c)?

Only if the information is not material, with that judgment recorded (S1 B25), or in the rare case that law prohibits disclosing it (S1 73, B33). S2 30 sets the information basis for the metric: all reasonable and supportable information available at the reporting date without undue cost or effort.

Does our first report need external assurance?

That depends on your jurisdiction, which sets whether assurance is required, at what level and from when. Where it applies, ISSA 5000 is the general assurance standard, effective for periods beginning on or after 15 December 2026, and some jurisdictions adopted it earlier through a local version (ISSA 5000 paragraph 15). Before accepting the engagement, the practitioner considers whether you have a process to identify the information you report and a reasonable basis for it (paragraph 76).