As the world becomes more aware of the environmental, social, and governance impacts of business activities, companies are increasingly expected to disclose their sustainability practices and report on their impact. Companies' capacity to generate long-term value will be impacted by risks and opportunities. The market is interested in learning how businesses are considering these risks and adjusting their business plans considering sustainability concerns.

The following standards were released by the International Sustainability Standards Board (ISSB) on June 26, 2023, and will be in effect for annual reporting periods starting on or after January 1, 2024:

  • IFRS S1: General Requirements for Disclosure of Sustainability-Related Financial Information (IFRS S1); and
  • ISSF S2: Climate-related Disclosure (IFRS S2).

IFRS S1 and S2 are designed to elicit disclosures that satisfy investor information needs. Investors are defined as existing and potential investors, as well as other creditors, and are often referred to in the IFRS standards as primary users of general-purpose financial reports.

A company should carefully consider its investor composition and resources to ensure it can streamline its sustainability disclosures to best satisfy the information needs of investors. The company should understand:

  • Who are its top investors?
  • What kind of investors would the company like to have?
  • How has the company engaged with investors to understand their concerns?
A young woman standing in greenhouse in botanical garden, using tablet.

Reasons for disclosing sustainability information

In the G7 countries and other European Union countries, disclosing sustainability information is already being considered for implementation as a mandatory requirement. Companies intending to operate in these markets or collaborate with companies in these countries must comply with the requirements for providing sustainability information.

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Sustainability information, in addition to financial data, can offer a thorough understanding of a business's operations, assisting investors in assessing the competitiveness of the company and the efficiency of taking advantage of both future and current opportunities. By showcasing sustainable information, businesses may stand out from the competition and communicate their story more effectively.

It is also worth mentioning that financial institutions currently offer various options for reducing the cost of borrowing for companies that are transparent in terms of environmental, social, and governance aspects.

Given these circumstances and benefits, some companies already provide sustainability information. Therefore, consultants recommend that other market participants align their reporting with best practices. 

Distinguishing IFRS S1 and IFRS S2 from other international sustainability frameworks

The purpose of other international sustainability frameworks is to provide a blueprint for peace and prosperity for people and the planet now and in the future. IFRS S1 and IFRS S2 focus on information about the sustainability-related risks and opportunities that could reasonably be expected to affect the company’s cash flows, access to finance, or cost of capital over the short, medium, or long term. Therefore, a company is required to consider relationships between the impacts of its activities on the environment and society, as well as the impacts of the environment and society on its cash flows, cost of capital, and access to finance.

Disclosure requirements of IFRS S1 and S2

Disclosure requirements in the core content sections of IFRS S1 and IFRS S2 cover governance, strategy, risk management, metrics and targets:


1. Governance

To help investors understand the governance processes, controls, and procedures a company uses to monitor, manage, and oversee sustainability-related risks and opportunities.

2. Strategy

To help investors understand the company’s strategy for managing sustainability-related risks and opportunities.

Two people looking at papers near rocks banner

3. Risk management

To help investors understand the company’s processes to identify, assess, prioritize, and monitor sustainability-related risks and opportunities. This enables investors to assess the company’s overall risk profile and risk management processes.

Office colleagues having a meeting banner

4. Metrics and targets

To help investors understand the company’s performance in managing its sustainability-related risks and opportunities, including progress towards any targets it has set or is required to meet by law or regulation.

The applicability of IFRS S1 and S2 in sustainable development, along with the required disclosure of information related to risks and opportunities across all sustainable development disclosures, including supply chains, are outlined in IFRS S1.

IFRS S1 provides the following sources of guidance:

  • to identify sustainability-related risks and opportunities.
  • to identify material information (including metrics) about sustainability-related risks and opportunities.
  • location of disclosures and timing of reporting.
  • comparative information.
  • statement of compliance.
  • judgment, uncertainties, and errors.
  • transitional reliefs, such as no comparatives in the first year of reporting.

IFRS S2 sets out the requirements for identifying, measuring, and disclosing information about climate-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the company.

IFRS S2 provides disclosure requirements for information on the following:

  • climate-related physical risks.
  • climate-related transition risks.
  • climate-related opportunities.
  • entity’s climate resilience:
    • capacity to manage climate-related risks and opportunities.
    • ability to respond and adapt to climate-related transition risks and climate-related physical risks.
    • strategic resilience and operational resilience to manage climate-related changes, developments, and uncertainties.
    • steps being taken to mitigate the impact of climate change on its strategy and business model.
    • whether and how a company uses climate-related scenario analysis to inform its identification of climate-related risks.
  • disclosures on Scope 1, 2, and 3 greenhouse gas emissions (GHG), including financed emissions.

Based on research on information needs of investors, the ISSB identified potential future projects related to sustainable development, including topics such as biodiversity and ecosystems, human capital, and human rights.

Useful notes:

  • Reporting in the first year of application of IFRS S1 and S2 will comprise only climate-related disclosures.
  • Reporting from the second year shall comprise both climate-related disclosures and non-climate-related disclosures.
  • Climate-related disclosures: Scope 3 emissions shall be applicable from the second year of reporting.
  • Third-party assurance of sustainability-related financial information is not required under the IFRS Sustainability Disclosure Standards. However, to increase the reliability of their data, businesses could think about hiring external experts to undertake assurance procedures to improve the credibility of their data.
  • Sustainability-related financial information prepared under ISSB should be prepared, presented, approved, and submitted at the same time as statutory financial statements are prepared, presented, approved, and submitted.

Challenges for Central Asia (CA) countries in relation to the implementation of IFRS S1 and S2

Currently, in CA countries, the importance of sustainability reporting and disclosures is becoming recognized, as these countries face a range of environmental problems, including climate change, air pollution, plastic waste production, and water scarcity.

According to research cited in materials from Asian Development Bank, a 30% reduction in the surface area of glaciers in CA over the last 50–60 years due to changing climate conditions and melting snow cover combined with the intensification of weather events has led to natural disasters such as floods and landslides occurring more frequently and more severely these days.

View of glacier, trees and sea water

The social and economic effects of business activities are also a source of increasing concern, especially when it comes to issues like data security, product safety, and labor practices. Furthermore, biodiversity is a topic that is crucial for sustainable development since it supports local livelihoods and performs key ecosystem services.

The use of accurate and transparent accounting methods, pursuing integrity and diversity in selecting its leadership, and being accountable to shareholders are the significant governance parts of sustainability.

Sustainability reporting is a relatively new concept, and there might be some challenges in the implementation and disclosure of information according to the requirements of IFRS S1 and S2 in CA countries due to a lack of awareness and understanding among companies as to what sustainability reporting entails. Also, the implementation of these standards requires a commitment of resources: time, money, and expertise.

Sustainability reporting requires the collection and analysis of data on environmental, social, and governance factors, which in turn requires investment in creating and developing processes and systems for collecting and analyzing data. It is also important to consider that some companies may have limited access to such data.

Three business people discussing and sitting on green chairs

Furthermore, it requires engagement with stakeholders, including investors, employees, customers, and suppliers. However, many companies in CA countries may not have a culture of stakeholder engagement, which could make it challenging to collect relevant information and ensure that stakeholders are aware of sustainability issues.

To address these challenges, it is necessary to have collaboration between companies, the government, civil society organizations, and other stakeholders, as well as greater investment in sustainability reporting capacity building and awareness-raising initiatives.

Why IFRS S1 and S2 should be implemented as an approved framework for use in CA countries for sustainability reporting

For Kazakhstan and Kyrgyzstan, the story of implementing International Financial Reporting Standards (IFRS) is relatively old; however, it is still evolving and yielding results in terms of enhancing transparency in company activities and improving the investment climate. In Uzbekistan, active steps to implement IFRS only began in 2021. Alongside the adoption of IFRS, UzAssets◦JSC, which includes major state enterprises in Uzbekistan, is considering IFRS S1 and S2 as the basis for stakeholder requirements for 22 portfolio companies. 

ISSB works in close cooperation with the International Accounting Standards Board (IASB), ensuring connections between IFRS Accounting Standards and IFRS S1 and S2. Each board is independent, and their standards complement each other, providing investors and other capital market participants with comprehensive information to meet their needs. The ISSB and IASB staff continuously coordinate their efforts to ensure compatibility of their standards. Both IFRS and IFRS S1 and S2 are developed using the same rigorous, inclusive, and transparent due process.

Given that IFRS S1 and S2 have been developed based on thorough research conducted by various organizations such as the Climate Disclosure Standards Board (CDSB), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-related Financial Disclosures (TCFD) and are being considered for adoption by many jurisdictions worldwide, including the UK, Malaysia, Hong Kong, Singapore, Australia, Nigeria, Canada, India, Brazil, and Japan, we believe there are strong reasons to support the implementation of IFRS S1 and S2 in CA countries.

Green glass globe in hand

Implementation expectations

We expect a phased approach for the implementation of IFRS S1 and S2, which is consistent with other jurisdictions. This approach aims to strike a balance between ambition and market readiness, focusing on initially implementing these standards for large and listed companies (or those intending to go listing or obtaining credit ratings), followed by smaller companies. This approach will allow companies of different sizes and sectors to better understand, prepare for, and integrate sustainability disclosure into their reporting practices.

Key actions include:

  • Impact Assessment: Understand what applies to your company.
  • Materiality Assessment: Understand your value chain, determine which topics are relevant to report on, and identify material information on relevant topics.
  • Maturity Assessment:
    • Evaluate the maturity of your sustainability reporting process, controls, data, models, policies, and knowledge.
    • Define the target operating model and develop a roadmap to address identified gaps and embed the required governance, data, processes, and people.
  • Transform reporting: design the future state of your reports and understand resource needs.
  • Assurance readiness: assess the control environment, data quality, and availability of sufficient documentation to support assurance.

Gulnaz Shakhmukhanbetova

Associate Director, Accounting advisory services

Т: +7 727 298 0898