As a sustainability professional, you have likely been tracking the recent proliferation of environmental, social, and governance (ESG) reporting frameworks. With IFRS Sustainability Disclosure Standards S1 and S2, the EU’s Corporate Sustainability Reporting Directive (CSRD), and the SEC’s new climate disclosure rules all hitting within a short timeframe, it can be challenging to keep up with the pace.

SEC adopts rules for climate-related disclosures

On March 6th 2024, the U.S. Securities and Exchange Commission (SEC) proposed rules requiring public companies to report on climate-related risks and greenhouse gas emissions. The rules mandate disclosure of material climate impacts and transition risks, including their effect on financial statements and SEC filings. Companies must obtain assurance and audit of Scope 1 and 2 emissions as part of these disclosures.

IFRS S1 and S2 & CSRD

The IFRS is a private Sustainability Standards Board and they issued two sustainability reporting standards in 2021: S1 and S2. S1 outlines general sustainability norms and S2 addresses climaterelated disclosures. These standards require companies to report material ESG information that affects enterprise value.

The Corporate Sustainability Reporting Directive (CSRD) aims to make sustainability reporting mandatory for all large EU companies starting with 2024. The CSRD specifies reporting standards and key performance indicators (KPIs) on environmental, social and governance (ESG) factors. Companies must disclose how sustainability issues affect their business and report on due diligence processes. Unlike SEC and IFRS that focus more integrating ESG materiality topics to financial reports, CSRD aims at broader double materiality assessment.

Key differences between IFRS, CSRD and SEC

Under IFRS S1 and S2, companies are required to disclose material ESG risks and opportunities that impact enterprise value. Materiality is assessed based on financial materiality. In contrast,the CSRD adopts a double materiality perspective, requiring disclosure of ESG matters that are material from both a financial and sustainability impact perspective.

SEC and IFRS S1 and S2 have relatively limited disclosure requirements, focusing mostly on climate-related risks and opportunities. SEC has only proposed to cover Scope 1 and 2 emissions, whereas IFRS has proposed to include Scope 3 emissions too. However CSRD requires more extensive disclosures across a wider range of ESG topics, including environment, social, human rights, corruption and bribery.

Under IFRS S1 and S2, materiality is assessed based solely on financial materiality, i.e. the potential impact of ESG issues on the company’s financial position or performance. The CSRD requires companies to determine materiality based on both financial materiality and the sustainability impact of the company’s activities. This dual materiality approach aims to capture ESG risks and opportunities that may be financially immaterial in the short term but material from an environmental and social impact perspective.


In summary, while the onset of SEC and IFRS S1 and S2 standards will catalyse ESG financial reporting, the CSRD proposes more comprehensive disclosures and a wider materiality assessment. Though the number of companies that are mandated to make the disclosures as per these standards are still limited mostly to public companies and larger enterprises, it make sense for even the smaller companies monitor these developments to ensure that they have solid frameworks in place for ESG reporting, risk assessment and submitting timely disclosures not only for regulatory purposes but also for gaining the trust of suppliers, clients and other stakeholders.