IFRS S1 and IFRS S2: When sustainability information becomes the language of capital markets

In capital-raising transactions, IPOs or the expansion of international supply chains, sustainability information is gradually moving to the center of financial dialogue. Investors, credit institutions, and global partners are no longer looking only at current financial information. They also want to understand how enterprises are managing climate-related risks, operating their value chains and preparing for requirements on transparent information disclosure.

In brief:

• IFRS S1 and S2 connect sustainability risks and opportunities with cash flows, capital access and long-term enterprise value.
• Vietnamese enterprises face growing disclosure demands from investors, banks, parent companies and global supply chains.
• Early investment in governance, reliable data and internal controls can strengthen credibility, capital access and competitiveness.

Against this backdrop, IFRS S1 and IFRS S2 are being viewed as a common foundation for sustainability-related financial and non-financial disclosures. What is new about these standards is not that they require enterprises to “report more”, but that they connect sustainability-related risks and opportunities with cash flows, access to capital, cost of capital, and the long-term prospects of the enterprise.

So what do IFRS S1 and IFRS S2 mean for Vietnamese enterprises, especially those preparing for an IPO, raising international capital, having a foreign parent company, or participating in global supply chains? VnEconomy spoke with Hoang Quoc Nguyen, Assurance Services Leader of Climate Change  and Sustainability Services, Ernst & Young Vietnam Limited.

Investors and stakeholders are paying increasing attention to sustainability and environmental reporting. However, the market still lacks sustainability reports that are assured, consistent, and comparable. How do you view this issue?

In my view, the core issue is not merely whether an enterprise has a sustainability report, but whether that report is sufficiently reliable, consistent, and useful for decision-makers. As sustainability information and climate-related risks are increasingly incorporated into valuation models, credit assessments, and investment risk assessments, sustainability data needs to move closer to the discipline of financial data: It should have a clear measurement basis, be verifiable, and be comparable across periods, enterprises, and markets.

This is precisely the gap that the ISSB (International Sustainability Standards Board), which was established by the IFRS Foundation in November 2021, was created to help address, with the objective of providing a comprehensive global baseline of sustainability-related disclosure standards to serve the information needs of capital markets.

To realize this objective, in June 2023 the ISSB issued its first two standards: IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures). These two standards are effective for annual reporting periods beginning on or after 1 January 2024, depending on adoption or endorsement in each jurisdiction.

It is worth noting that IFRS S1 and IFRS S2 do not merely set disclosure requirements. They also aim to create a common language between enterprises and investors on how sustainability-related risks and opportunities may affect cash flows, capital-raising capacity, and cost of capital over the short, medium, and long term. In other words, this represents a shift from corporate “responsibility reporting” to “disclosure that supports investment and capital allocation decisions”.

Could you elaborate on IFRS S1, IFRS S2, and how this set of standards differs from other standards that are commonly used today?

IFRS S1 can be likened to the “framework” for sustainability-related financial reporting. This standard requires an enterprise to disclose material information about sustainability-related risks and opportunities, if those factors could reasonably be expected to affect the enterprise’s cash flows, access to finance, or cost of capital over the short, medium, and long term.

A key difference of IFRS S1 is its investor perspective. The standard does not require an enterprise to list all sustainability activities, but instead focuses on information that could affect the enterprise’s prospects. Therefore, for the same environmental or social issue, the question to ask is not only “what has the enterprise done”, but also “how does that issue affect the business model, strategy, risks, costs, revenue, or ability to raise capital”.

IFRS S1 also organizes information around the four core pillars of the TCFD (a climate disclosure framework widely used globally), namely governance, strategy, risk management, and metrics and targets. This structure helps investors see the board’s oversight capability, the extent of integration into strategy, the risk management process, and the metrics used to monitor progress.

If IFRS S1 sets out the general principles, IFRS S2 is a topic-specific standard focused on climate. IFRS S2 goes deeper into climate-related opportunities and risks, including physical risks such as storms, floods, droughts, sea level rise, and water scarcity, as well as transition risks such as policy changes, carbon taxes, new technologies, shifts in customer demand, or the risk of assets being impaired during the transition to a low-carbon economy.

For example, for a coal-fired power plant, investors’ questions do not stop at emissions volumes. They also want to know whether the enterprise has assessed the effects of carbon costs, reduced competitiveness compared with renewable energy, possible technology changes, the risk of stranded assets, or the impact of more stringent new environmental policies on profit margins and capital plans. This is why climate data is increasingly viewed as part of financial dialogue, not merely as non-financial information.

Compared with GRI (Global Reporting Initiative), the difference lies in the primary use of information. GRI is commonly used to present an enterprise’s impacts on the economy, the environment, and society, regardless of whether those impacts have financial effects. By contrast, IFRS S1 and IFRS S2 focus on information that is material to investors, creditors, and other providers of capital. The two systems can therefore complement each other, but should not be understood as fully replacing one another.

Can enterprises choose to apply either IFRS S1 or IFRS S2, depending on the requirements of investors and stakeholders?

It should not be understood as a choice between one or the other. IFRS S2 is designed to be applied together with IFRS S1. EY also notes in its technical material on IFRS S1 and IFRS S2 that IFRS S1 sets out the general requirements for a complete set of sustainability-related financial disclosures, while IFRS S2 is a topic-specific standard that prescribes climate-related disclosures and is applied together with IFRS S1.

Under IFRS S2, an enterprise is required to disclose greenhouse gas emissions across three scopes, measured in accordance with the Greenhouse Gas Protocol, unless otherwise specified by the relevant authority in each jurisdiction or by the relevant exchange.

Scope 1 refers to direct emissions from sources owned or controlled by the enterprise, such as fuel combustion at plants or in vehicles operated by the enterprise. Scope 2 refers to indirect emissions from purchased energy, such as electricity. Scope 3 refers to other indirect emissions generated throughout the enterprise’s value chain, from suppliers, logistics, and product use to end-of-life treatment.

In practice, Scope 3 is often the greatest challenge because the data lies outside the enterprise’s direct control. IFRS S2 provides transition relief, under which an enterprise may be exempted from disclosing Scope 3 greenhouse gas emissions in the first annual reporting period in which it applies the standard.

The important point is that enterprises should not wait until they are required to begin collecting data. Building the capacity to measure emissions, determine reporting boundaries, and establish data responsibilities among departments often requires several reporting periods before it becomes stable.

How will the issuance of these two standards by the ISSB affect Vietnamese enterprises?

The immediate impact may not come from direct legal requirements in Vietnam applicable to all enterprises, but from capital markets, banks, parent companies, and supply chains.

Vietnamese enterprises preparing for an IPO, raising international capital, having foreign strategic investors, or serving as suppliers to global corporations may soon be asked to provide sustainability data, greenhouse gas emissions data, or climate information in a more consistent manner. As a result, IFRS in general, and IFRS S1 and IFRS S2 in particular, are receiving growing attention from these enterprises.

Internationally, the IFRS Foundation has published jurisdictional profiles to provide transparent information on the progress of adopting or otherwise using the ISSB Standards. In the Asia-Pacific region, many markets have announced or are finalizing roadmaps for adopting, localizing, or referencing the ISSB Standards, often by first implementing them for large listed companies or groups of enterprises with significant influence in capital markets.

Accordingly, foreign-invested enterprises operating in Vietnam may have to comply with, or provide supplementary reporting on, information related to IFRS S1 and IFRS S2 if their parent companies operate in countries or markets where application is mandatory.

In the context of regional and global integration, the global trend toward carbon neutrality, the increasing transparency of sustainability reporting, and Vietnam’s Net Zero commitment by 2050, IFRS S1 and IFRS S2 may become an important reference standard for enterprises in improving the quality of sustainability disclosures.

With limited resources, what difficulties may Vietnamese enterprises face when applying IFRS S1 and IFRS S2?

Based on our observations, the biggest challenge does not lie in writing the report, but in building sufficiently reliable data and governance systems to support the report. IFRS S1 and IFRS S2 disclosures require the involvement of many functions, including finance, operations, legal, risk management, human resources, procurement, production, supply chain, and information technology. This should not be a standalone project of the communications or sustainability function.

Professional capability: Enterprises need teams that understand the standards, understand the business operations, and are able to translate sustainability issues into assessable financial impacts. This is a relatively new capability for many enterprises, particularly because sustainability data in the past was often collected more for communications or corporate social responsibility purposes than for sustainability-related financial reporting purposes.

Data: IFRS S1 and IFRS S2 require enterprises to explain their processes for identifying, assessing, managing, and monitoring risks and opportunities. For IFRS S2, emissions data, especially Scope 3 data, requires coordination with suppliers, customers, and other parties across the value chain. Without appropriate systems, approval processes, and internal controls, it will be difficult for enterprises to ensure that the data is sufficiently consistent and ready for assurance.

Leadership involvement: IFRS S1 and IFRS S2 should not be viewed simply as a compliance exercise. They are an opportunity for enterprises to upgrade governance capabilities, improve data quality, and tell a more compelling long-term growth story to capital markets.

I believe Vietnamese enterprises can start with three actions. First, assess the gap between existing data and the requirements of IFRS S1 and IFRS S2. Second, identify sustainability-related risks and opportunities that could affect cash flows, cost of capital, or strategy. Third, develop a data and internal control roadmap year by year, rather than waiting until mandatory requirements arise and then trying to implement everything at once.

If enterprises prepare early, IFRS S1 and IFRS S2 will not merely be reporting obligations. They can become tools that help enterprises improve credibility, increase access to capital, and demonstrate their competitiveness in a market that increasingly values transparency.

This article was first published in VnEconomy in Vietnamese on 22 July 2026