2026-07-25

IFRS S1 and S2: What Saudi Companies Need to Know

A practical guide to the new IFRS sustainability disclosure standards and what they mean for enterprises operating in Saudi Arabia.

IFRS S1 and S2 are international sustainability disclosure standards issued by the ISSB. S1 covers general sustainability-related financial disclosures, while S2 focuses specifically on climate risks and Scope 1, 2, and 3 emissions. Saudi listed companies are increasingly expected to align with both.

What Are IFRS S1 and S2?

IFRS S1 and S2 are new international sustainability disclosure standards issued by the International Sustainability Standards Board (ISSB). IFRS S1 — General Requirements for Disclosure of Sustainability-related Financial Information — sets the foundation for how companies should disclose sustainability-related risks and opportunities that are material to their financial performance. IFRS S2 — Climate-related Disclosures — provides specific requirements for disclosing climate-related risks and opportunities, including physical risks, transition risks, and greenhouse gas emissions. Together, they represent the most significant development in sustainability reporting since GRI was established.

Why IFRS S1 and S2 Matter for Saudi Companies

Saudi Arabia's Capital Market Authority has signaled its intention to align local disclosure requirements with IFRS sustainability standards. For listed companies on Tadawul, adopting IFRS S1 and S2 is increasingly becoming a compliance expectation rather than a voluntary best practice. Beyond regulatory compliance, international institutional investors — who represent a growing source of capital for Saudi enterprises — are increasingly requiring IFRS S1 and S2 aligned disclosures as a condition for investment. Companies that build IFRS-aligned reporting capabilities now will have a significant competitive advantage in accessing global capital markets.

Key Requirements of IFRS S1

IFRS S1 requires companies to disclose sustainability-related risks and opportunities across four content areas: governance (how the board and management oversee sustainability risks), strategy (how sustainability risks affect the business model and financial outlook), risk management (how sustainability risks are identified, assessed, and managed), and metrics and targets (how performance against sustainability goals is measured). The standard applies a materiality threshold — companies only need to disclose information that is reasonably expected to affect the decisions of primary users of financial reports.

Key Requirements of IFRS S2

IFRS S2 builds on the IFRS S1 framework with climate-specific requirements. Companies must disclose their exposure to physical climate risks — such as extreme weather events, rising temperatures, and water stress — as well as transition risks arising from the shift to a lower-carbon economy, including policy changes, technology disruption, and shifting market preferences. IFRS S2 also mandates disclosure of Scope 1, 2, and 3 greenhouse gas emissions, cross-industry metric categories for climate performance, and scenario analysis demonstrating how the business model would perform under different climate futures.

How to Prepare for IFRS S1 and S2 Compliance

Preparing for IFRS S1 and S2 compliance requires a structured approach. Start by conducting a gap analysis to assess your current sustainability reporting against the new standards' requirements. Establish robust data collection processes for all required metrics, particularly GHG emissions across all three scopes. Engage your board and senior leadership to build governance structures that meet IFRS S1's oversight requirements. Conduct climate scenario analysis to understand how different climate pathways affect your business model. Finally, integrate sustainability disclosures into your mainstream financial reporting cycle to ensure consistency and rigor. URIMPACT: An AI-powered sustainability platform designed to support all these requirements, providing the data infrastructure, reporting templates, and audit trails needed for credible IFRS S1 and S2 disclosure.

Frequently Asked Questions

Is IFRS S1/S2 mandatory for Saudi companies?

The Capital Market Authority has signaled intent to align local disclosure requirements with IFRS sustainability standards. It's increasingly becoming a compliance expectation for Tadawul-listed companies rather than a voluntary practice.

What's the difference between IFRS S1 and S2?

IFRS S1 sets general requirements for disclosing sustainability-related risks and opportunities that affect financial performance. IFRS S2 builds on S1 with climate-specific requirements, including physical and transition risks and GHG emissions disclosure.

What are the four content areas required under IFRS S1?

Governance, strategy, risk management, and metrics and targets — companies must disclose how each area relates to sustainability risks that could reasonably affect financial reporting decisions.

How should a company start preparing for IFRS S1/S2 compliance?

Start with a gap analysis comparing current reporting against the new standards, then build data collection processes for GHG emissions across all three scopes, and engage board-level governance structures required under S1.