The New Era of ESG Reporting in Malaysia: IFRS S1 & S2

The adoption of the International Sustainability Standards Board (ISSB) standards, IFRS S1 and IFRS S2, marks a pivotal shift for corporate reporting in Malaysia. Public listed companies must now prepare for mandatory, comprehensive, and investor-focused sustainability and climate-related disclosures. This guide provides a practical roadmap for navigating this new landscape.

Understanding IFRS S1: The Core Baseline

IFRS S1, 'General Requirements for Disclosure of Sustainability-related Financial Information', establishes the foundational framework. Its primary objective is to ensure that sustainability-related financial information is connected to the company's financial statements.

Key Principles of IFRS S1:

• Connectivity: Disclosures must be linked to the financial statements, showing how sustainability risks and opportunities impact the company's financial position and performance.
• Materiality: Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions that primary users of general purpose financial reports make.
• Comprehensive Scope: Covers all significant sustainability-related risks and opportunities, not just climate.

Deep Dive into IFRS S2: Climate-Related Disclosures

IFRS S2 focuses specifically on climate-related risks and opportunities, building on the Task Force on Climate-related Financial Disclosures (TCFD) framework.

Core Content Areas of IFRS S2:

• Governance: The governance processes, controls, and procedures used to monitor and manage climate-related risks and opportunities.
• Strategy: The actual and potential impacts of climate-related risks and opportunities on the company’s business model and strategy, including scenario analysis.
• Risk Management: The processes used to identify, assess, and manage climate-related risks.
• Metrics and Targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities, including Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions.

Key Challenges for Malaysian Companies

Implementing these standards presents several challenges:

• Data Collection: Gathering accurate and complete data, especially for Scope 3 GHG emissions, can be complex.
• Internal Controls: Establishing robust internal controls over sustainability reporting processes is essential for assurance-ready data.
• Expertise: Developing in-house expertise in climate science, sustainability, and the new reporting standards.
• System Integration: Integrating sustainability data into existing financial reporting systems.

A 5-Step Roadmap for Implementation

1. Gap Analysis: Assess your current sustainability and climate-related reporting against the requirements of IFRS S1 and S2.
2. Stakeholder Engagement: Form a cross-functional team (Finance, Operations, Legal, Sustainability) and educate the board and senior management.
3. Data Strategy: Identify necessary data points, establish collection processes, and implement internal controls.
4. Develop Disclosures: Draft the required disclosures, focusing on clear and concise communication of material information.
5. Assurance Readiness: Prepare for external assurance by documenting processes, controls, and data sources thoroughly.

How We Can Help

Navigating the transition to IFRS S1 and S2 requires expertise in both accounting and sustainability. At Saifudin & Co., we can assist you with gap analysis, data strategy, internal control development, and preparing assurance-ready disclosures. To learn more about how we can support your financial reporting needs in this new era, please contact us.