Short answer
The answer, before the reasoning
Identify sustainability-related risks and opportunities by starting with the entity's business model and value chain. Map the resources and relationships the entity depends on or affects; identify dependencies, impacts and external changes that could create risk or opportunity; trace credible pathways to cash flows, access to finance or cost of capital; assign short-, medium- and long-term horizons; and challenge completeness using internal and external sources.
IFRS S1 requires reasonable and supportable information available without undue cost or effort, not an exhaustive search or a prescribed scoring model.
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PUBLIC ARTICLE
In practice
FORMAT
| FORMAT | LANGUAGE | VERSION |
|---|---|---|
| Tier 3 Deep Guide | British English | 1.0 • 1 August 2026 |
Rule
WHO THIS IS FOR
Sustainability, finance, strategy, risk, internal audit and legal teams preparing an IFRS S1 identification process, together with consultants and reviewers assessing whether the risk and opportunity universe is complete and entity-specific.
Technical status
STANDARD STATUS
IFRS S1 and the original IFRS S2 requirements are effective for annual reporting periods beginning on or after 1 January 2024, with earlier application subject to applying the companion Standard at the same time. The current IFRS S2 issued text incorporates targeted greenhouse gas amendments issued in December 2025. Those amendments apply for annual periods beginning on or after 1 January 2027, with earlier application permitted, and do not alter the governance, strategy or risk-management architecture explained in this article.
Start with the business model, not a generic ESG list
IFRS S1 starts from the entity-specific relationship between the business and the resources and relationships on which it depends or which it affects throughout the value chain. Those dependencies and impacts can create sustainability-related risks and opportunities when they could reasonably be expected to influence cash flows, access to finance or cost of capital over the short, medium or long term.
The practical implication is important: a topic catalogue can support brainstorming, but it cannot substitute for analysing how the entity creates value, where it is exposed, which resources and relationships are critical, and how a sustainability condition could travel through operations, markets, financing or strategic choices to affect the entity's prospects.
Figure 1. Identification works from the business model outwards and ends with a controlled risk and opportunity register.
In practice
| QUESTION | PRACTITIONER TEST | EVIDENCE |
|---|---|---|
| What does the entity do? | Map products, services, markets, operating model, key assets and strategic priorities. | Business model description, segment information, operating plans, asset and site registers. |
| What does it depend on? | Identify natural, human, social, intellectual, manufactured and financial resources and relationships. | Procurement records, workforce data, licences, infrastructure dependencies, financing terms. |
| What does it affect? | Identify impacts that could alter the availability, quality, affordability or legitimacy of resources and relationships. | Impact assessments, incidents, complaints, stakeholder evidence, environmental and social data. |
| How could prospects change? | Trace a credible pathway to revenue, cost, assets, liabilities, cash flow, financing or cost of capital. | Budgets, forecasts, impairment inputs, insurance data, capital plans, credit and covenant analysis. |
In practice
What IFRS S1 requires - and what it does not prescribe
| SOURCE-GROUNDED REQUIREMENT | PRACTICAL CONSEQUENCE |
|---|---|
| Identify all sustainability-related risks and opportunities that could reasonably be expected to affect the entity's prospects. | The identification universe must cover risks and opportunities, not only risks already present in the enterprise risk register. |
| Consider interactions, dependencies and impacts throughout the value chain. | The analysis should not stop at controlled operations where material pathways exist upstream, downstream or in financing and market relationships. |
| Use all reasonable and supportable information available at the reporting date without undue cost or effort. | Use information already supporting financial statements, strategy, operations and risk management, together with relevant external evidence. |
| Reassess the scope of affected risks and opportunities after a significant event or significant change in circumstances. | Maintain event-driven triggers in addition to the annual reporting calendar. |
Rule
NOT PRESCRIBED BY IFRS S1
IFRS S1 does not prescribe a universal topic list, a fixed 1-5 scoring scale, one mandatory register format, a minimum number of risks and opportunities, or an exhaustive search of every possible source. These may be useful implementation practices, but they must not be presented as requirements of the Standard.
In practice
| MYTH | We can begin with the latest ESG megatrend list and score each topic. |
|---|---|
| REALITY | External topic lists are only one input. The core test is entity-specific: business model and value-chain interactions, resources and relationships, dependencies and impacts, and credible effects on the entity's prospects. |
In practice
A six-step identification method
| STEP | ACTION | OWNER / INPUT — OUTPUT / CONTROL |
|---|---|---|
| 1 | Map the business model and value chain. | Strategy, finance, operations, procurement and commercial teams. — Approved scope map showing operations, key inputs, channels, customers, end use and external operating environment. |
| 2 | Identify critical resources and relationships. | Resource owners, contracts, operational dependencies, stakeholder and market evidence. — Dependency and relationship inventory with locations, concentration and substitutability. |
| 3 | Identify impacts and external changes that can act as risk or opportunity drivers. | Impact data, incidents, regulation, technology, market, workforce and ecological evidence. — Candidate driver list linked to affected resources, relationships and value-chain stages. |
| 4 | Trace pathways to prospects. | Finance, risk, strategy and subject-matter specialists. — Documented mechanism showing possible effects on revenue, costs, assets, liabilities, cash flows or financing. |
| 5 | Define time horizons and reassessment triggers. | Planning cycles, asset lives, contracts, financing and user needs. — Short-, medium- and long-term definitions plus event-driven review triggers. |
| 6 | Run completeness and challenge checks. | Cross-functional workshop and independent reviewer. — Controlled register, exclusions log, source list, challenge record and approval. |
Rule
SEPARATE TWO DECISIONS
First identify sustainability-related risks and opportunities that could reasonably be expected to affect prospects. Then identify which information about those risks and opportunities is material for primary users. A risk or opportunity can be in scope even though not every possible detail about it is material for disclosure.
Map resources, relationships, dependencies and impacts
The resource and relationship map should be specific enough to reveal concentrations and fragile dependencies. A broad label such as "human capital" is rarely enough. The team should ask which skills, locations, workforce groups, suppliers, licences, ecosystems, infrastructure or stakeholder relationships the business model relies on, how substitutable they are and what could impair or enhance them.
In practice
| CATEGORY | QUESTIONS TO ASK | POSSIBLE RISK / OPPORTUNITY PATHWAY |
|---|---|---|
| Natural resources | Where does the entity depend on water, land, ecosystems, energy or raw materials? Are sources concentrated or constrained? | Scarcity, degradation, price volatility, operating restriction, resilience investment or efficiency advantage. |
| People and skills | Which roles, capabilities, working conditions and labour relationships are critical to delivery and innovation? | Turnover, shortage, productivity, safety cost, industrial action, attraction and retention advantage. |
| Communities and legitimacy | Where does access to land, local acceptance, customer trust or regulatory permission depend on relationships? | Delay, litigation, licence restriction, reputational effects, market access or stronger partnership. |
| Supply and distribution | Which suppliers, logistics routes, customers, platforms or service providers are hard to replace? | Disruption, quality failure, concentration, compliance cost, preferred-supplier status or new demand. |
| Technology and knowledge | Which systems, data, intellectual property and specialist capabilities create or protect value? | Obsolescence, cyber exposure, transition cost, innovation opportunity or operating efficiency. |
Trace the pathway to cash flows, finance or cost of capital
A credible pathway does not require certainty that a financial effect will occur. It requires a reasonable explanation of how a sustainability condition, dependency or impact could affect the amount, timing or uncertainty of future cash flows, access to finance or cost of capital over the relevant time horizon.
In practice
| DRIVER | BUSINESS EFFECT | FINANCIAL PATHWAY — EVIDENCE |
|---|---|---|
| Water stress at a key site | Production interruption, higher treatment cost, licence constraints. | Revenue loss, operating cost, asset impairment indicators, capital expenditure. — Site water balance, basin data, production dependence, permits, capex plan. |
| Specialist workforce shortage | Vacancies, slower project delivery, increased contractor dependence. | Higher labour cost, delayed revenue, lower margin, execution risk. — Workforce analytics, recruitment data, project pipeline, compensation plans. |
| Customer demand for lower-impact products | Product mix shift and opportunity for differentiated offerings. | New revenue, R&D and capex needs, margin change, working capital. — Customer research, order book, product roadmap, business case. |
| Supply-chain human-rights controversy | Supplier suspension, redesign of sourcing, customer or regulator response. | Procurement cost, disruption, legal cost, financing or reputational consequences. — Due diligence, supplier data, contracts, complaints, customer requirements. |
Rule
LOW-PROBABILITY, HIGH-IMPACT EVENTS
Do not remove a potential risk mechanically because its probability is low. IFRS S1 materiality guidance requires consideration of both the possible outcome and the range and likelihood of outcomes, including whether low-probability, high-impact events or aggregated risks could influence primary users.
Use internal and external sources without turning the process into an endless search
Information used to prepare the financial statements, operate the business model, set strategy and manage risks and opportunities is treated by IFRS S1 as available without undue cost or effort. This makes finance, strategy, risk and operations records a starting point, not merely a later validation step.
The no-exhaustive-search relief is not permission to use only familiar internal documents. The entity still needs a reasonable and supportable process appropriate to its circumstances. A defensible process records which external sources were considered, why some were prioritised and where limitations remain.
In practice
| INTERNAL SOURCES | EXTERNAL SOURCES | CONTROL QUESTION |
|---|---|---|
| ERM register, internal audit, legal cases, incidents, complaints, strategy papers, budgets, financial-statement assumptions, capital plans, insurance, procurement and workforce data. | Law and regulation, scientific and government data, market and technology outlooks, industry evidence, peer experience, ratings, reports and statistics. | Does the source reveal a dependency, impact, change in exposure or pathway not captured elsewhere? Is it current and relevant to the entity? |
In practice
Risk and opportunity register: a reusable structure
| FIELD | WHAT TO RECORD |
|---|---|
| Register ID and owner | Stable identifier, responsible executive and process owner. |
| Risk or opportunity statement | Entity-specific description, avoiding broad topic labels. |
| Business model / value-chain location | Segment, geography, facility, supplier tier, channel, customer group or end-use stage. |
| Resource, relationship, dependency or impact | What the entity depends on or affects and why it matters. |
| Driver and pathway | Event, condition or change and the mechanism through which prospects could be affected. |
| Financial effect pathway | Potential effects on revenue, costs, assets, liabilities, cash flow, finance access or cost of capital. |
| Time horizon | Short, medium or long term using definitions linked to strategic planning. |
| Evidence and source date | Internal and external evidence, assumptions, scenario or expert input. |
| Uncertainty and limitations | Data gaps, confidence, geographic or value-chain limitations, alternative outcomes. |
| ERM status and prioritisation | Whether integrated into ERM, relative priority and rationale. |
| Disclosure status | Material information identified, owner, evidence and cross-reference to governance, strategy, risk management and metrics. |
| Review trigger and approval | Annual review date, event triggers, reviewer and approving body. |
Rule
LRA IMPLEMENTATION PRACTICE
This register structure is not prescribed by IFRS S1. It is a practical control that helps preserve the evidence trail from business-model analysis to disclosure and reduces the risk that different pillars describe different versions of the same risk or opportunity.
Hypothetical example: water dependency in food manufacturing
The identification team should not record only "water risk". A stronger register entry identifies the specific plant, resource dependency, impact on the shared resource, concentration of margin, regulatory and community drivers, possible operating restrictions, treatment and investment options, planning horizon, evidence sources and uncertainty.
The stronger entry does not assert that a material financial effect is certain. It documents why the issue could reasonably be expected to affect prospects and creates a basis for the later material-information judgement and connected disclosure across the four pillars.
Hypothetical scenario
HYPOTHETICAL SCENARIO
A food manufacturer has three major plants. One plant produces a high-margin product and depends on groundwater in a basin where demand and drought frequency are increasing. The entity also affects local water availability through abstraction. Current permits remain valid, but community concern and possible future restrictions are rising.
Illustrative only. It shows how the decision is made, not wording that can be copied or relied on.
In practice
| WEAK ENTRY | STRONGER ENTRY |
|---|---|
| Water scarcity may affect operations. Risk rating: high. | Groundwater availability and licence conditions at Plant B could constrain production of Product X over the medium term. Plant B contributes 28% of segment margin and has limited near-term substitution. The pathway includes lower permitted abstraction, higher treatment and storage costs, potential capex for recycling, and possible production transfer. Evidence includes basin projections, permit correspondence, community engagement, production dependence and the three-year capital plan. Key uncertainty: timing and severity of restrictions. |
In practice
Common identification errors and the final completeness gate
| ERROR | WHY IT FAILS | CORRECTION |
|---|---|---|
| Copying a standard ESG topic list | It does not demonstrate entity-specific dependencies, impacts or financial pathways. | Use topic lists only as challenge inputs after mapping the business model and value chain. |
| Using the existing ERM register as the complete universe | ERM may omit opportunities, long-horizon issues, value-chain exposures or emerging sustainability drivers. | Reconcile ERM with impact, dependency, strategy and external-source reviews. |
| Looking only at controlled operations | Important pathways can arise upstream, downstream or through financing, distribution and regulatory environments. | Document value-chain scope and concentration, and revisit it after significant events or changes. |
| Rejecting issues without quantified financial effects | Identification precedes precise measurement; qualitative evidence can establish a credible pathway. | Record the mechanism, affected financial elements, uncertainty and plan for better analysis. |
| Treating the process as annual-only | Exposure can change after acquisitions, supplier changes, regulation, incidents or strategic shifts. | Use event-driven reassessment triggers and a change log. |
Completeness check before sign-off
• ☐ The business model and value chain have been mapped at a level that reveals meaningful concentrations.
• ☐ Critical natural, human, social, technological, infrastructure and financing dependencies have been challenged.
• ☐ Actual and potential impacts have been considered as possible risk or opportunity drivers.
• ☐ Both risks and opportunities have been searched for using internal and relevant external sources.
• ☐ Each retained item has a credible pathway to cash flows, finance access or cost of capital and a defined time horizon.
• ☐ Low-probability high-impact and aggregated exposures have been considered.
• ☐ The register records uncertainty, exclusions, source dates, owners and reassessment triggers.
• ☐ ERM, strategy, finance and subject-matter specialists have reviewed the output and unresolved differences are documented.
Bottom line
A defensible IFRS S1 universe is not a list of sustainability themes. It is an evidence trail from business model and value-chain interactions to entity-specific risks and opportunities with credible prospect pathways, time horizons, uncertainty and governance review.
Official source anchors
The source set below should be rechecked as part of the pre-publication update control. Normative conclusions are based on current official IFRS Foundation sources. Registers, templates, reviewer tests and drafting structures identified as LRA practice are implementation aids rather than prescribed IFRS forms.
1. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. Issued June 2023; current issued text. Main anchors: paragraphs 1-4, 17-19, 30-31, 43-44 and application guidance B1-B12 and B13-B25. Open official source
2. IFRS S2 Climate-related Disclosures. Current issued text incorporating the December 2025 targeted greenhouse gas amendments. Open official source
3. ISSB educational material: Sustainability-related risks and opportunities and the disclosure of material information. November 2024. Non-mandatory educational material that does not add to or change the Standards. Open official source
4. IFRS Sustainability Standards Navigator. Official standard status, effective dates and supporting materials for IFRS S1 and IFRS S2. Open official source
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Every checklist and table on this page, with empty status, owner and evidence columns for your team to fill in and keep.
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