Short answer
The answer, before the reasoning
The CFO should treat IFRS S1 and IFRS S2 as an extension of the general purpose financial reporting system, not as a narrative sustainability appendix. Finance should connect material sustainability-related risks and opportunities to planning assumptions, line items, cash-flow drivers, capital expenditure, funding and accounting judgements; reconcile data and assumptions with the related financial statements to the extent possible; and operate a controlled year-end close for metrics, estimates and disclosures.
The Standards do not prescribe a universal CFO operating model, so ownership should be designed around the entity’s existing finance and governance structure.
Technical note. This article distinguishes IFRS requirements from London Reporting Academy implementation practices. Illustrative examples and tools must be adapted to the entity’s facts, reporting period, jurisdiction and applicable adoption requirements.
Independence note. London Reporting Academy is an independent education and consulting provider. IFRS®, ISSB®, IFRS S1 and IFRS S2 are referenced for educational purposes; this material is not issued or endorsed by the IFRS Foundation.
Why IFRS S1 and S2 belong in the finance operating model
IFRS S1 and IFRS S2 ask investors for information about sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects. “Prospects” is not an abstract sustainability concept. It is expressed through expected cash flows, access to finance and cost of capital over the short, medium and long term. The disclosure package therefore needs the same disciplines that finance already applies to forecasts, accounting estimates, capital allocation, funding and external reporting.
The CFO does not need to own every sustainability process. Climate science, greenhouse gas accounting, workforce data and value-chain assessments will often sit with specialist teams. Finance does, however, need to own or co-own the bridge between those technical inputs and the general purpose financial reports. That bridge includes the reporting entity and period, the use of common assumptions, the identification of financial transmission channels, the treatment of uncertainty, the control environment and the final sign-off.
A common failure pattern is to complete the annual budget and financial statements first, then ask a sustainability team to write a separate account of future effects. The result can contain incompatible scenarios, unapproved capital commitments, inconsistent time horizons or metrics that cannot be reconciled to systems. A better model integrates sustainability-related decisions into the financial calendar early enough for assumptions and evidence to be challenged before year end.
Quick orientation
Figure 1. Illustrative finance ownership model for IFRS S1/S2. The CFO is accountable for connectivity and reporting discipline; specialist ownership remains distributed.
Quick orientation
- Applies to
- CFOs and finance teams designing or improving IFRS S1/S2 reporting, whether reporting is mandatory, voluntary or preparatory.
- Primary decision
- How finance should connect sustainability information to planning, accounting, funding, controls and year-end sign-off.
- Key sources
- IFRS S1 paragraphs 21-24, 28-53 and 60-82; IFRS S2 paragraphs 8-37; IFRS Foundation educational material on anticipated financial effects.
- Common confusion
- “Connected information” is sometimes reduced to identical numbers. The objective is coherent relationships, with differences explained where accounting requirements, scenarios or uncertainty justify them.
Seven finance connections the CFO should design
1. Budgets and forecasts: create a controlled assumption bridge
Material sustainability-related risks and opportunities should be translated into the drivers used in budgets and forecasts. Depending on the entity, those drivers may include energy and carbon costs, product demand, insurance, maintenance, supply availability, workforce capability, water constraints, regulatory expenditure, asset utilisation or customer transition requirements. The purpose is not to force every disclosure into the central forecast. It is to show which assumptions are common, which scenarios are exploratory and how differences affect the narrative.
Finance should maintain an assumption bridge that records the source, owner, period, range, scenario, approval status and use of each significant assumption. Where the sustainability disclosure uses a scenario that is not management’s central forecast, the report should explain that distinction. Where a transition plan is described, the budget and forecast should show the approved components or clearly distinguish planned, committed and aspirational actions.
2. Financial-statement line items and accounting judgements: test the consequences, not only the narrative
Sustainability-related matters can affect financial statements through existing accounting requirements. Depending on the facts, climate and other sustainability matters may influence impairment indicators and cash-flow projections, asset useful lives and residual values, provisions and contingent liabilities, expected credit losses, inventory recoverability, fair value assumptions, onerous contracts, deferred tax, insurance assumptions or disclosures about estimation uncertainty and going concern. IFRS S1 does not create new recognition or measurement requirements for the financial statements, but it requires connected information and highlights the need for consistent data and assumptions to the extent possible.
The CFO should establish a documented cross-check between the sustainability risk and opportunity register and the accounting close. Each material item should be screened for potential effects on relevant accounting judgements and disclosures. “No effect” may be a valid conclusion, but it should be evidenced. Conversely, an accounting estimate should not be presumed to capture every anticipated sustainability-related financial effect; the time horizon, probability threshold or measurement basis may differ.
3. Capital expenditure, disposals and transformation programmes: separate strategy from funding status
IFRS S2 asks how climate-related risks and opportunities have affected, and are anticipated to affect, strategy and decision-making. It also asks for information about the current and anticipated financial effects. Finance should therefore link transition or adaptation narratives to the capital allocation process. The link should show which projects are approved, contracted, contingent, under evaluation or not yet funded; the expected timing; and the assumptions used to estimate benefits, costs and dependencies.
A strong disclosure does not need to promise a precise long-term capital number when reliable quantification is not available. It does need to avoid presenting an unapproved ambition as an executable plan. The investment register should reconcile to the capital budget, strategic plan and financing assumptions, with clear treatment of acquisitions, disposals, leases and research or operating expenditure where relevant.
4. Financing, liquidity and cost of capital: connect disclosure to treasury reality
Sustainability-related risks and opportunities may affect access to finance and the cost of capital directly. Treasury should assess covenant headroom, refinancing concentration, collateral values, credit-rating sensitivities, sustainability-linked instruments, liquidity buffers, insurance availability and the credibility of publicly stated targets. The disclosure should be consistent with how management evaluates these effects, while protecting commercially sensitive information within the limits permitted by the Standards.
The CFO should also check whether financing claims create obligations elsewhere. A sustainability-linked loan may use a metric definition, boundary or assurance condition that differs from the public target. The report should not imply that the two are identical unless the terms have been reconciled. Where different classifications or methodologies are used, the relationship should be explained.
5. Current and anticipated financial effects: build a traceable bridge from driver to financial statement category
Current effects are those reflected in the reporting period’s financial position, financial performance and cash flows. Anticipated effects concern how the entity expects those categories to change over the short, medium and long term. The analysis should identify the sustainability driver, transmission channel, affected business activity, financial category, time horizon, method, assumptions, uncertainty and management response.
Quantitative information can be a single amount or a range, and qualitative information may be appropriate where specified conditions apply. Relief from quantification should not become a generic drafting preference. Finance should document why a quantitative effect is not separately identifiable, why measurement uncertainty would make the information not useful, or why the entity lacks the skills, capabilities or resources for particular anticipated effects, where the relevant requirement permits that conclusion. The report should still provide the qualitative information required and describe the affected financial categories.
6. Metrics, targets and data lineage: bring non-financial data into the close
IFRS S1 and IFRS S2 metrics may be generated outside finance systems, but they still need a controlled lineage from source data to published number. Finance should help define the metric register: name, purpose, unit, boundary, period, methodology, estimation hierarchy, system source, data owner, calculation owner, reviewer, change control, target connection and evidence-retention rule.
Industry-based metrics and GHG information may require technical methods that finance does not own. The control objective is not to replace those methods with accounting conventions. It is to ensure that the method is approved, applied consistently, reconciled where possible and transparent about estimates and changes. Material methodology changes should be assessed for comparative effects and reflected in the year-end timetable.
7. Close, review and authorisation: run a sustainability disclosure close alongside the financial close
IFRS S1 generally requires sustainability-related financial disclosures to be reported at the same time as the related financial statements and for the same reporting period, subject to applicable first-year transition relief. That timing requires a close process rather than a late drafting exercise. Finance should define cut-off dates, late-adjustment thresholds, version control, reconciliation points, management representations, audit or assurance interaction, committee papers and final approval authority.
The sustainability close should have a hard-close point at which significant metrics, financial effects and narrative judgements are frozen, followed by controlled adjustments. The disclosure matrix and evidence register should remain linked so that every final change can be retested. The CFO’s sign-off should state what has been checked, what is based on estimates, which reliefs have been used and which matters remain subject to board judgement.
Rule
Finance control
No material sustainability narrative should imply an approved financial commitment unless the amount, timing, owner and decision status can be traced to an authorised plan or clearly labelled as an estimate, option or ambition.
In practice
| Dimension | Current financial effects | Anticipated financial effects — Finance control |
|---|---|---|
| Reporting focus | Effects recognised or experienced in the current reporting period | Expected changes over short, medium and long term — Define time horizons and maintain a driver-to-category bridge |
| Typical evidence | Ledger, sub-ledger, accounting papers, contracts, invoices, provisions, impairments and cash flows | Forecasts, scenarios, investment plans, pricing assumptions, financing plans and strategic models — Reconcile actuals and approved forecasts; explain scenario differences |
| Quantification | Amounts may already be reflected in financial statements but still require connected explanation | Amount or range where useful and supportable; qualitative information where specified conditions apply — Document method, uncertainty and any relief from quantitative disclosure |
| Consistency test | Disclosure should not contradict recognised amounts or accounting judgements | Disclosure should use consistent assumptions to the extent possible and explain other scenario bases — Joint accounting-policy, FP&A and sustainability review |
An illustrative finance ownership model
The following model is a practical allocation of responsibilities. It is not prescribed by IFRS S1 or IFRS S2 and should be adapted to the entity’s structure, capabilities and legal accountability.
Figure 2. Illustrative IFRS S1/S2 year-end timetable aligned to the financial reporting calendar. Relative dates must be adapted to the entity’s close.
In practice
| Role | Primary ownership | Key outputs — Control relationship |
|---|---|---|
| CFO | Accountability for connected reporting, finance integration, resources and executive sign-off | Basis-of-preparation decision, finance sign-off, escalation to board — Challenges inconsistencies and approves finance conclusions |
| Financial controller | Reporting calendar, close, reconciliations, disclosure matrix and evidence governance | Close instructions, completion status, final disclosure pack — Segregates preparation and review; maintains change control |
| FP&A | Forecast assumptions, scenarios, time horizons and anticipated financial effects | Assumption bridge, driver model, range analysis — Reconciles to approved plans and explains alternative scenarios |
| Accounting policy / tax | Effects on accounting judgements, estimates, line items and related disclosures | Accounting screening papers and consistency analysis — Reviews cross-report contradictions and uncertainty wording |
| Treasury | Access to finance, cost of capital, liquidity, covenants and instruments | Financing-effects analysis and metric-term reconciliation — Confirms claims against contracts and funding plans |
| Sustainability / climate specialists | Risk identification, technical methods, climate scenarios, GHG and thematic evidence | Technical assessments, metric methods and data limitations — Provides specialist evidence; finance challenges connection and control |
| Data / IT | Data architecture, source systems, access, transformation and lineage | Data dictionary, interfaces, exception logs and retention — Supports completeness, access control and reproducibility |
| Internal audit / assurance | Independent challenge of design and operation, within agreed scope | Findings, recommendations and assurance report where applicable — Does not replace management evidence or ownership |
In practice
A practical year-end timetable for finance
| Relative timing | Finance activity | Sustainability / specialist activity — Gate or output |
|---|---|---|
| T-12 to T-9 | Confirm reporting entity, period, adoption basis, chart-of-account and planning calendar connections | Refresh risk universe, materiality process, industry sources and climate scope — Approved basis of preparation and responsibility map |
| T-9 to T-6 | Map material risks and opportunities to budget drivers, line items, capex, financing and accounting judgements | Develop climate scenarios, GHG screening, metrics and target definitions — Assumption bridge and data dictionary |
| T-6 to T-4 | Run preliminary financial-effects analysis and reconcile to forecast versions | Run metric and GHG dry close; document estimates and limitations — Dry-run pack and gap remediation plan |
| T-4 to T-2 | Update forecasts, accounting papers, financing analysis and disclosure controls | Complete materiality updates, scenario implications and evidence files — Near-final data and narrative decisions |
| T-2 to T-1 | Perform hard-close reconciliations, late-adjustment review and management sign-offs | Freeze methodologies, complete calculations and respond to review findings — Controlled draft and evidence-complete status |
| T-1 to year end | Complete final accounting and sustainability consistency review | Update period-end metrics and significant events — Final reporting dataset |
| Year end to T+1 | Authorise adjustments, complete disclosure matrix, CFO representation and board papers | Support external assurance or independent challenge; close findings — Board-ready package and compliance conclusion |
| Publication | Confirm same-time release, final version, archive and subsequent-event protocol | Publish source notes, methods and required disclosures — Released and retained reporting package |
What should be in the CFO sign-off pack?
The reporting basis: entity, period, location, applicable editions, transition choices and proposed compliance statement.
A map of material sustainability-related risks and opportunities to business drivers, financial statement categories and management decisions.
The assumption bridge between sustainability scenarios, budgets, forecasts, valuations and financial statement estimates.
A current and anticipated financial-effects register, including methods, ranges, uncertainty, reliefs and qualitative-only conclusions.
A metric and target register with boundary, methodology, base period, owner, system, controls and performance.
A GHG boundary and methodology paper, including Scope 3 screening, estimates, amendments and comparative effects.
Accounting screening papers for impairment, provisions, useful lives, expected credit losses, fair value, tax and other relevant judgements.
Treasury analysis for liquidity, refinancing, covenants, cost of capital and sustainability-linked instruments.
A control report showing reconciliations, exceptions, review evidence, late changes and unresolved findings.
A final disclosure matrix and representation stating what finance has reviewed and what depends on other accountable specialists.
Hypothetical example: a transition plan that does not yet fit the forecast
The CFO does not need to delete the strategic ambition. Finance separates the disclosure into three layers: actions already approved and funded; options under evaluation, with illustrative ranges and dependencies; and the longer-term target, including boundary and delivery uncertainty. FP&A creates an assumption bridge showing how vehicle prices, electricity costs, residual values, infrastructure and financing would affect cash flows. Accounting policy screens useful lives, impairment and provisions. The target register is amended to make the owned-fleet boundary explicit and to explain the treatment of contracted transport.
The result is more credible because the disclosure explains the maturity of the plan rather than pretending that all future expenditure sits in the central forecast. It also gives the board a clear decision: whether and when to approve the next phase of investment, and what financial and operational evidence will be required.
Hypothetical scenario
Illustrative scenario - not company data
A logistics group describes a plan to electrify 60% of its owned fleet by 2032. The sustainability team estimates substantial emissions reductions and presents the plan as central to climate resilience. FP&A’s approved five-year forecast, however, includes only a pilot fleet and assumes no material charging-infrastructure expenditure. Treasury has not assessed financing capacity, and the target boundary excludes contracted transport providers that account for most deliveries.
Illustrative only. It shows how the decision is made, not wording that can be copied or relied on.
In practice
Common finance mistakes
| Mistake | Symptom | Consequence — Correction |
|---|---|---|
| Treating sustainability reporting as an investor-relations narrative | Finance reviews wording but not assumptions or data lineage | Contradictions with forecasts and financial statements — Integrate the disclosure into planning, close and sign-off calendars |
| Using identical numbers as the only test of connectivity | Alternative scenarios are rejected because they differ from the central forecast | Decision-useful sensitivity information is lost — Explain purpose, basis and relationship of each scenario to the forecast |
| Forcing precision where the model is immature | Single long-term numbers with unsupported assumptions | False precision and fragile audit trail — Use ranges or qualitative information where permitted and disclose uncertainty |
| Invoking qualitative disclosure without documenting the basis | Every difficult effect is described only narratively | Relief becomes a drafting shortcut — Record the specific condition, affected categories and remediation plan |
| Ignoring accounting-screening consequences | Material climate risks appear only in the sustainability report | Potential inconsistency with estimates and judgements — Perform a risk-to-accounting cross-check at planning and hard close |
| Leaving metric definitions outside finance governance | Targets, loan terms and public metrics use different boundaries | Misleading comparability and covenant risk — Maintain one controlled metric dictionary with documented variants |
| Starting the sustainability close after the financial close | Late data requests and unreviewed assumptions | Missed timing, weak controls and board surprises — Run a parallel close with dry-run and hard-close gates |
Myth
“IFRS S1 and IFRS S2 do not affect finance until a number appears in the financial statements.”
Reality
The Standards address information about risks and opportunities that may affect cash flows, access to finance and cost of capital over multiple time horizons. Finance needs to connect assumptions, planning, accounting judgements, capital allocation and funding even where a future effect is not yet recognised as a line item.
Readiness
CFO readiness checklist
- The CFO has named accountable owners for reporting basis, financial effects, metrics, GHG data, controls and final sign-off.
- Material sustainability-related risks and opportunities are mapped to financial drivers and relevant accounting or treasury areas.
- Time horizons and scenarios are defined consistently, with differences from the central forecast explained.
- The current and anticipated financial-effects analysis identifies affected financial categories and the basis for quantitative or qualitative information.
- Transition-plan and target narratives distinguish approved, committed, planned and aspirational actions.
- Capital expenditure and financing assumptions reconcile to authorised plans or are transparently presented as alternatives.
- The accounting close screens sustainability matters for implications under applicable accounting standards.
- Metrics and targets have controlled definitions, data lineage, estimates, review controls and comparative-change analysis.
- The GHG inventory has a finance-visible boundary reconciliation, methodology register and amendment assessment.
- A dry run has tested data availability, calculation reproducibility, financial connectivity and disclosure controls.
- The sustainability close aligns with the financial close, board calendar and external assurance timetable where relevant.
- The final finance representation states the scope of review, key judgements, reliefs, uncertainty and unresolved matters.
Self-check
- How would you explain the relationship between a climate scenario and the central financial forecast without implying that they must be identical?
- Which finance processes in your organisation would need to change before current and anticipated financial effects can be supported?
- What evidence would justify a qualitative-only disclosure for an anticipated financial effect?
Frequently asked questions
Does IFRS S1 require sustainability disclosures to use exactly the same assumptions as the financial statements?
IFRS S1 requires connected information and consistent data and assumptions to the extent possible, taking account of applicable accounting requirements. Different scenarios or time horizons can be useful, but their purpose and relationship to the financial statements should be explained.
Must anticipated financial effects always be quantified?
Not always. The Standards contain specified conditions under which quantitative information need not be provided. The entity should document the basis, disclose the qualitative information required and identify the affected financial position, performance or cash-flow categories.
Who should own GHG data - finance or sustainability?
Technical ownership may remain with sustainability or environmental specialists. Finance should ensure that boundaries, methods, estimates, changes, reconciliations, controls and sign-off are visible and integrated into the reporting close.
How should a CFO treat a transition plan that is not fully funded?
Distinguish approved and funded actions from options, intentions and targets. Explain dependencies, uncertainty and expected financial implications without implying that unapproved expenditure is committed.
Can the sustainability disclosure close happen after the financial statements are complete?
IFRS S1 generally requires the disclosures at the same time and for the same period as the related financial statements, subject to applicable first-year relief. A parallel close is therefore usually necessary.
Sources
Primary sources
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. June 2023; current consolidated text used for this article
- IFRS S2 Climate-related Disclosures. December 2025 consolidated edition
- IFRS Foundation educational material: Disclosing information about anticipated financial effects. August 2025
- IFRS Foundation educational material: Effects of climate-related matters on financial statements. Examples under IFRS Accounting Standards; entity facts determine the conclusion
- IFRS Foundation educational material: Greenhouse gas emissions disclosures. May 2025
- Amendments to Greenhouse Gas Emissions Disclosures. Issued December 2025; effective for annual periods beginning on or after 1 January 2027, with earlier application permitted
Framework references
Disclosures this page affects
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