IFRS S1 and S2: Are Brazilian Companies Prepared?

With the introduction of the IFRS S1 and S2 standards, created by the International Sustainability Standards Board (ISSB), corporate sustainability is no longer a choice ‒ it has become a regulatory and strategic requirement. Organizations across all sectors must enhance their management practices to disclose sustainability related financial information. In Brazil, according to CVM Resolution 193 of October 2023, publicly traded companies will be required to publish reports based on IFRS S1 and S2 starting in the 2026 fiscal year. But are Brazilian companies truly prepared for this shift?

What Are IFRS S1 and S2?

IFRS S1 establishes requirements for the disclosure of sustainability related financial information, providing an integrated view of the associated risks and opportunities. IFRS S2, on the other hand, focuses specifically on climate change, requiring disclosure of financial impact stemming from climate-related risks and the corporate strategies implemented to mitigate them.

IFRS S1 and S2 differ from other sustainability reporting frameworks by focusing on how environmental, social and governance (ESG) issues affect an organization’s financial performance. Reports must be prepared based on the principle of financial materiality. This approach is valuable for investors and other financial statement users in decision-making and business assessment.

More than just a regulatory obligation, these standards represent a strategic opportunity for companies. By providing reliable and universally comparable data on sustainability related financial performance, organizations strengthen investor confidence, demonstrate socio-environmental commitment and anticipate regulatory and climate risks. As a result, they increase resilience, enhance reputation and gain market competitiveness.

The Current Landscape: Are We Ready?

According to the ESG Latin America Landscape 2024 report produced by RSM, 65% of Brazilian companies are not ready to implement IFRS S1 and S2. This is further evidenced by the very low adherence to the voluntary reporting period established by CVM Resolution 193. By April 2025, only two companies had chosen to disclose ahead of the mandatory deadline. This scenario reveals a concerning gap in the adoption of sustainable practices in the country ‒ a situation even more pressing considering that international standards will become mandatory for publicly traded companies as of 2026.

The main challenge is not merely complying with a new regulation, but effectively integrating sustainability concepts into business strategy. The definition of performance indicators (KPIs) and the oversight of ESG practices are cited by 47% of organizations as the primary difficulties. Only 29% prioritize measuring social impact and related investments.

Complexity and Structure

It is clear that integrating socio-environmental metrics into existing corporate processes is complex ‒ particularly in sectors traditionally less familiar with these demands. The data also reflects a lack of structure for measuring and disclosing sustainability related information.

Time, however, is a critical factor. With mandatory adoption approaching, 2025 will be a decisive year for Brazilian companies to prepare properly. Immediate and strategic action is essential to avoid unnecessary costs and ensure a smooth transition.

Leading Sectors: Progress and Disparities

While most companies face challenges, some sectors are ahead in the adaptation journey. Organizations in basic materials, utilities and oil & gas already produce information aligned with IFRS S2, indicating a higher level of sustainability maturity. Major players such as Renner and Vale are leading the movement, having announced adoption as early as 2025.

Conversely, agribusiness ‒ one of the sectors most affected by environmental requirements ‒ faces significant challenges. The complexity of supply chains makes compliance with the new rules more difficult. Given the agricultural sector’s importance to the national economy, this situation requires special attention.

Opportunities for Brazilian Companies

Non-compliance with IFRS S1 and S2 poses considerable risks, including restricted access to financing, loss of competitiveness, reputational damage and even regulatory sanctions. Companies that ignore this trend may be excluded from global supply chains, as investors and stakeholders increasingly demand transparency and environmental responsibility.

On the other hand, companies that adopt the standards strategically will unlock new business opportunities. They can attract foreign capital, improve their institutional image and position themselves ahead of competitors. As mentioned earlier, Vale has shown a proactive stance toward sustainability by committing to early adoption in 2025.

Even so, the transition may be deeply challenging for organizations with limited climate-risk management and little knowledge of international standards. It is therefore essential to intensify efforts to reverse this scenario.

Meeting the New Requirements

The adoption of IFRS S1 and S2 will impact multiple areas of companies in a transversal manner. It will require greater involvement from upper management in the ESG agenda, enhanced climate and socio-environmental risk management, integration of sustainability data into financial reporting and more transparent and reliable communication. Therefore, a structured and consistent plan with well-defined stages is crucial for an effective transition.

The first step is to assess the organization’s current level of preparedness regarding IFRS S1 and S2 requirements. With a multidisciplinary team of specialists across all areas covered by the standards and its own methodology, Apsis Carbon has developed the IFRS S1 and S2 Diagnostic to support organizations in this process, based on the following specific objectives:

· Assess the organization’s readiness to meet IFRS S1 and S2 requirements, with a focus on financial materiality.

· Evaluate the organization’s materiality considering the financial impact of environmental, social and governance (ESG) issues on performance outlook.

· Define relevant KPIs aligned with materiality and sustainability goals, ensuring they are measurable, comparable and integrated into financial reports.

· Analyse the existing governance structure and its compliance with governance and risk management requirements under the standards.

· Identify gaps in processes, systems and data necessary to monitor KPIs and ensure proper disclosure.

· Define complementary analyses and practices the organization still needs to implement ‒ whether mandatory or recommended ‒ such as greenhouse gas emissions inventory, decarbonization strategy and climate risk analysis.

· Propose additional recommendations, such as the adoption of specific technology for sustainability data collection, analysis and monitoring, as well as workforce training and engagement.

Once the diagnostic is complete, the organization will have mapped all indicators and information necessary to prepare reports based on IFRS S1 and S2. It will also have an action plan to implement pending processes and analyses.

Conclusion: The Time to Act Is Now

IFRS S1 and S2 introduce a new paradigm for disclosing sustainability-related financial information. The CVM’s pioneering adoption of these standards presents a unique opportunity for Brazilian companies to stand out on the global stage.

While we acknowledge the difficulties ‒ especially for sectors less familiar with ESG practices ‒ as financial markets grow increasingly demanding regarding transparency and sustainability risk-management, we understand that a structured and proactive approach can turn these challenges into substantial competitive advantages for companies that move early.

Soon, compliance with the new standards will be mandatory. Adapting to them will be essential not only for legal conformity but also for survival and growth in the marketplace. Aligning with these standards will facilitate access to more attractive capital sources and allow organizations to communicate clearly and objectively about how sustainability related risks and opportunities affect their economic performance.

Companies that take the lead in this process will not only avoid penalties ‒ they will consolidate their relevance in the business landscape, as sustainable development is synonymous with economic and strategic value.

The question is no longer whether your company needs to adapt, but whether you are moving fast enough not to be left behind.

Apsis Group has the multidisciplinary expertise needed to support you throughout the entire journey ‒ from the initial diagnostic phase to full report preparation. With over 45 years’ experience and a team of asset valuation, accounting and climate -risk specialists, we are uniquely positioned to deliver the comprehensive and transversal perspective required by IFRS S1 and S2.