Adopting IFRS S1 and S2 means understanding sustainability not as a reputational narrative, but as financial and strategic business information. There is a technical component, of course, but one of the biggest challenges to adoption is cultural. It requires governance, internal capabilities, and integration that many organizations are not yet familiar with, particularly when it comes to the climate-related requirements under S2.
When the International Sustainability Standards Board (ISSB) released IFRS S1 and S2 in 2023, it didn’t just add new standards to the regulatory landscape—it marked a deeper, more structural shift. Sustainability—and climate, in the case of S2—is now being viewed through a financial lens. These issues are no longer treated as communications exercises; they are recognized as information that can materially affect business valuation, risk profiles, and access to capital.
IFRS S1 sets out general requirements for disclosing sustainability-related risks and opportunities that could influence financial performance. IFRS S2 goes further, focusing specifically on climate risk: greenhouse gas emissions, physical and transition risks, scenario analysis, and defined metrics. Together, these standards move sustainability out of the margins. They require organizations to integrate these factors into strategic decision-making, rather than treating them as optional or peripheral disclosures.
Across much of Latin America, sustainability has historically been addressed in a reactive way, driven by regulation, investor requests, or pressure from global clients. IFRS S1 and S2 demand a different mindset: seeing sustainability and climate risk as strategic variables that shape an organization’s financial future.
This shift in both language and expectations forces organizations to move beyond reporting for reporting’s sake, and to recognize sustainability as central to long-term business viability. We are already beginning to see the impact of this change, as companies are compelled to rethink the relationship between sustainability, risk, and profitability.
The Hidden Challenge: Organizational Culture
Integrating these standards comes with a range of challenges, some more visible than others. What we increasingly observe is that the biggest obstacles are not technical—methodologies, models, or metrics—but cultural. In many organizations across the region, sustainability or environmental teams still operate in silos, focused primarily on compliance and with limited influence over investment or strategic decisions.
As a result, adopting IFRS S1 and S2 is often perceived as costly. Not because the standards themselves are inherently expensive, but because they require breaking down silos and bringing together finance, risk, strategy, operations, and corporate development. Sustainability can no longer be a standalone strategy; it must become an integrated organizational one.
That is the core challenge: driving a cultural transformation in which sustainability moves from the periphery to the center of the business.
Governance, Capabilities, and a Clear Roadmap
A sensible starting point is understanding where the organization stands today. That means gathering information, identifying teams already working on sustainability-related issues (even if in fragmented ways), and assessing gaps against IFRS S1 and S2 requirements.
Taking this broader view helps connect the dots, revealing both gaps and opportunities for collaboration across the organization. These are the building blocks of a credible strategy and roadmap, one that requires institutional leadership and technical expertise to bring to life.
Seeing the Bigger Picture
IFRS S1 and S2 are not an end in themselves. They are a means to ask and answer difficult but essential questions. Essential among them: is the organization’s business model resilient in today’s world, and in the one ahead?
An annual report alone cannot resolve that question. It requires stepping back and looking at the full picture.
That is why the most significant cost of adoption is not financial, but cultural. In Latin America, where the tension between short-term gains and long-term resilience is a persistent challenge, this cost may ultimately determine whether these standards succeed or fail.
What is becoming increasingly clear is the need to fully embrace sustainability and climate as forces that strengthen business strategy and create value not only today, but tomorrow. That, perhaps, is where the real focus of the conversation should be.
