ESG Reporting in Saudi Arabia: Preparing for IFRS S1 & S2 Adoption

The adoption of IFRS S1 and S2 represents a significant evolution in ESG reporting. These standards aim to improve the transparency, comparability, and decision usefulness of sustainability information for investors and stakeholders. Companies operating in Saudi Arabia, particularly publicly listed entities and multinational organisations, must understand the implications of these standards and implement processes to ensure compliance and accurate reporting.

Understanding IFRS S1 and S2

IFRS S1 establishes the general requirements for sustainability-related financial disclosures. It provides guidance on identifying relevant ESG topics, measuring and presenting sustainability-related risks and opportunities, and the structure and content of disclosures. Its objective is to ensure that sustainability information is useful for investors in assessing the impact of ESG factors on enterprise value.

IFRS S2, meanwhile, focuses specifically on climate-related disclosures. It outlines requirements for reporting on governance, strategy, risk management, and climate change-related metrics and targets. S2 is closely aligned with frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD), providing detailed guidance on climate-related scenario analysis, resilience, and risk management practices.

Together, these standards represent a comprehensive approach to ESG reporting that integrates both general sustainability issues and specific climate-related factors, enabling stakeholders to make informed decisions.

Regulatory Context in Saudi Arabia

Saudi Arabia’s regulatory environment is increasingly supportive of ESG and sustainability reporting. The Capital Market Authority (CMA) encourages listed companies to adopt best practices in governance and transparency, including voluntary ESG disclosures. Additionally, the Saudi Arabian Monetary Authority (SAMA) has issued guidance on ESG integration in the financial sector, highlighting the importance of environmental risk management and sustainable finance.

The Kingdom’s Vision 2030 also emphasises sustainability, clean energy, and responsible governance, reinforcing the strategic importance of ESG reporting. These initiatives are complemented by the development of national sustainability reporting guidelines, which aim to harmonise local practices with international standards such as IFRS S1 and S2.

Key Considerations for ESG Reporting

1. Governance and Oversight

A robust ESG reporting framework begins with strong governance. Boards and senior management should oversee sustainability strategy, ensure alignment with business objectives, and embed ESG considerations into decision-making processes. Establishing dedicated ESG committees or integrating ESG responsibilities into existing governance structures helps ensure accountability and compliance with IFRS S1 and S2 requirements.

 2. Materiality Assessment

IFRS S1 requires organisations to identify material sustainability topics that could reasonably be expected to influence investors’ assessments of enterprise value. Companies should conduct systematic materiality assessments and engage internal and external stakeholders to prioritise ESG issues, including climate-related risks, social impacts, and governance practices.

3. Data Collection and Metrics

Effective ESG reporting relies on reliable and consistent data. Organisations must implement processes to collect, verify, and manage sustainability data across operations and supply chains. Key metrics may include greenhouse gas emissions, energy consumption, waste management, diversity and inclusion indicators, and governance metrics such as board composition and ethics compliance.

4. Climate-Related Scenario Analysis

IFRS S2 emphasises climate-related scenario analysis to assess the resilience of business strategies under different climate pathways. Companies should develop and document scenarios that evaluate potential financial impacts of physical and transitional climate risks, supporting informed decision-making and transparent reporting.

5. Integration with Financial Reporting

IFRS S1 encourages the integration of sustainability information with financial reporting. This involves linking ESG disclosures to financial statements, providing context on how sustainability factors influence performance, risks, and opportunities. Integrated reporting enhances the credibility and usability of ESG information for investors.

6. Assurance and External Verification

As ESG reporting matures, investors increasingly seek assurance on sustainability disclosures. Companies may consider engaging independent assurance providers to validate data and processes, enhancing transparency, reliability, and stakeholder confidence.

Challenges and Opportunities

Implementing IFRS S1 and S2 presents challenges, particularly in data availability, measurement methodologies, and internal capabilities. Companies may need to invest in technology, processes, and staff training to ensure robust reporting. However, these efforts offer strategic opportunities:

• Improved investor confidence and access to capital.
• Enhanced reputation and stakeholder trust.
• Identification of operational efficiencies and risk mitigation strategies.
• Alignment with international best practices and regulatory expectations.

Practical Steps for Preparing for IFRS S1 and S2

1. Conduct a gap analysis to identify current ESG reporting practices against IFRS S1 and S2 requirements.
2. Develop or enhance ESG governance structures, including clear accountability and oversight mechanisms.
3. Implement data management systems for accurate, consistent, and auditable sustainability data.
4. Engage stakeholders to assess material ESG issues and incorporate feedback into reporting.
5. Integrate sustainability disclosures into financial reporting to ensure transparency and decision usefulness.
6. Plan for assurance, including independent verification of key ESG metrics and processes.

ESG reporting in Saudi Arabia is entering a transformative phase with the adoption of IFRS S1 and S2. Organisations that proactively prepare for these standards will not only meet regulatory expectations but also enhance transparency, investor confidence, and operational resilience. By embedding governance, data management, and materiality assessment into their sustainability reporting, companies can demonstrate leadership in ESG practices and support the Kingdom’s Vision 2030 sustainability objectives.The successful implementation of IFRS S1 and S2 will position Saudi organisations as credible, forward-looking participants in the global investment ecosystem, capable of leveraging sustainability as a strategic advantage.