Pakistan’s ESG Reporting Has Entered a New Phase: What Companies Need to Prepare for IFRS S1 and S2
By ESG Nexus 9 min read
Pakistan’s sustainability-reporting landscape is entering a more structured phase. The Securities and Exchange Commission of Pakistan has formally adopted IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2, Climate-related Disclosures, on a phased basis. These standards were developed by the International Sustainability Standards Board to create a more consistent global baseline for sustainability-related financial disclosure and to improve the usefulness of such information for investors and other capital providers.
For Pakistani companies, the significance of this development extends well beyond the preparation of another corporate report. IFRS S1 and IFRS S2 require organisations to explain how sustainability-related risks and opportunities are governed, how they affect strategy and financial prospects, how they are identified and managed, and how performance is measured against relevant metrics and targets. IFRS S2 adds more detailed expectations around climate-related risks and opportunities, including greenhouse gas emissions across Scope 1, Scope 2 and Scope 3.
In practical terms, Pakistan’s adoption of IFRS S1 and IFRS S2 means companies need to prepare their governance, ESG data, climate-risk processes, carbon-accounting systems, internal controls and assurance evidence before the reporting deadline arrives. The quality of future sustainability reporting will depend increasingly on the quality of the systems and management processes behind the disclosure.
From ESG Reporting to Financially Relevant Sustainability Disclosure
Many organisations have historically approached ESG reporting as a broad sustainability or corporate-responsibility exercise. Such reports often contain useful information on environmental initiatives, workforce practices, community programmes and governance arrangements, but the connection with financial performance, enterprise risk and capital allocation has not always been explicit.
IFRS S1 and S2 change that emphasis. The standards focus on sustainability-related risks and opportunities that could reasonably be expected to affect an organisation’s prospects. This brings sustainability information closer to mainstream corporate reporting because the central question is no longer whether a company is undertaking ESG activities, but whether environmental, social or governance factors could affect its future cash flows, access to finance, cost of capital, business model or strategic resilience.
This distinction has important implications for governance. Boards and senior management will need to understand which sustainability-related issues are financially relevant and how those issues are incorporated into existing decision-making processes. General statements that the board “oversees sustainability” are likely to become less useful unless they are supported by a clear description of responsibilities, reporting lines, management processes and escalation mechanisms.
The same principle applies to risk management. Climate-related physical risks, such as flooding, heat stress or water scarcity, and transition risks, such as regulation, carbon pricing, technology change or customer requirements, need to be assessed in relation to actual business consequences. For one company, water stress may create a production risk; for another, export-market regulation may be more material. The purpose of the standards is not to encourage every company to disclose the same ESG issues, but to require a more disciplined assessment of which issues are financially relevant to that specific business.
This naturally increases the importance of cross-functional ownership. Sustainability teams may coordinate the reporting process, but finance, risk, operations, procurement, HR, strategy, legal and internal audit may all hold information necessary to support the final disclosure. The transition to IFRS S1 and S2 therefore requires sustainability reporting to become more integrated with the organisation’s existing management architecture.
For many Pakistani companies, the first practical questions will be straightforward but consequential:
Who is accountable for sustainability-related financial disclosure at board and management level?
Which sustainability and climate risks could reasonably affect the business?
Which functions own the underlying ESG data?
Are greenhouse gas calculations documented and repeatable?
Can material disclosures be traced back to evidence?
If these questions cannot yet be answered consistently, the organisation is still building its reporting infrastructure regardless of whether it already publishes an ESG report.
The Main Challenge Will Be Data, Carbon Accounting and Internal Controls
For many companies, the most difficult part of implementation will not be interpreting the disclosure requirements. It will be establishing reliable information systems behind them.
Financial reporting benefits from mature processes: defined account structures, reconciliations, reporting calendars, management review and audit trails. ESG information is usually more fragmented. Electricity consumption may be maintained by facilities teams, fuel records by operations, workforce data by HR, supplier information by procurement and waste information by external contractors. Scope 3 emissions may require estimates based on supplier data, expenditure records, transportation activity or industry averages.
This fragmentation creates a governance problem before it becomes a reporting problem. If material sustainability metrics do not have clearly defined owners, methodologies and evidence requirements, the organisation may struggle to demonstrate that reported information is complete, consistent and reproducible.
Companies therefore need to establish ownership at the metric level. Each material data point should have an identified source, responsible function, calculation methodology, review process and evidence trail. Where assumptions or estimates are used, the basis should be documented. Where methodologies change, the change should be explained and controlled. This is particularly important for businesses operating across several facilities or legal entities, where inconsistent data collection can quickly undermine comparability.
Greenhouse gas accounting will be one of the most visible tests of this readiness. IFRS S2 requires disclosure of Scope 1, Scope 2 and Scope 3 emissions, and the complexity increases significantly as companies move into value-chain emissions. Scope 1 and Scope 2 data can often be derived from fuel and purchased-energy records, although organisational boundaries and emission factors still need to be defined consistently. Scope 3 is more difficult because the information often sits outside the direct control of the reporting entity and may require estimates across purchased goods, logistics, business travel, employee commuting, waste, capital goods, investments or product use.
The existence of estimation does not make the data unusable. However, companies need to distinguish clearly between direct measurements, supplier-specific information and modelled estimates. Data limitations should be understood and disclosed appropriately, while improvement plans should focus on the categories that are most material to the organisation.
For practical implementation, companies should progressively build control around five areas:
Data ownership: every material ESG metric should have a responsible owner.
Methodology: calculation methods, emission factors, boundaries and assumptions should be documented.
Review: significant data and movements should be checked before disclosure.
Evidence: source documents and supporting records should be retained.
Change control: changes in methodology or scope should be approved and explained.
This is where sustainability reporting begins to resemble mature corporate reporting. The objective is not to create unnecessary bureaucracy, but to ensure that material information can withstand internal and external scrutiny.
Assurance Readiness Should Begin Before Assurance Is Required
The move toward IFRS-aligned sustainability reporting also needs to be considered alongside the development of sustainability assurance. Pakistan’s implementation framework has contemplated assurance over sustainability information, while ICAP has adopted ISSA 5000, the international standard for sustainability assurance engagements, for relevant reporting periods.
This changes the practical standard that companies need to work toward. A sustainability disclosure may appear credible at publication stage, but assurance requires underlying evidence. Reported figures need to be traceable to source information, methodologies need to be documented, significant assumptions need to be supportable and management review needs to be demonstrable.
For this reason, companies should not wait for the first assurance engagement before testing the strength of their reporting processes. Internal audit or another independent internal review function can play a useful role by assessing data ownership, control design, evidence retention and consistency of methodology before external assurance begins. Finance teams can also contribute by helping align reporting calendars, reviewing the financial implications of sustainability risks and strengthening the overall control environment around non-financial information.
The phased adoption of IFRS S1 and S2 may create a perception that organisations outside the first reporting group have significant time available. In practice, many of the required changes are structural and cannot be completed efficiently at year-end. Governance frameworks, climate-risk assessments, emissions inventories and data-control processes typically require more than one reporting cycle to mature.
A sensible preparation process therefore begins with a gap assessment. Companies should understand which requirements are already supported by existing systems and where significant weaknesses remain. From there, they can prioritise governance, climate-risk analysis, greenhouse gas accounting, data ownership, control documentation and evidence retention.
A practical readiness sequence could include:
Assess current disclosures against IFRS S1 and IFRS S2 requirements.
Define board, management and functional responsibilities.
Identify material sustainability and climate-related risks and opportunities.
Establish Scope 1, Scope 2 and relevant Scope 3 emissions inventories.
Map material ESG metrics to data owners and source evidence.
Introduce review controls, documentation standards and management sign-offs.
Test the reporting process internally before external assurance becomes necessary.
The purpose of this sequence is not to create a parallel ESG reporting bureaucracy. It is to integrate sustainability information progressively into the organisation’s existing governance, risk and reporting systems.
What the New Phase Means for Pakistani Companies
The adoption of IFRS S1 and IFRS S2 marks a broader shift in Pakistan’s sustainability-reporting environment. ESG disclosure is becoming more closely connected with financial relevance, governance and enterprise risk, while climate information is moving toward greater standardisation and eventual assurance.
The practical implication is that companies should focus less on the appearance of the sustainability report and more on the reliability of the reporting process. The key questions are whether material risks are understood, whether management responsibilities are clear, whether emissions and other ESG metrics have credible data owners, whether assumptions are documented and whether reported information can be traced back to supporting evidence.
Companies that begin this work early will be better positioned to improve data quality, refine methodologies and integrate sustainability considerations into existing management processes. Those that approach IFRS S1 and S2 mainly as a disclosure exercise may find that the real implementation challenge emerges only when the information is tested by boards, investors, regulators or assurance providers.
Pakistan’s ESG reporting has therefore entered a new phase, but the defining change is not simply the introduction of new standards. It is the movement toward a reporting environment in which sustainability information is expected to be financially relevant, operationally grounded and supported by the same level of discipline that stakeholders increasingly expect from other forms of corporate information.
Frequently Asked Questions
Has Pakistan adopted IFRS S1 and IFRS S2?
Yes. The Securities and Exchange Commission of Pakistan has formally adopted IFRS S1 and IFRS S2 on a phased basis. The standards establish a framework for sustainability-related financial disclosure and climate-related disclosure in Pakistan.
What is IFRS S1?
IFRS S1 sets the general requirements for disclosing sustainability-related risks and opportunities that could reasonably be expected to affect an organisation’s prospects. It focuses on information that is useful to investors and other providers of capital.
What is IFRS S2?
IFRS S2 deals specifically with climate-related risks and opportunities. It requires disclosure across governance, strategy, risk management, and metrics and targets, including greenhouse gas emissions.
Does IFRS S2 require Scope 3 emissions reporting?
Yes. IFRS S2 includes Scope 1, Scope 2 and Scope 3 greenhouse gas emissions. Scope 3 is likely to be one of the more challenging areas because much of the relevant data sits within the value chain rather than inside the reporting entity.
What should Pakistani companies do first to prepare for IFRS S1 and S2?
The most practical starting point is an IFRS S1/S2 readiness or gap assessment. This should examine governance, material sustainability and climate risks, emissions data, ESG data ownership, internal controls, evidence trails and assurance readiness.
Is sustainability assurance relevant to Pakistani companies?
Yes. Sustainability assurance is becoming an important part of the reporting architecture, and ISSA 5000 provides the international framework for assurance over sustainability information. Companies should therefore build evidence and control processes before their first assurance engagement rather than attempting to reconstruct them afterward.
Which teams should be involved in IFRS S1 and S2 reporting?
Sustainability teams may coordinate the process, but effective implementation usually requires finance, risk, internal audit, operations, procurement, HR, legal, strategy and senior management. The standards are designed around business and financial relevance, so implementation cannot sit within one function alone.
Is publishing an ESG report enough to be ready for IFRS S1 and S2?
No. A company may already publish an ESG or sustainability report but still have gaps in governance, climate-risk assessment, carbon accounting, data ownership, internal controls or evidence retention. Readiness should be assessed by the quality of the underlying reporting system, not only by whether a report exists.
