IFRS S1 & S2 in the GCC: What the New Standards Mean

IFRS S1 & S2: What the New Global Sustainability Standards Mean for the GCC

By: Wojciech Szewczak & Sarthak Ganpule

Date Published: July 21, 2026

How the International Sustainability Standards Board’s (ISSB) standards of IFRS S1 and S2 are reshaping sustainability disclosure, climate risk governance, and investor expectations – and what it means for organisations across the Gulf Cooperation Council (GCC) region.

Market Context

Sustainability reporting is undergoing a fundamental transformation across the Gulf. What was once largely viewed as a voluntary ESG communication exercise is increasingly part of mainstream financial disclosure and enterprise risk management. Investors, regulators, lenders, and other stakeholders are demanding more decision-useful, financially material sustainability information that can be compared consistently across markets and sectors.

The IFRS S1 and IFRS S2 standards, issued by the International Sustainability Standards Board (ISSB), establish a globally consistent baseline for sustainability-related financial disclosures, enabling organisations to communicate how sustainability and climate-related risks affect enterprise value, financial performance, and long-term resilience.

Across the GCC, regulatory momentum is accelerating rapidly. The UAE has been a regional leader since 2020, and Oman and Bahrain have also introduced or announced ISSB-aligned requirements. For GCC organisations pursuing diversification, net zero ambitions, and deeper participation in global capital markets, demonstrating integrated sustainability governance is becoming a critical market expectation.

What Is IFRS S1 and IFRS S2?

IFRS S1 and IFRS S2 are the first sustainability disclosure standards issued by the ISSB. Together they establish a framework for organisations to disclose sustainability-related financial information in a consistent, comparable, and investor-focused manner.

The standards work together: IFRS S1 establishes the overall disclosure framework, while IFRS S2 provides the first topic-specific standard focused on climate. Transitional relief in the first year allows organisations to focus primarily on climate-related disclosures, supporting a phased approach.

IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information

Requires disclosure of sustainability-related risks and opportunities that could reasonably affect enterprise value over the short, medium, or long term. IFRS S1 places sustainability firmly within the context of governance, enterprise risk management, and financial reporting.

IFRS S2 – Climate-related Disclosures

Builds on the TCFD recommendations and requires disclosure of climate governance structures, transition planning, climate resilience, greenhouse gas emissions, and the financial implications of climate-related risks. IFRS S2 positions climate risk as a strategic and financial issue, not merely an environmental one.

The Four Pillars of IFRS S1 & S2

Both standards are structured around four core pillars originally established through the TCFD framework. These pillars are designed to embed sustainability-related risks into core business decision-making processes, making climate and ESG governance a board-level responsibility across GCC organisations.

Governance – Boards and senior management must disclose how they oversee sustainability-related risks and opportunities, including governance structures, accountability mechanisms, and how sustainability is integrated into strategic decision-making.
Strategy – Organisations must explain how sustainability and climate-related risks affect business models, value chains, and long-term strategy, including resilience under different climate scenarios and adaptation to evolving market conditions.
Risk Management – Sustainability risks must be integrated into enterprise risk management (ERM) frameworks, not handled by standalone ESG functions. Disclosure must cover how risks are identified, assessed, prioritised, and managed.
Metrics & Targets – Relevant climate and sustainability metrics must be reported, including Scope 1, 2, and 3 GHG emissions aligned with the GHG Protocol, plus climate targets, transition plans, and performance indicators.

GCC Regulatory Adoption Tracker

Climate-related financial risk management is rapidly becoming a regulatory expectation across GCC markets. Central banks, financial regulators, and capital market authorities are progressively introducing climate risk, ESG disclosure, and sustainable finance requirements aligned with international frameworks such as IFRS S1 and S2, TCFD, and global prudential risk management practices.

Country	Authority	Regulation / Mandate / Guidance	Applicable To	Date of Application
UAE	Central Bank of the United Arab Emirates (CBUAE)	Climate-related Financial Risk Management Regulation	Banks, insurers, financial institutions licensed and regulated by the CBUAE	Supervisory expectations and phased implementation beginning 2025
UAE	Dubai Financial Services Authority (DFSA)	Principles for the Effective Management of Climate-Related Financial Risks	DFSA-regulated financial institutions operating in the Dubai International Financial Centre (DIFC)	Effective from 2023 through DFSA ESG and climate-related risk management expectations
Oman	Financial Services Authority (FSA)	Requirements for Disclosure of Environmental, Social and Governance (ESG) Practices	All publicly listed joint stock companies listed on the Muscat Stock Exchange	Phased implementation, full mandatory application 2029
Oman	Central Bank of Oman (CBO)	Promoting Sustainable and Green Financial Practices	All banks and licensed financial institutions regulated and supervised by the Central Bank of Oman	Issued October 2024; phased implementation with disclosures from FY2026
Bahrain	Central Bank of Bahrain (CBB)	Environmental, Social and Governance (ESG) Requirements Module	CBB-regulated financial institutions and licensees	Issued in 2023 with phased implementation from 2024

How to Prepare: Seven Foundational Steps

Preparing for IFRS S1 and S2 across the GCC requires moving beyond traditional sustainability reporting toward more integrated, governance-driven, and financially connected disclosure. The following seven steps are critical for organisations at any stage of readiness.

Establish Governance & Ownership – Assign board-level accountability and define reporting responsibilities across sustainability, finance, and risk.
Conduct a Baseline Gap Assessment – Compare current sustainability reporting against IFRS S1/S2 requirements.
Undertake Materiality & Risk Mapping – Identify financially material sustainability and climate risks specific to the organisation’s sector.
Strengthen Data Systems & Controls – Build robust systems for GHG emissions tracking, scenario data, and financial-sustainability integration.
Develop Scenario Analysis Capability – Build capacity to model climate scenarios and translate them into financial impact assessments.
Align Cross-Functional Teams – Ensure finance, risk, sustainability, and operations collaborate on unified reporting.
Prepare for Assurance-Ready Disclosure – Design reporting processes and controls capable of withstanding external assurance.

The Real Challenge

Many GCC organisations already produce sustainability reports aligned with GRI, CDP, or TCFD. However, these systems often require noteworthy development to meet the more meticulous requirements of IFRS S1 and S2. The most common readiness challenges across the MENA region include:

Fragmented data across sustainability, finance, and operational systems
Limited maturity in climate scenario analysis and financial quantification
Governance structures not yet aligned with ISSB expectations
Emissions data (especially Scope 3) lacking robustness and assurance-readiness
Integration gaps between sustainability, finance, and risk

The shift is less about creating new disclosures, and more about strengthening reporting controls, methodology discipline, and integration between sustainability, finance, risk, and operations.

Early Movers' Advantage

Climate risk is no longer merely an environmental or reputational issue for GCC organisations – it is a financial and strategic one. As physical climate risks such as extreme heat, water scarcity, and supply chain disruption become more material, organisations that proactively address climate-related financial disclosure will be better positioned across four dimensions:

Financial Resilience

Demonstrates ROI on transition projects, strengthens investor relations, and improves access to capital through sustainability-linked finance. Reduces risk of stranded assets and creates long-term cost savings.

Operational Stability

Integrating climate risk, technology readiness, and supplier strategies into planning ensures projects are feasible and deliverable – improving supply chain resilience and reducing operational risk.

Growth & Competitiveness

Early movers capture market share, strengthen customer relationships, and access new revenue streams while competitors remain focused on compliance costs.

Strategic Alignment

Climate action embedded at all levels of decision-making reinforces accountability and secures cross-functional buy-in – from board to business units.

How AESG Can Support Your Organisation

AESG supports organisations across the GCC and globally in navigating the transition from traditional ESG reporting toward more integrated sustainability-related financial disclosure aligned with IFRS S1 and S2. AESG combines technical sustainability expertise with engineering, infrastructure, and strategic advisory capabilities, helping organisations translate sustainability and climate-related risks into practical business decisions, stronger governance, enhanced resilience, and long-term value creation.

01 – Sustainability Disclosure & Reporting Readiness

Supporting organisations in aligning sustainability and climate disclosures with evolving regulatory requirements and global frameworks.

IFRS S1 & S2 readiness assessments
TCFD alignment and implementation
ESG materiality assessments
Disclosure gap analysis
Sustainability data governance and reporting controls

02 – Climate Risk, Vulnerability & Resilience

Helping organisations identify, assess, and manage physical and transition climate risks across operations, infrastructure, assets, and value chains.

Climate Risk & Vulnerability Assessments (CRVA)
Physical and transition risk analysis
Climate scenario analysis
Climate adaptation and resilience planning
Asset resilience assessments

03 – Climate Strategy & Decarbonisation

Supporting organisations in developing practical transition pathways aligned with net zero ambitions, operational priorities, and long-term business strategy.

Net zero strategy development
Decarbonisation roadmaps
Transition planning
Marginal Abatement Cost Curve (MACC) analysis
Climate target setting and energy transition advisory

04 – Governance, Capacity Building & Implementation Support

Strengthening internal governance structures, leadership capability, and cross-functional implementation readiness.

Board and executive sustainability training
ESG and climate governance advisory
Cross-functional implementation workshops
Climate literacy programmes
Internal capability building

Organisations that proactively strengthen disclosure maturity, governance, and climate risk management capabilities will be better positioned to improve investor confidence, access capital, and navigate an increasingly sustainability-driven business environment.

Sources

Wojciech Szewczak

Associate Director of Strategy and Advisory, UAE
AESG

Wojciech is a strategic and results-driven sustainability leader with over 12 years of experience delivering complex advisory projects. As Associate Director – Strategy & Advisory at AESG, he leads multidisciplinary teams in delivering sustainability, net zero, and decarbonisation strategies across sectors for clients in the Middle East, overseeing projects from inception to completion while driving client engagement, business growth, and technical excellence.

He is highly skilled in ESG strategy development and implementation, reporting, and governance, with a strong record of delivering impactful outcomes for clients across the real estate, infrastructure, and aviation sectors. Wojciech specialises in shaping ESG frameworks, guiding organisations through regulatory and market transitions, and embedding responsible business practices into core corporate strategies.

Recognised as a thought leader in his field, Wojciech has contributed to FIDIC’s Future Leaders Booklets (2023–2025), received the Outstanding Achievement Award at the FIDIC Future Leaders Awards (2023), and was named among the 35 Under 35 in Sustainability (2024). He regularly speaks at international forums, including the Global Infrastructure Conference (Singapore, Geneva, and Cape Town), where his insights help shape best practice in ESG and sustainability advisory.

Holding an Executive MBA from Aalto University Business School and a certificate in Leading Strategic and Transformational Change from Yale School of Management, Wojciech combines academic insight with practical advisory expertise. He is passionate about driving sustainability transformations that are ambitious, credible, and commercially viable.

Sarthak Ganpule

Senior ESG Consultant (Strategy & Advisory)
AESG

Sarthak is an ESG and Sustainability professional with 9+ years of experience driving high-impact ESG strategy development, execution, and performance tracking across public and private sectors. He is adept at applying structured, inclusive, and outcome-oriented problem-solving approaches to address complex business and policy challenges.

He has demonstrated success in managing multi-stakeholder engagements and leading cross-functional teams to deliver results in areas including: ESG strategy development aligned with global frameworks; Scope 1, 2, and 3 GHG inventory and emissions accounting; double materiality and impact-financial materiality assessments; regulatory compliance advisory; Net Zero planning and decarbonisation pathway modelling; climate risk assessments and scenario analysis; ESG data analytics and dashboard development; stakeholder engagement and ESG governance structuring; ESG and climate disclosures with audit-ready reporting; and life cycle assessment (LCA) and Scope 3 emissions evaluation.

For further information relating to specialist consultancy engineering services, feel free to contact us directly via info@aesg.com