What are sustainability-related financial disclosures?

Quick Answer: Sustainability-related financial disclosures are formal reports in which organisations communicate how environmental, social, and governance (ESG) factors, particularly climate-related risks and opportunities, affect their financial position and long-term viability. The main global framework is now IFRS S1/S2, issued by the International Sustainability Standards Board (ISSB), which absorbed and replaced the earlier TCFD recommendations. In the EU, the Corporate Sustainability Reporting Directive (CSRD) applies a broader disclosure standard, though its scope was substantially narrowed in 2026. For companies measuring carbon emissions, these disclosures depend directly on the quality and completeness of the underlying carbon accounting data.

What Are Sustainability-related Financial Disclosures?

Sustainability-related financial disclosures are structured reports that connect a company's sustainability performance to its financial outlook. Where traditional financial reporting covers revenue, costs, and assets, sustainability-related financial disclosures ask a different question: how do climate risks, emissions exposure, and ESG factors affect the business's financial resilience?

The term covers a range of reporting requirements and voluntary frameworks, but the common thread is materiality. These disclosures focus on sustainability information that is financially relevant, meaning information that could reasonably influence the decisions of investors, lenders, or other capital providers.

This is distinct from broader sustainability reporting, which may cover environmental and social impacts regardless of their financial significance. Sustainability-related financial disclosures sit at the intersection of climate accountability and investor-grade transparency.

Which Frameworks Govern Sustainability-Related Financial Disclosures?

Several frameworks define what sustainability-related financial disclosures should contain, how they should be structured, and who must produce them. Understanding the differences matters, because the framework a company reports under determines the scope, methodology, and assurance requirements it must meet.

• TCFD: The Task Force on Climate-related Financial Disclosures was established by the Financial Stability Board (FSB) in 2015 and published its recommendations in 2017, structured around four pillars: governance, strategy, risk management, and metrics and targets. TCFD is no longer an active body. In July 2023, the FSB confirmed that the newly published ISSB Standards represented "the culmination of the work of the TCFD," and TCFD formally disbanded that October, with the IFRS Foundation taking over monitoring of corporate climate disclosures from 2024. Its four-pillar structure lives on, fully incorporated into IFRS S2.
• ISSB / IFRS S1 and S2: The International Sustainability Standards Board was established under the IFRS Foundation in November 2021 and published its first two standards, IFRS S1 (general sustainability-related disclosures) and IFRS S2 (climate-related disclosures), in June 2023. Both are effective for annual reporting periods beginning on or after 1 January 2024. IFRS S2 builds directly on the TCFD framework and requires disclosure of Scope 1, 2, and 3 emissions calculated in line with the GHG Protocol, alongside climate-related risks, opportunities, and financial exposures. IFRS S1/S2 use a single, financial materiality lens, the same approach adopted by Japan's SSBJ standards and the UK's own sustainability reporting standards, and a growing number of other jurisdictions are incorporating them directly or using them as the basis for national standards.
• CSRD: The EU's Corporate Sustainability Reporting Directive applies a broader concept called double materiality, which requires companies to disclose both how sustainability issues affect the business financially and how the business affects people and the environment. It is built on the European Sustainability Reporting Standards (ESRS), which set out the detailed disclosures companies must make. CSRD's scope has recently narrowed substantially. Under the EU's Omnibus I Directive, in force since 18 March 2026, the reporting threshold rose from 250 employees to more than 1,000 employees and more than €450 million net turnover, both conditions required. This removed an estimated 80% of previously in-scope companies. Businesses that no longer meet the threshold may be exempted from FY2025-2026 reporting, subject to how their Member State transposes the changes; companies that still qualify but weren't already reporting will begin with FY2027 data, due in 2028. Many mid-market businesses now sitting outside CSRD's scope are still asked for the same information informally by larger customers and lenders, which is where the EU's VSME voluntary standard is designed to help.
• PCAF: The Partnership for Carbon Accounting Financials provides a specialised standard for financial institutions, covering how banks, asset managers, and insurers measure and disclose the emissions associated with their lending and investment portfolios. The industry calls these financed emissions and insurance-associated emissions, and they fall under Scope 3 Category 15 (Investments) of the GHG Protocol.

Financial Materiality vs Double Materiality: What's the Difference?

One of the most important conceptual differences in sustainability-related financial disclosures is the materiality standard being applied.

Financial materiality (used by ISSB/IFRS S2, and also by frameworks such as Japan's SSBJ and the UK's own sustainability reporting standards) asks whether a sustainability issue could affect the company's cash flows, access to finance, or cost of capital. If a climate risk could impair an asset or disrupt operations, it is material and the company must disclose it. This is the lens most relevant to investors assessing enterprise value.

Double materiality (used by CSRD/ESRS) asks two questions simultaneously: does the sustainability issue affect the company financially, and does the company's activity affect the environment or society? A company may need to disclose its Scope 3 emissions because they represent a financial risk. They also represent a real-world impact on the climate.

For companies deciding which framework to report under, or preparing for mandatory requirements, understanding which materiality standard applies determines the scope of data collection, the depth of disclosure required, and the assurance process needed.

Why Do Sustainability-Related Financial Disclosures Matter for Carbon Accounting?

Sustainability-related financial disclosures are only as credible as the data behind them. For most companies, the most significant data requirement is an accurate, full-scope greenhouse gas inventory covering Scope 1, 2, and 3 emissions, calculated in line with the GHG Protocol.

This is where carbon accounting becomes directly relevant to financial reporting. Investors, regulators, and assurance providers are not looking for approximate figures or spend-based estimates applied uniformly across the value chain. They expect methodology transparency, clear assumptions, identified data sources, and year-on-year consistency.

Companies that have not yet built a carbon accounting process face a practical problem: the disclosure frameworks require specific metrics (gross Scope 1, 2, and 3 emissions, emissions intensity, transition risks, physical risks) that the company cannot produce without underlying measurement infrastructure.

Seedling addresses this gap specifically. It produces GHG Protocol-aligned footprints across all three scopes, with documented assumptions and data sources, and outputs structured for use in stakeholder disclosures including SECR, B Corp, EcoVadis, and PPN 006. For companies moving towards ISSB or CSRD alignment, having that measurement foundation in place is the necessary first step, and our guide to the SBTi Corporate Net-Zero Standard V2.0 covers how a credible footprint feeds into target-setting more broadly.

What Do Sustainability-Related Financial Disclosures Include?

Regardless of the specific framework, most sustainability-related financial disclosures follow a structure derived from the TCFD's four pillars, now carried forward into IFRS S2:

• Governance: How the board and management oversee climate-related risks and opportunities, including who is accountable and how often these issues are reviewed
• Strategy: How identified climate risks and opportunities affect the company's business model, financial planning, and long-term strategy, often including scenario analysis
• Risk management: The processes used to identify, assess, and manage climate-related risks, and how these integrate with overall enterprise risk management
• Metrics and targets: Quantitative data including GHG emissions by scope, emissions intensity, climate-related financial exposures, and progress against reduction targets

Under IFRS S2, companies must also disclose cross-industry climate metrics including absolute gross emissions for all three scopes, the percentage of assets or business activities vulnerable to physical and transition risks, and capital deployment towards climate-related risks and opportunities.

Do Sustainability-Related Financial Disclosures Require Assurance?

Third-party assurance of sustainability-related financial disclosures is moving from optional to required. Under CSRD, in-scope companies must obtain limited assurance over their sustainability disclosures from the outset, with the expectation that this will progress to reasonable assurance over time.

Assurance requires that the data underpinning disclosures is verifiable, traceable, and tied to a documented methodology. This has direct implications for how companies collect and store emissions data. Figures from opaque processes, without clear audit trails or source documentation, will not withstand assurance review.

For companies building their carbon accounting process now, designing it with assurance-readiness in mind, rather than retrofitting it later, reduces the time and cost involved when assurance becomes a formal requirement.

The direction of travel across all major frameworks is towards greater standardisation and third-party verification, even as the EU's recent scope reductions show that mandatory coverage is not expanding in a straight line for every company. Businesses that treat sustainability-related financial disclosures as a compliance exercise to be managed at the last moment will find the data requirements significantly more demanding than anticipated, whether they're reporting because they must, or getting ahead of requirements they expect to meet in future.