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. Organisations produce them under recognised frameworks such as IFRS S1/S2 (ISSB), TCFD, and CSRD, and they are increasingly mandatory rather than voluntary. 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.

The Main Frameworks That Govern These 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.

IFRS S1 and IFRS S2 (ISSB) Developed by the International Sustainability Standards Board (ISSB), these are the most significant global baseline standards for sustainability-related financial disclosures. IFRS S1 covers general sustainability-related risks and opportunities. IFRS S2 focuses specifically on climate, requiring disclosure of governance, strategy, risk management, and metrics including Scope 1, 2, and 3 greenhouse gas emissions. ISSB standards use a financial materiality lens, meaning they focus on what affects enterprise value rather than broader societal impact.

TCFD (Task Force on Climate-Related Financial Disclosures) The TCFD framework, developed by the Financial Stability Board, established the four-pillar structure (governance, strategy, risk management, metrics and targets) that now underpins most climate disclosure standards including IFRS S2. The IFRS Foundation took over monitoring of TCFD-aligned progress in 2023, and ISSB standards are absorbing TCFD as a standalone framework over time.

CSRD (Corporate Sustainability Reporting Directive) The EU's CSRD 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. CSRD applies to a wide range of companies operating in or doing significant business within the EU, with phased implementation running from 2024 onwards. It requires reporting under the European Sustainability Reporting Standards (ESRS), which include detailed climate disclosures aligned with the GHG Protocol.

PCAF (Partnership for Carbon Accounting Financials) PCAF 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 of the GHG Protocol.

Financial Materiality vs. Double Materiality: Why the Distinction Matters

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) 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 Does This Matter for Companies Measuring Carbon Emissions?

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.

What Do These Disclosures Typically Include?

Regardless of the specific framework, most sustainability-related financial disclosures follow a structure derived from the TCFD's four pillars:

• 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.

Assurance: The Emerging Requirement Companies Are Underestimating

Third-party assurance of sustainability-related financial disclosures is moving from optional to required. Under CSRD, 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, mandatory scope, and third-party verification. Companies 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.