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Key challenges for ESG Standards S1 & S2

Overview of S1 & S2
  • Key Features:
  • Covers all material sustainability topics, not limited to climate.
  • Requires disclosures related to:
  • Governance
  • Strategy
  • Risk management
  • Metrics and targets
  • Aligns with the principles of financial materiality (focus on enterprise value).
  • Mandates that sustainability disclosures be part of the general purpose financial reports, with the same timing as financial statements.
S2 (Climate-related Disclosures): Focuses specifically on climate-related risks and opportunities, aligned with the TCFD framework, requiring disclosure of metrics, targets, and transition planning.
  • Key Features:
  • Aligns with the principles of financial materiality (focus on enterprise value).
  • Governance
  • Strategy
  • Risk management
  • Metrics and targets
  • Requires disclosure of:
  • Scope 1, Scope 2, and (eventually) Scope 3 greenhouse gas (GHG) emissions.
  • Climate resilience through scenario analysis.
  • Transition plans and climate-related targets.
  • Encourages integration of physical and transition risk assessments into business strategy and risk management.
These standards are meant to be integrated into the general purpose financial reporting framework and are intended to provide decision-useful information to investors.
Canada's ESG Landscape
Canada has a complex ESG environment, with:
  • Federal and provincial regulators (e.g., CSA, OSC)
  • Voluntary frameworks (e.g., TCFD, SASB, GRI)
  • Sector-specific ESG maturity (e.g., energy vs. technology)
  • Diverse company sizes, from large multinationals to SMEs
Detailed Challenges
  • 1. Regulatory Complexity & Uncertainty
  • Challenge: Fragmented ESG disclosure landscape between CSA guidance, upcoming ISSB adoption, and global standards.
  • Impact:
  • Uncertainty over mandatory vs. voluntary compliance in early stages.
  • Potential duplication or non-alignment with SEC or EU CSRD disclosures.
  • Legal and investor relations concerns around inconsistent disclosures.
  • 2. ESG Data Collection & Quality
  • Challenge: Lack of mature ESG data infrastructure.
  • Impact:
  • Difficulty obtaining accurate, complete, and auditable data, particularly Scope 3 GHG emissions.
  • Companies struggle with forward-looking disclosures, scenario analysis, and risk quantification.
  • Reliance on spreadsheets or disconnected systems undermines data integrity.
  • 3. Skills and Capacity Gaps
  • Challenge: Shortage of professionals trained in both sustainability and financial reporting.
  • Impact:
  • ESG responsibilities often fragmented across departments (finance, legal, sustainability).
  • Boards and audit committees lack ESG literacy, impairing oversight.
  • Smaller firms lack in-house expertise and depend on costly external consultants.
  • 4. Integration with Financial Reporting
  • Challenge: S1 and S2 must be delivered in the same time frame and package as financial statements.
  • Impact:
  • Requires integrating non-financial risks into financial disclosures.
  • Increases complexity for CFOs, controllers, and auditors.
  • Need for new internal controls and cross-functional collaboration.
  • 5. Cost and Resource Constraints
  • Challenge: Compliance is expensive, especially for SMEs.
  • Impact:
  • High upfront costs for software, consulting, audits, and staff training.
  • Larger firms may absorb costs; mid-market firms struggle with ROI justification.
  • Budget diversion from core operations raises operational efficiency concerns.
  • 6. Assurance and Verification
  • Challenge: Growing expectation for third-party assurance of ESG data.
  • Impact:
  • Limited supply of qualified ESG assurance providers in Canada.
  • Increases reporting complexity and cost.
  • Auditors face lack of established frameworks for verifying non-financial data.
  • 7. Change Management and Governance
  • Challenge: Organizations must embed ESG into strategy, risk management, and performance measurement.
  • Impact:
  • Requires new governance structures, executive ownership, and cultural shifts.
  • Internal resistance to change, particularly in traditional sectors.
  • Need for board-level ESG charters and revised committee mandates.
  • 8. Climate Scenario Analysis and Transition Planning
  • Challenge: S2 requires disclosure of climate scenarios and resilience assessments.
  • Impact:
  • Canadian companies have limited experience with scenario planning.
  • Complexity in developing assumptions, modeling risks, and evaluating physical vs. transition risk.
  • Heavy reliance on external modeling tools or industry benchmarks.
  • 9. Supply Chain and Scope 3 Emissions
  • Challenge: Scope 3 emissions require data from value chain partners, often across borders.
  • Poor data availability from upstream/downstream partners.
  • Suppliers may not be ESG-literate or compliant with reporting needs.
  • Risk of greenwashing or estimation errors in disclosures.
  • 10. Investor and Market Pressure
  • Challenge: Investors demand ESG transparency, comparability, and forward-looking risk data.
  • Pressure to disclose even when data maturity is low.
  • Failure to disclose or poor-quality reports can damage reputation and market access.
  • Competitive disadvantage in global capital markets with higher ESG expectations.
  • 11. Sector-Specific Materiality Challenges
  • Challenge: Material ESG issues differ by industry
  • General guidance in S1 may be too abstract for practical use.
  • Companies need to conduct materiality assessments without clear benchmarks.
  • Increased risk of incomplete or irrelevant disclosures.
  • RECOMMENDED ACTIONS FOR COMPANIES

Action

Description

ESG Gap Analysis

Assess current ESG processes vs. ISSB requirements

Governance Updates

Establish ESG committee oversight, board training

Capacity Building

Invest in staff training and ESG recruitment

Digital Tools

Adopt ESG reporting software to improve data quality

Supplier Engagement

Work with suppliers on Scope 3 readiness

Scenario Planning

Start with simple climate models and evolve

Pilot Reporting

Begin with key metrics to build confidence internally

How Online Accountant can help businesses implement S1 & S2

As Canadian companies prepare for the implementation of the ISSB’s S1 and S2 ESG disclosure standards, Online Accountant offers a practical and integrated approach to help your organization meet these complex requirements with confidence. Our multidisciplinary team combines expertise in financial reporting, ESG data management, and regulatory compliance to ensure a smooth and value-driven transition.

We begin with a comprehensive ESG readiness and gap assessment, helping you identify where your current sustainability reporting practices fall short of S1 and S2 requirements. From there, we support you in building the internal infrastructure needed to collect reliable ESG data—particularly for Scope 1, 2, and 3 emissions—and align your risk management and governance structures with global best practices.

Online Accountant also provides training for boards and executives, assists in developing internal ESG reporting frameworks and controls, and guides the integration of ESG disclosures into your financial reporting cycle. Whether you’re preparing your first climate-related disclosure or aligning enterprise-wide sustainability risks with strategic planning, our goal is to make compliance both practical and meaningful.

With deep industry insight and a strong commitment to ESG excellence, Online Accountant stands ready to help your organization navigate this transition—ensuring regulatory readiness, investor confidence, and long-term sustainability performance.

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Online Accountant, LLP is a registered accounting partnership under the laws of the province of Alberta. Online Accountant, LLP is certified by the Chartered Professional Accountants of Alberta.

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Online Accountant, LLP is a registered accounting partnership under the laws of the province of Alberta. Online Accountant, LLP is certified by the Chartered Professional Accountants of Alberta.

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Quick Links

Contact Us

+1 800-811-6017

info@online-accountant.ca

17510 107 Ave NW Unit 201, Edmonton, AB T5S 1E9, Canada

Online Accountant, LLP is a registered accounting partnership under the laws of the province of Alberta. Online Accountant, LLP is certified by the Chartered Professional Accountants of Alberta.

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17510 107 Ave NW Unit 201, Edmonton
AB T5S 1E9, Canada
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