Governance comes first in IFRS S1 and S2 for a reason. It decides whether sustainability shapes the business or simply sits in a report.
The standards ask companies to disclose who oversees sustainability-related risks and opportunities, how that oversight works, and how it connects to the decisions that matter. That sounds procedural. In practice, it is a test of whether sustainability has a real place in how the company is run.
This article looks at what wasn't working, what the governance pillar is designed to fix, three questions to test where you stand, and five practical steps to get there.
What wasn't working: off the agenda, or on it without a purpose
In many organisations, sustainability rarely reached the board. When it did, it was an update to note, not a decision to make. It was discussed, acknowledged and then set aside when the real choices about strategy, budgets and capital were made.
A few patterns come up again and again:
No standing agenda item or clear decision to make. Sustainability appeared occasionally, with nothing for the board to decide.
Ownership sat with one team. A sustainability or ESG function carried the topic alone, with little connection to finance, risk or operations.
Boards had limited expertise to challenge. Without the right knowledge, directors could not test management's assumptions.
Incentives rewarded short-term financials only. What was measured and rewarded pointed elsewhere, so sustainability stayed a side issue.
What the Governance pillar is designed to fix
Governance disclosure makes accountability visible, so it has to be real. Once a company describes who oversees sustainability and how, investors can see whether that oversight actually works. A structure that exists only on paper becomes hard to defend.
The good news is that you don't need a perfect structure from day one. Governance can be built step by step:
Start: clear ownership and regular board attention.
Build: board expertise to challenge management.
Embed: incentives linked to the outcomes that matter.
Each stage makes the next one easier, and each is worth disclosing honestly along the way.
Three questions to test your Governance
How do you know whether your governance is embedded or just documented? These three questions are a quick, honest check.
1. Has the board changed decisions, budget or strategy because of a sustainability or climate discussion in the last 12 months?
Oversight that never changes anything is attendance, not governance. If you can point to a decision where sustainability input was weighed, and what it changed or confirmed, oversight is doing its job.
2. Do board members have the competence to challenge management on these topics, or do they rely on a single expert?
If only one person understands the issue, the board can't truly test management's assumptions. Challenge needs to come from the board as a whole.
3. Are executive incentives tied to the sustainability outcomes that actually move the business?
What gets rewarded gets done. If it isn't in the incentives, it isn't really a priority.
Three honest "yes" answers suggest governance is embedded. One or two means you are on the way. None means it is time to start, and that is a starting point, not a failure.
Five steps to meet the IFRS S1 Governance requirements
IFRS S1 asks companies to describe how governance works in practice (paragraphs 26–27). These five steps turn those requirements into action:
Assign oversight and ownership. The board names who oversees sustainability. Management names an executive owner in the business.
Set the rhythm. Decide how and how often the board is informed, as a standing agenda item.
Build the skills. Map board competence and close gaps through training or recruitment.
Connect to decisions. Show how risks and opportunities are weighed in strategy, major transactions and risk management.
Oversee targets and incentives. Define management's role, design incentives that link targets to remuneration, and monitor progress.
The standard asks you to disclose how these arrangements work, not to follow one fixed model. The aim is to be able to describe each of them credibly.
Where to go from here
Governance is where management attention either turns into action or doesn't. Get it right, and the other three pillars have something to stand on. Treat it as a checkbox, and the rest of the disclosure will struggle to hold up.
Next in this series: Strategy, and whether sustainability shapes your plans or simply sits beside them.
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