As businesses worldwide move towards greater transparency in sustainability reporting, Sri Lanka has introduced its own set of sustainability disclosure standards—Sri Lanka Financial Reporting Standards (SLFRS) S2. This standard specifically focuses on climate-related disclosures, helping businesses align with global sustainability practices while ensuring accountability for their environmental impact. One of the key aspects of SLFRS S2 is the reporting of greenhouse gas (GHG) emissions, which will soon become a mandatory requirement.

Why SLFRS S2 Matters for Businesses

SLFRS S2 aims to provide a standardized framework for businesses to report climate-related risks, opportunities, and financial impacts. It requires organizations to disclose information on:

• Governance – How climate-related risks and opportunities are overseen.
• Strategy – How businesses plan to address these risks and integrate sustainability into decision-making.
• Risk Management – Processes used to assess and mitigate climate-related risks.
• Metrics & Targets – Key performance indicators, including GHG emissions.

Among these, GHG emissions reporting plays a critical role, as it directly impacts a company’s sustainability profile, regulatory compliance, and investor confidence.

GHG Emissions Reporting Under SLFRS S2

The standard requires companies to measure and disclose their GHG emissions across three categories:

• Scope 1: Direct emissions from owned or controlled sources (e.g., fuel combustion, company-owned vehicles).
• Scope 2: Indirect emissions from purchased energy (e.g., electricity consumption).
• Scope 3: Indirect emissions from the company’s value chain (e.g., supplier activities, transportation, and product lifecycle emissions).

Timeline for Mandatory Reporting:

• 2024 – SLFRS S2 introduced as a voluntary reporting standard.
• 2025 – Scope 1 and Scope 2 emissions reporting becomes mandatory for the Top 100 companies.
• 2026 – Mandatory reporting expands to cover a broader set of listed and large-scale businesses.
• 2027 – Full compliance required, including Scope 3 emissions reporting for all covered entities.

Initially, businesses are required to report only Scope 1 and Scope 2 emissions, with Scope 3 becoming mandatory two years after the standard’s initial application. This phased approach allows companies to gradually enhance their reporting mechanisms and data collection processes.

Mandatory Compliance: What Businesses Need to Know

SLFRS S2 is currently being introduced with a transition period, but businesses must prepare for mandatory compliance soon. The standard follows global best practices, such as the Greenhouse Gas Protocol, ensuring consistency with international frameworks. Organizations that do not align with these reporting requirements risk losing credibility with investors, financial institutions, and regulatory bodies.

How Businesses Can Prepare

To comply with SLFRS S2, businesses should:

1. Assess Current Emissions – Conduct a baseline GHG inventory to understand current emission levels.
2. Develop Data Collection Systems – Implement reliable methods for tracking emissions from various business activities.
3. Integrate Sustainability Strategies – Align business operations with carbon reduction goals and transition planning.
4. Train and Engage Teams – Ensure key personnel understand the reporting requirements and how to manage sustainability disclosures.
5. Seek Professional Guidance – Engage sustainability consultants to streamline compliance and improve reporting accuracy.

SLFRS S2 marks a significant shift towards corporate sustainability accountability in Sri Lanka. With GHG emissions reporting becoming mandatory in phases, businesses must act now to establish proper reporting frameworks. Early adoption will not only ensure compliance but also position companies as leaders in sustainable business practices, attracting environmentally-conscious investors and customers. By proactively integrating SLFRS S2 into their reporting strategies, Sri Lankan businesses can drive meaningful climate action while staying ahead in an increasingly regulated corporate landscape.