ESGNexus.lk · Policy & Regulation

The top 100 CSE-listed companies were required to comply with SLFRS S1 and S2 from 1 January 2025. All main board-listed entities must follow by 2026. Here is what the standards require, who must act, and what happens if you don’t.

By the ESGNexus Editorial Team · June 2026 · Estimated reading time: 8 minutes

KEY TAKEAWAYS Sri Lanka’s top 100 CSE-listed companies by market capitalisation were required to comply with SLFRS S1 and S2 from financial year 2025 — those companies are already due. All Main Board listed entities must comply by 2026. Unlisted companies above LKR 10 billion turnover face mandatory compliance from 2028. SLFRS S2 requires climate scenario analysis, Scope 1 and 2 GHG emissions disclosure, and board-level governance reporting — areas where most Sri Lankan companies have significant gaps. CA Sri Lanka has published a Preparers’ Guide and launched a three-tier training course. The tools exist. The window to prepare is shrinking.

As of 1 January 2025, Sri Lanka’s top 100 listed companies by market capitalisation are legally required to report under two new sustainability disclosure standards — SLFRS S1 and SLFRS S2. For every main board-listed company on the Colombo Stock Exchange, that same obligation takes effect at the start of 2026. This is not a proposed reform or a voluntary framework. It is in force.

The standards were developed by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) in collaboration with the International Sustainability Standards Board (ISSB), which released its global baseline standards — IFRS S1 and S2 — in June 2023. Sri Lanka’s localised versions took effect from 1 January 2025, making the country one of the first jurisdictions in South Asia to mandate ISSB-aligned sustainability reporting.

For many finance teams, the practical implications of these standards remain poorly understood. Boards and CFOs who have been watching from a distance are now out of time. This article explains exactly what SLFRS S1 and S2 require, who must comply and by when, the consequences of non-compliance, and what steps to take immediately.

“The adoption of SLFRS S1 and S2 marks a critical step in enhancing transparency and trust in sustainability-related financial disclosures, empowering investors and stakeholders with reliable data.”

— President of CA Sri Lanka, Heshana Kuruppu

What Are SLFRS S1 and S2?

Sri Lanka’s two new sustainability standards are closely modelled on the global ISSB framework, adapted by CA Sri Lanka for the local regulatory and business context.

SLFRS S1 is the general standard. It requires companies to disclose all sustainability-related risks and opportunities that could reasonably be expected to affect their cash flows, access to finance, or cost of capital — whether in the short, medium, or long term. The scope is intentionally broad. If a sustainability issue is financially material to your business — whether that is water risk, supply chain labour practices, climate physical risk, or governance failures — it must be disclosed. The materiality test is not set by the regulator. It is determined by each company through its own materiality assessment process.

SLFRS S2 is the climate-specific standard. It is based on the TCFD framework and sets out detailed disclosure requirements across four pillars: governance, strategy (including scenario analysis), risk management, and metrics and targets (including GHG emissions).

Together, the two standards represent a fundamental shift. For the first time in Sri Lanka, it is not enough to include a CSR section in the annual report. Sustainability risks must be assessed, quantified where possible, and integrated into the company’s mainstream financial reporting package.

Source: CA Sri Lanka, Sustainability Disclosure Standards — casrilanka.com; ISSB, IFRS S1 and S2, June 2023 — ifrs.org

Who Must Comply — and By When

CA Sri Lanka’s implementation roadmap uses a phased schedule, expanding the compliance obligation progressively from the largest listed companies to smaller and eventually unlisted entities.

Deadline	Who Must Comply	Status
FY 2025	Top 100 CSE Main Board companies by market capitalisation	NOW DUE
FY 2026	All Main Board listed entities on the CSE	NEXT
FY 2027	All CSE-listed entities except Empower Board companies	UPCOMING
FY 2028	Unlisted companies with annual turnover exceeding LKR 10 billion	UPCOMING
FY 2029	Unlisted companies with annual turnover exceeding LKR 5 billion	UPCOMING
FY 2030	Empower Board listed entities	UPCOMING

Source: CA Sri Lanka Implementation Roadmap, January 2025; Ceylon Today, ‘Sri Lanka unveils road map for sustainability reporting standards’, 6 January 2025

For the top 100 companies by market capitalisation, FY2025 compliance is not a future obligation — it is the present one. These companies are already in their first mandatory reporting period.

The Colombo Stock Exchange has separately confirmed that it intends to introduce an ESG index and ESG rating system for listed companies, subject to the standard of sustainability reporting reaching the required threshold. Compliance quality will have direct consequences for index inclusion — and therefore, for share price.

Most Sri Lankan companies outside the leading conglomerates have never measured Scope 1 or Scope 2 greenhouse gas emissions. SLFRS S2 makes this mandatory. Building an emissions measurement system from zero typically takes between six and eighteen months.

What Compliance Actually Requires

Understanding the letter of the standards is one thing. Understanding what they require in practice — in terms of systems, data, and governance — is another.

Under SLFRS S1:

• Conduct a sustainability materiality assessment. This is the foundational step. The company must systematically identify which sustainability topics are financially material. Without a completed materiality assessment, SLFRS S1 compliance cannot begin.
• Disclose identified risks and opportunities in the annual report. Covering governance structure, strategy, risk management, and relevant metrics and targets.
• The disclosure must be in the annual report itself — not a standalone document.

Under SLFRS S2 (in addition to the above):

• Governance: Describe the board’s oversight of climate-related risks and opportunities. Which committee is responsible? How frequently is climate risk reviewed at the board level?
• Strategy: Explain how climate risks and opportunities affect the company’s business model and financial planning. This requires climate scenario analysis — testing strategy against at least two different climate futures.
• Risk Management: Describe processes used to identify, assess, and manage climate-related risks, and how these integrate into the overall risk management framework.
• Metrics and Targets: Disclose Scope 1 and Scope 2 GHG emissions as a minimum. Scope 3 is encouraged but not yet mandatory. Climate targets must also be disclosed with progress against them.

In November 2025, CA Sri Lanka launched a Preparers’ Guide to SLFRS S1 and S2 — a practical, Sri Lanka-specific resource to guide companies through the disclosure process, alongside a comprehensive three-tier training course. Both are available at casrilanka.com.

Source: CA Sri Lanka, ‘CA Sri Lanka introduces comprehensive SLFRS S1 & S2 framework’, November 2025; Daily FT, 4 November 2025

What Happens If You Don’t Comply

Non-compliance with SLFRS S1 and S2 is governed by the Sri Lanka Accounting and Auditing Standards Act. Violations can result in regulatory action by CA Sri Lanka.

First, investor and lender scrutiny. International investors and development finance institutions are increasingly applying ESG filters. Sri Lankan companies that cannot demonstrate compliance face a growing cost-of-capital disadvantage.

Second, CSE index consequences. The CSE has signalled its intention to introduce an ESG index. A company unable to comply will be poorly positioned for inclusion. Share price consequences could follow.

Third, reputational exposure. As peer companies disclose, those that remain silent will stand out — not positively. Non-disclosure is itself a disclosure.

Source: The Morning, ‘CSE mandates sustainability reporting for top companies’; Greenplaces, SLFRS S1 & S2 Compliance Summary, 2025

Where to Start If You Haven’t Already

For companies that have not begun their compliance journey, the most important thing is to start — and to sequence correctly.

1. Conduct a materiality assessment. The prerequisite for SLFRS S1. Identify sustainability topics that are financially material to your specific business — considering your sector, value chain, markets, and key stakeholders.
2. Begin measuring your GHG emissions. The single most time-consuming requirement. Scope 1 and 2 emissions are both mandatory under SLFRS S2. CA Sri Lanka’s bi-monthly GHG certification programme was specifically launched to build this capability.
3. Map your board governance structure for climate risk. SLFRS S2 requires you to describe how your board oversees climate-related risks. Many companies will need to establish a Board Sustainability Committee or assign climate risk oversight to an existing committee.
4. Engage your external auditor immediately. Sustainability assurance requirements are on the horizon. The pool of assurance-qualified auditors in Sri Lanka is currently small. Early engagement will save significant time and cost later.
5. Download the CA Sri Lanka Preparers’ Guide. Published in November 2025, it is the most practical step-by-step resource available. The three-tier training course builds internal capability at different levels. Both at casrilanka.com.

What This Means for Sri Lanka’s Corporate Sector

Sri Lanka has moved with unusual speed among South Asian markets in mandating ISSB-aligned sustainability reporting. The regulatory architecture — CA Sri Lanka as standard-setter, the phased implementation timeline, the GHG certification programme, the Preparers’ Guide — represents a credible and well-designed framework.

The challenge now is implementation. The top 20 conglomerates that have been producing voluntary GRI-aligned sustainability reports for several years are reasonably well positioned. But the top 100 companies by market capitalisation includes many entities that have no sustainability function, no sustainability officer, and no existing GHG measurement capability. Those companies are already in their first mandatory reporting year.

ESGNexus will be monitoring compliance levels across the top 100 CSE companies through 2025 and 2026, tracking which companies are disclosing, what they are disclosing, and where the gaps remain. Sustainability professionals, investors, and regulators who want to follow this work closely are invited to subscribe to the ESGNexus Weekly newsletter.

Sri Lanka is among the first countries in South Asia to adopt ISSB-aligned sustainability reporting standards. Whether the corporate sector rises to meet that commitment will become visible — company by company — over the next twelve months.

Sources & Further Reading

CA Sri Lanka — Sustainability Disclosure Standards: casrilanka.com/casl

CA Sri Lanka — Preparers’ Guide to SLFRS S1 and S2, November 2025: casrilanka.com

CA Sri Lanka — Implementation Roadmap Press Release, January 2025: casrilanka.com

Ceylon Today — ‘Sri Lanka unveils road map for sustainability reporting standards’, 6 January 2025: ceylontoday.lk

The Morning — ‘CSE mandates sustainability reporting for top companies’: themorning.lk

IFRS Foundation — Sri Lanka Jurisdiction Profile: ifrs.org

Greenplaces — SLFRS S1 & S2 Compliance Summary: greenplaces.com

GRI — Sustainability Reporting in Sri Lanka 2023: Connecting the Dots: globalreporting.org

ABOUT ESGNEXUS ESGNexus is Sri Lanka’s independent platform for ESG, CSR, and sustainability intelligence. We track ESG performance, regulatory developments, and sustainability data across Sri Lanka’s listed companies, large unlisted corporates, and state-owned enterprises. All editorial content is independently produced. Sponsored content is clearly labelled. Data disclaimer: Information in this article is sourced from publicly available documents. ESGNexus does not independently verify company disclosures. Errors and omissions excepted.