ISSB Standards: IFRS S1 and IFRS S2

What It Is

The International Sustainability Standards Board (ISSB), established by the IFRS Foundation in November 2021, published its first two standards — IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) — in June 2023. These standards create a global baseline for sustainability-related financial disclosure designed to meet investor information needs.

ISSB operates on the principle of financial materiality — requiring disclosure of sustainability-related information that could reasonably be expected to influence the decisions of primary users of financial reports (investors, lenders, creditors). This is an enterprise value perspective: how do sustainability issues affect the company's prospects?

IFRS S1 establishes the overall framework. It requires companies to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect cash flows, access to finance, or cost of capital over the short, medium, and long term. It uses the TCFD's four-pillar structure: Governance, Strategy, Risk Management, and Metrics & Targets.

IFRS S2 applies this framework specifically to climate. It requires detailed disclosure on climate-related risks (physical and transition), opportunities, scenario analysis, greenhouse gas emissions (Scope 1, 2, and 3), and climate-related targets and transition plans.

ISSB represents a consolidation of the sustainability disclosure landscape. It absorbed the Value Reporting Foundation (which housed SASB Standards) and the Climate Disclosure Standards Board (CDSB). Companies are directed to use SASB Standards as a reference point when identifying sustainability-related risks and opportunities under IFRS S1.

Who Uses It

ISSB adoption is accelerating globally:

• Capital markets regulators in the UK (FCA), Canada (CSA), Japan (FSA), Australia (ASIC), Singapore (SGX), Hong Kong (HKEX), and Nigeria (SEC) are incorporating ISSB into mandatory disclosure requirements
• Companies with international investor bases seeking a globally consistent disclosure framework that satisfies investor expectations across jurisdictions
• Companies already reporting under TCFD — ISSB is the natural evolution, with TCFD formally disbanded and monitoring transferred to ISSB
• Companies using SASB Standards — ISSB has incorporated SASB as implementation guidance for industry-specific disclosure topics
• Emerging market companies seeking to align with international capital market expectations

Key Requirements

IFRS S1 — General Requirements:

• Disclose information about sustainability-related risks and opportunities that could affect enterprise value
• Apply the four-pillar structure: governance arrangements, strategy implications, risk management processes, and relevant metrics and targets
• Consider risks and opportunities across the value chain, not just direct operations
• Assess materiality from an investor perspective — information is material if omitting or misstating it could influence investor decisions
• Connect sustainability disclosures to financial statements where relevant

IFRS S2 — Climate-related Disclosures:

• Disclose Scope 1, Scope 2, and Scope 3 greenhouse gas emissions (with a first-year exemption for Scope 3)
• Conduct and disclose climate scenario analysis assessing resilience of strategy under different climate outcomes
• Describe climate-related transition plans, including targets and milestones
• Disclose the financial effects of climate-related risks and opportunities on the balance sheet, income statement, and cash flows (with transition relief for quantitative disclosures)
• Use industry-based disclosure guidance derived from SASB Standards

How to Implement

Phase 1: Scoping (2-3 months) Determine which jurisdictional adoption pathway applies. Assess current TCFD and SASB reporting against ISSB requirements. Identify material sustainability-related risks and opportunities using SASB sector standards as a starting point.

Phase 2: Governance and Process (2-3 months) Establish board-level oversight of sustainability-related risks. Define management roles and responsibilities. Integrate sustainability risk identification into existing enterprise risk management processes.

Phase 3: Climate Analysis (3-6 months) Build or refine GHG emissions inventory (Scope 1, 2, 3). Conduct climate scenario analysis — ISSB doesn't prescribe specific scenarios but expects analysis covering both physical and transition risks. Assess financial impacts on the business under each scenario.

Phase 4: Disclosure Development (2-4 months) Prepare disclosures across all four pillars for both S1 and S2. Connect sustainability disclosures to financial statements. Prepare for assurance — ISSB disclosures are expected to be subject to the same assurance standards as financial reporting over time.

Relationship to Other Frameworks

ISSB and GRI represent the two pillars of the emerging global reporting architecture — ISSB for financial materiality (investor-focused) and GRI for impact materiality (stakeholder-focused). Together they cover the "double materiality" lens that CSRD/ESRS requires.

ISSB fully incorporates TCFD. Companies compliant with ISSB S2 meet TCFD recommendations.

ISSB uses SASB Standards as industry-specific implementation guidance. SASB metrics are referenced as the starting point for identifying material topics under S1.

ISSB and ESRS share the same structural architecture (four pillars, same topic coverage) but differ in materiality approach. IOSCO has endorsed ISSB as the global baseline, with jurisdictions adding requirements (like ESRS's impact materiality layer) as needed.

Why It Matters

ISSB represents the convergence of sustainability disclosure toward a global baseline comparable to IFRS financial accounting standards. For companies operating across borders, ISSB provides a single framework that satisfies investor expectations in most major capital markets.

The practical significance is accelerating. As jurisdictions adopt ISSB, what was voluntary becomes mandatory. Companies that build ISSB-compliant reporting infrastructure now will be prepared for requirements that are arriving within 1-3 years in most major markets. Companies that wait will face the same compressed-timeline compliance challenges that CSRD created in Europe.

For investors, ISSB creates the comparability that has been missing from the sustainability disclosure landscape. Standardized, assured sustainability data — reported alongside financial statements — enables the kind of systematic analysis that sustainability information has historically been too inconsistent to support.