Understanding the ISSB standards

Deciphering the first two ISSB standards and what they mean for business’ financial reporting

Paula Galbiatti Silveira

by Paula Galbiatti Silveira

On 26 June 2023, the International Sustainability Standards Board (ISSB) (part of the International Financial Reporting Standards [IFRS] Foundation) published its first sustainability standards: the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (hereafter referred as S1) and IFRS S2 Climate-related Disclosures (hereafter referred as S2). But what do these standards address, and what do they mean for the future of financial reporting?

S1 covers the general requirements for disclosure of sustainability-related financial information and S2 applies to climate-related risks. Both standards will apply to annual reporting periods beginning on or after 1 January 2024, though companies can use them before this date — as long as they use both standards. This means that companies choosing to report against the ISSB standards will need to report on activities from January 2024. In 2025, these companies’ sustainability-related financial disclosures should be based on the ISSB standards.

Understanding the ISSB standards

The ISSB was created in 2021 by the IFRS Foundation. Its aim was to provide a high-quality, comprehensive global baseline of sustainability disclosure standards focused on the needs of investors and the financial markets. And that — as Mary Foley pointed out for Forbes — is key. The ISSB standards therefore use the same definition of ‘material’ as that used in IFRS Accounting Standards:

Information is material if its omission, obscuring, or misstatement could reasonably be expected to influence investor decisions.

IFRS Accounting Standards

S1 is a general standard for sustainability disclosure. It therefore sets out general requirements for how companies must prepare and report sustainability-related financial disclosures.

Under S1, companies must disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect their cash flows, access to finance, or cost of capital — over the short-, medium-, or long-term.

S2 is the first topic-specific standard of ISSB and applies to climate-related risks. These include:

  • Physical risks, such as:
    • Acute risks related to particular events resulting from climate change (such as storms, floods, drought, or heatwaves) or chronic risks from “longer-term shifts in climatic patterns”, such as
    • Changes in precipitation and temperature.
    • Sea level rise.
    • Reduced water availability.
    • Biodiversity loss.
    • Changes in soil productivity.
  • Transition risks (“risks that arise from efforts to transition to a lower-carbon economy”), including:
    • Policy risks.
    • Legal risks.
    • Technological risks.
    • Market and reputational risks.
  • Climate-related opportunities.

ISSB disclosure requirements

For both S1 and S2, companies must disclose information about the following, based on the Recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD):



This includes the governance processes, controls, and procedures used to monitor and manage sustainability-related risks and opportunities. The reporting entity must disclose, for example, governance bodies such as boards or committees, or individuals responsible for oversight of sustainability-related risks and opportunities.



This refers to the approach used to manage sustainability-related risks and opportunities.

Reporting entities must disclose, among others, descriptions of sustainability-related risks and opportunities that could reasonably affect the company’s prospects over short-, medium-, or long-term time horizons, and how the company has responded. Here, S2 adds a specific disclosure about climate resilience.


Risk management

The processes used to identify, assess, prioritize, and monitor sustainability-related risks and opportunities, as well as to assess the company’s risk profile and risk management process.


Metrics and targets

Quantifiable performance on sustainability-related risks and opportunities, including progress towards any targets set or required by law or regulation.

You would expect to see a metric for all sustainability-related risks and opportunities, especially if they’re required by other ISSB standards, such as S2. For example, S2 mandates disclosing greenhouse gas (GHG) emissions in absolute gross emissions expressed as metric tons of CO2 equivalent; Scope 1, 2, and 3 emissions; internal carbon prices; measurement; among others.

S1 also sets requirements for reporting. These include where to disclose — such as in general purpose financial reports — and when to disclose (at the same time as related financial statements). Companies that comply with all disclosure requirements under IFRS standards (meaning S1 and S2) have to make an explicit and unreserved statement of compliance.


Transitional reliefs

There are some transitional reliefs specifically applicable to S2. For example, in the first annual period that S2 applies (meaning 2024 for disclosure in 2025), companies are not required to:

  • Disclose comparative information.
  • Use a measuring method for GHG emissions other than the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004).
  • Disclose Scope 3 GHG emissions.

Are the ISSB standards mandatory?

S1 and S2 are not in themselves mandatory. However, they may become mandatory if their use is required by national regulations. This is the case for the Accounting Standards covered by the IFRS, which have been made mandatory in several jurisdictions, including the EU. F

It seems likely that several countries may mandate the use of S1 and S2 in the future, not least because the work of the ISSB is backed by the G7, the G20, International Organization of Securities Commissions (IOSCO), the Financial Stability Board, African Finance Ministers, and by Finance Ministers and Central Bank Governors from over 40 jurisdictions.

Jurisdictions such as Australia, Canada, Japan, and South Korea are also establishing — or have established — sustainability standards boards that enable them to cooperate with the ISSB. The ISSB standards can be mandated or combined with jurisdiction-specific requirements to meet the information needs of broader stakeholder groups beyond investors. On 20 October 2023, the Brazilian Securities Commission (Comissão de Valores Mobiliários – CVM) inaugurated the adoption of the ISSB standards. It adopted Resolution 193 on the incorporation of the ISSB standards into the Brazilian regulatory framework, setting a voluntary use starting in 2024 and future mandatory use on 1 January 2026 for listed companies.

ISSB standards and the Task Force on Climate-Related Financial Disclosure (TCFD)

On 6 July 2023, the Financial Stability Board, which oversees the TCFD, announced it had passed the responsibility for monitoring companies’ progress on climate-related disclosures to the IFRS Foundation — and more particularly to the ISSB. The transfer of responsibilities will formally take place in 2024, to align with the start date of the use of the ISSB standards. This avoids duplications between standards, responsibilities, and bodies, because S1 and S2 integrate the TCFD’s recommendations. The specific date for transfer has not yet been announced.

ISSB standards: A common-sense approach focused on investors’ needs

The outstanding takeaway from the new ISSB standards is the clear and forensic focus on investors’ needs. Other stakeholders may find the information interesting, but investors are the clear target audience. This is shown in both the content and the alignment with general financial reporting. This gives companies a strong incentive to use the standards — and a good starting point for their implementation. It’s very likely that several jurisdictions will mandate the use of S1 and S2, especially if they already require the use of IFRS accounting standards.

Interoperability with other reporting standards

The ISSB standards were not drafted from zero. As mentioned, they’re built on the TCFD framework, which bases climate-related disclosures in several jurisdictions, such as Canada, Switzerland, and Japan. In addition, the IFRS Foundation and the Global Reporting Initiative (GRI) agreed to build efforts in the consolidation and alignment of their sustainability reporting initiatives. Under the agreement, the standard-setting boards of IFRS and GRI, respectively, ISSB and the Global Sustainability Standards Board (GSSB), will coordinate their programs and activities to reach aligned terminology and guidance and help companies, investors, and stakeholders with their sustainability reporting initiatives.

The ISSB also works together with the European Financial Reporting Advisory Group (EFRAG), which drafts the European Sustainability Reporting Standards (ESRS), on the interoperability between them. EFRAG is also preparing an interoperability document with a mapping table on climate-related disclosures.

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