August 6, 2024

What are the ISSB Standards and what do IFRS S1 and S2 mean for your business

Learn about the ISSB standards IFRS S1 and S2, their impact on global sustainability reporting, and practical tips for implementation.

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Understanding sustainability and climate-related disclosure requirements, standards and boards can be a complex and often overwhelming task for any professional or company wanting to assess their climate risks. One may say that up until now, navigating through them felt like an “Alphabet Soup”, constantly changing and evolving. The standards set by the International Sustainability Standards Board (ISSB) aim to provide a global framework that enables companies across the world to compare high-quality information about sustainability-related risks and opportunities.

For any business wanting to enhance their climate disclosure and reporting practices, grasping these global standards set by the ISSB will be crucial. Currently, jurisdictions representing nearly  55% of the world’s GDP are either adopting or planning to implement these standards. As sustainability becomes an integral part of investment decisions and regulatory expectations, these standards - most known as International Financial Reporting Standards (IFRS) S1 and S2 - provide a step forward in addressing climate-related financial risks.

This article provides an overview of the ISSB standards, specifically IFRS S1 and S2, and their importance in the current regulatory landscape. It will explain the relationship of these standards with other established frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the European Sustainability Reporting Standards (ESRS). Furthermore, it will highlight why organizations should adopt these standards now, supported by evidence of their growing adoption across countries, their increasing relevance to investors as signaled by the World Bank, and the expanding requirements organizations need to meet. Finally, we'll provide practical tips on implementing these standards, emphasizing the role of EarthScan, our climate risk intelligence platform, for ready-to-use, TCFD, ESRS, and IFRS-aligned reports.

What is ISSB?

Announced during COP26 in Glasgow, the ISSB was established to develop comprehensive and globally accepted sustainability reporting standards. Formed in response to the growing demand for high-quality and comparable sustainability disclosures, the ISSB aims to address the fragmented landscape of existing reporting frameworks. It provides a global baseline for sustainability-related disclosures, focusing on the needs of investors and the financial markets.

In 2024, the IFRS Foundation was asked by the Financial Stability Board to take over the monitoring of the progress of companies’ climate-related financial disclosures, previously done by the Task Force on Climate-Related Financial Disclosures.  

The ISSB aims to provide capital market participants with essential information for better economic and investment decision-making. By using a transparent and rigorous due process, the ISSB develops standards that:

  • Help companies disclose decision-useful, comparable information.
  • Streamline the various voluntary sustainability-reporting initiatives.

What are the IFRS Sustainability Disclosure Standards (IFRS SDS)?

The IFRS SDS are the standards set by the ISSB. In June 2023, the ISSB released the final versions of IFRS SDS, which were comprised of two ground-breaking standards to enhance global sustainability disclosure requirements: IFRS S1 and IFRS S2. These became effective for reporting periods commencing on or after 1st January 2024.

  • IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information provides a comprehensive framework for general sustainability-related disclosures. It covers various Environmental, Social, and Governance (ESG) topics, guiding businesses in disclosing the financially relevant impacts of sustainability on their operations over short, medium and long term. It aims to create a consistent, global baseline for sustainability reporting. This standard sets requirements for governance, strategy, risk management, and metrics & targets, ensuring that sustainability information is presented alongside financial statements. Companies are encouraged to adopt IFRS S1 to demonstrate their commitment to sustainability, thus attracting investments and identifying new opportunities.
  • IFRS S2 Climate-related Disclosures focuses specifically on climate-related risk disclosures. This standard provides detailed guidelines for reporting climate-related financial risks and opportunities. It requires entities to disclose information about climate-related physical and transition risks, as well as climate-related opportunities. IFRS S2 emphasises the importance of governance, strategy, risk management, and metrics & targets in managing climate-related risks and opportunities.

Are these standards mandatory?

China, Brazil, Canada, India, Singapore, Malaysia, Nigeria, Australia, Turkey, Pakistan, Philippines, UK, Singapore, Hong Kong and the EU have already completed jurisdictional consultations. Others, such as Brazil, Japan, and South Korea are in the process. Similarly, some multilateral development banks such as the European Bank for Reconstruction and Development and the World Bank have already confirmed that they are preparing to disclose in line with the ISSB standards.

The adoption of ISSB standards is not universally mandatory, but their endorsement by securities regulators around the world indicates a strong push towards widespread implementation. While specific jurisdictions may have their own regulatory requirements, the ISSB standards provide a global baseline that can be adopted either mandatorily or voluntarily. Given the widespread adoption of IFRS for financial reporting, it would be understandable for the majority of the same jurisdictions to eventually adopt IFRS S1 and S2. This flexibility aims to support both regulatory and voluntary reporting needs, promoting consistency and comparability in sustainability reporting globally.

What is the difference between IFRS S1 and S2?

Both standards require entities to disclose all sustainability-related risks and opportunities that could reasonably affect cash flows, access to finance, or cost of capital over various terms. IFRS S1 covers broad sustainability disclosures across ESG topics, whereas IFRS S2 specifically targets climate-related financial risks and opportunities.

How does the IFRS incorporate other existing standards and frameworks?

The ISSB has developed IFRS S1 and S2 with careful consideration of a range of existing reporting standards. As such, these standards not only create a unified global baseline, but create a single coherent standard which aligns with well-established frameworks, helping businesses navigate the complex fragmented landscape of sustainability reporting.

How the ISSB Standards integrate TCFD, SASB, IRF, CDSB, IASB and GGP frameworks

What is the difference between IFRS and TCFD?

Last July 2023, the Financial Stability Board announced that the TCFD's work is complete, with the ISSB Standards now encompassing TCFD recommendations. Companies applying IFRS S1 and IFRS S2 will meet TCFD requirements, as these are fully incorporated into ISSB Standards. While companies may still use TCFD recommendations, the ISSB offers additional requirements such as disclosing industry-based metrics, planned use of carbon credits, and financed emissions details. The TCFD significantly improved climate-related disclosures, and the ISSB builds on this legacy, simplifying various disclosure initiatives. The IFRS Foundation now monitors progress on climate-related disclosures, following TCFD's disbandment.

What are the implications for businesses?

By 2025, 56% of the global GDP will be operating in markets mandating climate-related disclosures. In the last few years, we have seen the proliferation of reporting standards and frameworks around climate-related disclosures. Firms adhering to IFRS Standards S1 and S2 provide high-quality and globally comparable information to internal and external stakeholders, including investors.  

In Europe, both the European Union (EU) and the United Kingdom (UK) are advancing their sustainability reporting legislation by incorporating IFRS S1 and S2 Standards. The European Commission adopted the European Sustainability Standards (ESRS) on 31st July 2024, while the UK is currently preparing its own UK Sustainability Reporting Standards, anticipated for early 2025.

In the European Union

The European Commission’s  Corporate Sustainability Reporting Directive (CSRD) mandates that large companies and publicly listed companies, except micro-enterprises, disclose information on their social and environmental risks and opportunities, and their impact on people and the environment. This is part of a broader effort to enhance transparency and direct investments towards sustainable initiatives. To meet these goals, the European Commission has developed the European Sustainability Reporting Standards with the technical advisory from EFRAG. These standards aim to provide comparable, reliable sustainability information, addressing issues such as the current insufficiency, incomparability, and distrust in reported sustainability data.

The European Commission, together with the EFRAG, has worked with the ISSB to ensure a high degree of alignment between both standards. This alignment has been translated into ESRS alignment on the definition of financial materiality (IFRS S1), commonly defined terms as well as the inclusion of almost all the disclosures in ISSB Standards linked to climate. The ESRS and the first two ISSB standards, released in June, were developed simultaneously. Productive discussions between the Commission, EFRAG, and the ISSB have resulted in a high level of alignment where the standards intersect.

In the United Kingdom

In the UK, the government has supported the ISSB and plans to endorse IFRS S1 and S2 standards, forming the basis for the UK's Sustainability Reporting Standards. The UK Government aims to make the UK-endorsed ISSB standards available in Q1 2025. The adoption of ISSB standards in the UK is expected to enhance the comparability of company disclosures for global investors, promoting better decision-making and capital allocation.

How your company can transition from TCFD to ISSB reporting

How can you transition from TCFD to ISSB reporting? Start by understanding ISSB requirements, focusing on IFRS S2’s new elements such as industry-based metrics, carbon credit usage, and financed emissions disclosures. Utilise comparison tables to identify and address gaps in your current reporting.

Ensure your governance and risk management practices align with ISSB standards, enhancing resilience to climate change and meeting investor expectations. Also remember to adjust the timing of your disclosures to align with financial statements, as required by IFRS S1. This transition will simplify compliance, improve transparency, and better meet regulatory demands. Starting from TCFD provides a strong foundation, making the shift to ISSB smoother and beneficial for comprehensive climate risk reporting.

Conclusion

The introduction of IFRS S1 and IFRS S2 marks a pivotal shift in sustainability reporting, setting a new global standard for transparency and accountability in business practices. By adopting these ISSB standards, companies can enhance their sustainability disclosure, ensuring they meet global benchmarks and stakeholder expectations. This not only helps businesses manage risks and identify opportunities but also fosters investor confidence and aligns with broader sustainability goals.

As sustainability becomes an increasingly critical factor in business success, adhering to IFRS S1 and S2 positions companies as leaders in responsible corporate governance and environmental stewardship, ultimately driving long-term value and resilience in a rapidly evolving market landscape. By using our climate risk intelligence platform, EarthScan, businesses can generate ISSB, TCFD, and ESRS-compliant reports, ensure regulatory compliance, and make science-backed strategic decisions.

Understanding sustainability and climate-related disclosure requirements, standards and boards can be a complex and often overwhelming task for any professional or company wanting to assess their climate risks. One may say that up until now, navigating through them felt like an “Alphabet Soup”, constantly changing and evolving. The standards set by the International Sustainability Standards Board (ISSB) aim to provide a global framework that enables companies across the world to compare high-quality information about sustainability-related risks and opportunities.

For any business wanting to enhance their climate disclosure and reporting practices, grasping these global standards set by the ISSB will be crucial. Currently, jurisdictions representing nearly  55% of the world’s GDP are either adopting or planning to implement these standards. As sustainability becomes an integral part of investment decisions and regulatory expectations, these standards - most known as International Financial Reporting Standards (IFRS) S1 and S2 - provide a step forward in addressing climate-related financial risks.

This article provides an overview of the ISSB standards, specifically IFRS S1 and S2, and their importance in the current regulatory landscape. It will explain the relationship of these standards with other established frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the European Sustainability Reporting Standards (ESRS). Furthermore, it will highlight why organizations should adopt these standards now, supported by evidence of their growing adoption across countries, their increasing relevance to investors as signaled by the World Bank, and the expanding requirements organizations need to meet. Finally, we'll provide practical tips on implementing these standards, emphasizing the role of EarthScan, our climate risk intelligence platform, for ready-to-use, TCFD, ESRS, and IFRS-aligned reports.

What is ISSB?

Announced during COP26 in Glasgow, the ISSB was established to develop comprehensive and globally accepted sustainability reporting standards. Formed in response to the growing demand for high-quality and comparable sustainability disclosures, the ISSB aims to address the fragmented landscape of existing reporting frameworks. It provides a global baseline for sustainability-related disclosures, focusing on the needs of investors and the financial markets.

In 2024, the IFRS Foundation was asked by the Financial Stability Board to take over the monitoring of the progress of companies’ climate-related financial disclosures, previously done by the Task Force on Climate-Related Financial Disclosures.  

The ISSB aims to provide capital market participants with essential information for better economic and investment decision-making. By using a transparent and rigorous due process, the ISSB develops standards that:

  • Help companies disclose decision-useful, comparable information.
  • Streamline the various voluntary sustainability-reporting initiatives.

What are the IFRS Sustainability Disclosure Standards (IFRS SDS)?

The IFRS SDS are the standards set by the ISSB. In June 2023, the ISSB released the final versions of IFRS SDS, which were comprised of two ground-breaking standards to enhance global sustainability disclosure requirements: IFRS S1 and IFRS S2. These became effective for reporting periods commencing on or after 1st January 2024.

  • IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information provides a comprehensive framework for general sustainability-related disclosures. It covers various Environmental, Social, and Governance (ESG) topics, guiding businesses in disclosing the financially relevant impacts of sustainability on their operations over short, medium and long term. It aims to create a consistent, global baseline for sustainability reporting. This standard sets requirements for governance, strategy, risk management, and metrics & targets, ensuring that sustainability information is presented alongside financial statements. Companies are encouraged to adopt IFRS S1 to demonstrate their commitment to sustainability, thus attracting investments and identifying new opportunities.
  • IFRS S2 Climate-related Disclosures focuses specifically on climate-related risk disclosures. This standard provides detailed guidelines for reporting climate-related financial risks and opportunities. It requires entities to disclose information about climate-related physical and transition risks, as well as climate-related opportunities. IFRS S2 emphasises the importance of governance, strategy, risk management, and metrics & targets in managing climate-related risks and opportunities.

Are these standards mandatory?

China, Brazil, Canada, India, Singapore, Malaysia, Nigeria, Australia, Turkey, Pakistan, Philippines, UK, Singapore, Hong Kong and the EU have already completed jurisdictional consultations. Others, such as Brazil, Japan, and South Korea are in the process. Similarly, some multilateral development banks such as the European Bank for Reconstruction and Development and the World Bank have already confirmed that they are preparing to disclose in line with the ISSB standards.

The adoption of ISSB standards is not universally mandatory, but their endorsement by securities regulators around the world indicates a strong push towards widespread implementation. While specific jurisdictions may have their own regulatory requirements, the ISSB standards provide a global baseline that can be adopted either mandatorily or voluntarily. Given the widespread adoption of IFRS for financial reporting, it would be understandable for the majority of the same jurisdictions to eventually adopt IFRS S1 and S2. This flexibility aims to support both regulatory and voluntary reporting needs, promoting consistency and comparability in sustainability reporting globally.

What is the difference between IFRS S1 and S2?

Both standards require entities to disclose all sustainability-related risks and opportunities that could reasonably affect cash flows, access to finance, or cost of capital over various terms. IFRS S1 covers broad sustainability disclosures across ESG topics, whereas IFRS S2 specifically targets climate-related financial risks and opportunities.

How does the IFRS incorporate other existing standards and frameworks?

The ISSB has developed IFRS S1 and S2 with careful consideration of a range of existing reporting standards. As such, these standards not only create a unified global baseline, but create a single coherent standard which aligns with well-established frameworks, helping businesses navigate the complex fragmented landscape of sustainability reporting.

How the ISSB Standards integrate TCFD, SASB, IRF, CDSB, IASB and GGP frameworks

What is the difference between IFRS and TCFD?

Last July 2023, the Financial Stability Board announced that the TCFD's work is complete, with the ISSB Standards now encompassing TCFD recommendations. Companies applying IFRS S1 and IFRS S2 will meet TCFD requirements, as these are fully incorporated into ISSB Standards. While companies may still use TCFD recommendations, the ISSB offers additional requirements such as disclosing industry-based metrics, planned use of carbon credits, and financed emissions details. The TCFD significantly improved climate-related disclosures, and the ISSB builds on this legacy, simplifying various disclosure initiatives. The IFRS Foundation now monitors progress on climate-related disclosures, following TCFD's disbandment.

What are the implications for businesses?

By 2025, 56% of the global GDP will be operating in markets mandating climate-related disclosures. In the last few years, we have seen the proliferation of reporting standards and frameworks around climate-related disclosures. Firms adhering to IFRS Standards S1 and S2 provide high-quality and globally comparable information to internal and external stakeholders, including investors.  

In Europe, both the European Union (EU) and the United Kingdom (UK) are advancing their sustainability reporting legislation by incorporating IFRS S1 and S2 Standards. The European Commission adopted the European Sustainability Standards (ESRS) on 31st July 2024, while the UK is currently preparing its own UK Sustainability Reporting Standards, anticipated for early 2025.

In the European Union

The European Commission’s  Corporate Sustainability Reporting Directive (CSRD) mandates that large companies and publicly listed companies, except micro-enterprises, disclose information on their social and environmental risks and opportunities, and their impact on people and the environment. This is part of a broader effort to enhance transparency and direct investments towards sustainable initiatives. To meet these goals, the European Commission has developed the European Sustainability Reporting Standards with the technical advisory from EFRAG. These standards aim to provide comparable, reliable sustainability information, addressing issues such as the current insufficiency, incomparability, and distrust in reported sustainability data.

The European Commission, together with the EFRAG, has worked with the ISSB to ensure a high degree of alignment between both standards. This alignment has been translated into ESRS alignment on the definition of financial materiality (IFRS S1), commonly defined terms as well as the inclusion of almost all the disclosures in ISSB Standards linked to climate. The ESRS and the first two ISSB standards, released in June, were developed simultaneously. Productive discussions between the Commission, EFRAG, and the ISSB have resulted in a high level of alignment where the standards intersect.

In the United Kingdom

In the UK, the government has supported the ISSB and plans to endorse IFRS S1 and S2 standards, forming the basis for the UK's Sustainability Reporting Standards. The UK Government aims to make the UK-endorsed ISSB standards available in Q1 2025. The adoption of ISSB standards in the UK is expected to enhance the comparability of company disclosures for global investors, promoting better decision-making and capital allocation.

How your company can transition from TCFD to ISSB reporting

How can you transition from TCFD to ISSB reporting? Start by understanding ISSB requirements, focusing on IFRS S2’s new elements such as industry-based metrics, carbon credit usage, and financed emissions disclosures. Utilise comparison tables to identify and address gaps in your current reporting.

Ensure your governance and risk management practices align with ISSB standards, enhancing resilience to climate change and meeting investor expectations. Also remember to adjust the timing of your disclosures to align with financial statements, as required by IFRS S1. This transition will simplify compliance, improve transparency, and better meet regulatory demands. Starting from TCFD provides a strong foundation, making the shift to ISSB smoother and beneficial for comprehensive climate risk reporting.

Conclusion

The introduction of IFRS S1 and IFRS S2 marks a pivotal shift in sustainability reporting, setting a new global standard for transparency and accountability in business practices. By adopting these ISSB standards, companies can enhance their sustainability disclosure, ensuring they meet global benchmarks and stakeholder expectations. This not only helps businesses manage risks and identify opportunities but also fosters investor confidence and aligns with broader sustainability goals.

As sustainability becomes an increasingly critical factor in business success, adhering to IFRS S1 and S2 positions companies as leaders in responsible corporate governance and environmental stewardship, ultimately driving long-term value and resilience in a rapidly evolving market landscape. By using our climate risk intelligence platform, EarthScan, businesses can generate ISSB, TCFD, and ESRS-compliant reports, ensure regulatory compliance, and make science-backed strategic decisions.

See EarthScan in action

Analyse asset-level climate risk in one click

Book a demo

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