Your Guide to ISSB, IFRS S1, and IFRS S2 for Sustainability

In today’s fast-evolving world, where sustainability has become a business imperative, how can companies ensure their disclosures meet global expectations? Enter the International Sustainability Standards Board (ISSB), a trailblazer in unifying fragmented sustainability reporting frameworks. With its groundbreaking IFRS S1 and IFRS S2 standards, the ISSB is setting the stage for transparent, consistent, and comparable sustainability disclosures worldwide. Whether you’re a business leader, investor, or sustainability professional, understanding these standards isn’t just important—it’s essential for navigating the future of corporate accountability. In this guide, we’ll demystify ISSB, IFRS S1, and IFRS S2, and explore how they can transform your sustainability reporting strategy.

What is the International Sustainability Standards Board (ISSB)?

The International Sustainability Standards Board (ISSB) was launched in November 2021 by the IFRS Foundation with a singular vision: to simplify and unify global sustainability reporting. Prior to the ISSB, organizations relied on numerous frameworks—such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-Related Financial Disclosures (TCFD)—each with its unique focus and approach.

Key Challenges Before ISSB:

• Fragmentation: Organizations had to juggle multiple reporting frameworks, leading to inconsistencies.

• Investor Confusion: Stakeholders found it difficult to compare sustainability performance across companies.

• Resource Burden: Businesses spent excessive time and resources trying to comply with overlapping requirements.

By establishing a global baseline, the ISSB eliminates these challenges, allowing organizations to focus on delivering meaningful, investor-relevant sustainability information.

The ISSB’s Key Objectives

The ISSB aims to revolutionize sustainability reporting through three primary objectives:

1. Unify Standards:
   Fragmentation in sustainability reporting can confuse investors and dilute the impact of disclosures. The ISSB consolidates best practices from existing frameworks to create one comprehensive set of standards.

2. Align with Financial Reporting:
   By integrating sustainability disclosures with financial reporting, the ISSB ensures that sustainability risks and opportunities are treated with the same rigor as financial data. This alignment helps companies present a holistic view of their business performance.

3. Support Decision-Making:
   Standardized sustainability information enables investors, regulators, and other stakeholders to assess risks, compare companies, and make informed decisions about long-term value creation.

   

Creating Global Standards: IFRS S1 and IFRS S2

The ISSB introduced IFRS S1 and IFRS S2 to address the growing demand for sustainability-related information.

• IFRS S1: This standard provides overarching requirements for sustainability disclosures. It covers all sustainability risks and opportunities that could impact a company’s financial performance.

• IFRS S2: This standard is specific to climate-related disclosures, emphasizing how climate risks and opportunities affect financial outcomes.

Together, these standards provide a comprehensive framework, enabling organizations to report on environmental, social, and governance (ESG) factors with clarity and consistency.

Why These Standards Matter:

• They address global investor demand for consistent, decision-useful information.

• They help companies navigate the transition to a low-carbon economy.

• They build on the TCFD framework, which is widely recognized as the gold standard for climate-related reporting.

IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information

IFRS S1 introduces a comprehensive framework for sustainability reporting, setting a global standard for organizations to communicate critical sustainability-related information. The standard aims to provide investors with transparent insights into how sustainability risks and opportunities might influence a company's financial trajectory.

Key features of IFRS S1 include:

1. Comprehensive Disclosure Requirements: Companies must reveal material sustainability-related risks and opportunities that could significantly impact their financial position, performance, or future prospects. This requirement ensures that investors receive a holistic view of an organization's sustainability landscape.

2. Integrated Reporting Approach: The standard mandates that sustainability disclosures be integrated with financial statements, creating a more interconnected and comprehensive reporting mechanism. This approach helps stakeholders understand the intrinsic links between sustainability factors and financial outcomes.

3. Industry-Specific Guidance: IFRS S1 encourages industry-specific disclosures, referencing the SASB (Sustainability Accounting Standards Board) standards to provide targeted guidance for identifying and reporting sustainability risks and opportunities across different sectors.

4. Flexible Methodology: The standard is GAAP-agnostic, meaning it can be applied across various accounting frameworks. It also provides references to help companies identify and articulate sustainability-related risks and opportunities beyond the scope of IFRS S2.

5. Complementary Standards: IFRS S1 is designed to be used in conjunction with IFRS S2 and future standards released by the International Sustainability Standards Board (ISSB), creating a comprehensive sustainability reporting ecosystem.

The ultimate goal of IFRS S1 is to empower investors with detailed, meaningful information that illuminates how sustainability considerations might influence a company's financial journey and long-term prospects.

IFRS S2: Climate-related Disclosures

IFRS S2 emerges as a targeted response to the critical challenge of climate change, providing businesses with a comprehensive framework for reporting climate-related risks and opportunities. Developed in close alignment with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, this standard offers a structured approach to climate reporting.

The standard encompasses a holistic approach to climate disclosure, requiring organizations to provide in-depth insights into their climate-related strategies and risks:

1. Strategic Risk Assessment: Companies must differentiate between physical risks (direct environmental impacts) and transitional risks (regulatory, market, and technological changes) associated with climate change. This nuanced approach helps stakeholders understand the multifaceted nature of climate-related challenges.

2. Comprehensive Response Planning: Organizations are required to outline their strategic responses to climate-related risks and opportunities. This includes detailing how climate-related targets are established and identifying any legally mandated targets they must meet.

3. Forward-Looking Scenario Analysis: The standard mandates robust scenario planning, compelling businesses to explore and explain how potential climate-related events could impact their future operations, financial performance, and strategic direction.

4. Detailed Metrics and Targeting:

   • Cross-Industry Metrics: Mandatory reporting of universal indicators such as greenhouse gas emissions (covering Scope 1, 2, and 3 emissions)

   • Industry-Specific Metrics: Tailored indicators relevant to specific sectors

   • Company-Specific Metrics: Unique indicators tracked by board and management to measure progress towards climate-related goals

Designed to be used in conjunction with IFRS S1, IFRS S2 provides a detailed, forward-looking approach to climate reporting. It empowers businesses to transparently communicate their climate strategies, risks, and opportunities, offering investors and stakeholders unprecedented insight into an organization's climate resilience and strategic approach.

The standard represents a significant step towards comprehensive climate transparency, enabling businesses to demonstrate their commitment to understanding and addressing climate-related challenges.

How IFRS S1 and S2 Can Benefit Your Reporting Strategy

Adopting IFRS S1 and S2 offers several advantages:

• Enhanced Transparency: Build trust with investors by providing consistent, high-quality disclosures.

• Streamlined Reporting: Reduce redundancy by aligning with global standards.

• Strategic Insights: Use sustainability data to make informed business decisions.

• Future-Readiness: Stay ahead of regulatory changes and investor expectations.

Case in Point: A multinational corporation streamlined its reporting processes by adopting IFRS S1 and S2, reducing costs and improving stakeholder engagement.

Distinguishing IFRS S1 and S2 from Other Frameworks

International sustainability frameworks aspire to chart a path toward global peace and planetary well-being, with IFRS S1 and S2 taking a distinctive approach by focusing on sustainability-related risks and opportunities through a financial lens. These standards recognize the intricate, bidirectional relationship between a company's operations and the broader environmental and societal context.

The core of these standards revolves around four fundamental disclosure dimensions:

1. Governance Insights The standards require transparent reporting on how organizations monitor, manage, and oversee sustainability-related risks and opportunities. This provides investors with a clear view of the internal mechanisms driving sustainable decision-making.

2. Strategic Approach Companies must articulate their comprehensive strategy for navigating sustainability-related risks and opportunities. This goes beyond mere compliance, offering a window into the organization's long-term resilience and adaptability.

3. Risk Management Processes Detailed disclosure of how organizations identify, assess, prioritize, and monitor sustainability risks enables investors to gain a nuanced understanding of the company's overall risk management capabilities.

4. Performance Metrics and Targets The standards mandate reporting on concrete performance indicators and progress towards sustainability targets, whether internally set or mandated by regulatory requirements.

Comparative Landscape of Sustainability Frameworks:

While existing frameworks have laid crucial groundwork, IFRS S1 and S2 introduce unique value propositions:

• Global Reporting Initiative (GRI): Emphasizes broad sustainability impacts

• Sustainability Accounting Standards Board (SASB): Provides industry-specific guidance

• Task Force on Climate-related Financial Disclosures (TCFD): Offers climate-focused insights

The International Sustainability Standards Board (ISSB) aims to create a complementary ecosystem rather than a replacement, recognizing the strengths of existing frameworks while providing a more investor-centric, globally applicable standard.

By bridging the gap between organizational activities and their broader environmental and societal implications, these standards offer a holistic approach to sustainability reporting. They enable investors to understand not just the financial performance of a company, but its potential for long-term value creation in an increasingly complex global landscape.

Disclosure Requirements of IFRS S1 and S2

What Must Be Disclosed:

• Material Risks: Identify risks that impact financial health or operational resilience.

• Governance Structures: Demonstrate leadership accountability.

• Performance Metrics: Track and disclose progress against sustainability targets.

Common Challenges:

• Data collection across complex supply chains.

• Aligning disclosures with multiple regulatory requirements.

Pro Tip: Leverage software solutions to automate and simplify compliance.

Conclusion

The ISSB, through its IFRS S1 and IFRS S2 standards, has laid the groundwork for a new era of sustainability reporting. These standards don’t just help businesses comply with regulations—they empower them to communicate their impact, build trust, and drive meaningful change. By adopting ISSB standards, you’re not just reporting—you’re leading the way in corporate accountability.

Ready to future-proof your sustainability reporting? Start with IFRS S1 and S2, and take the first step toward transparent and impactful disclosures.