Learning Outcomes

By the end of this lesson, learners should be able to:

Explain the general requirements set out in IFRS S1. Describe the climate-related disclosure requirements under IFRS S2. Explain how sustainability disclosures connect with an organization’s financial statements. Describe how industry-based disclosure requirements are applied under ISSB standards. Explain transition reliefs, effective dates, and how jurisdictions are adopting ISSB standards.

Introduction

While GRI is built around impact materiality and serves a broad range of stakeholders, the International Sustainability Standards Board (ISSB) was created specifically to meet the needs of investors and capital markets. Established by the IFRS Foundation in 2021, the ISSB develops a global baseline of sustainability disclosure standards designed to sit alongside, and connect directly with, financial statements prepared under IFRS Accounting Standards or other GAAP frameworks.

This lesson examines the two foundational ISSB standards — IFRS S1 (general sustainability-related disclosures) and IFRS S2 (climate-related disclosures) — and explores how they are structured, how they connect to financial reporting, and how different jurisdictions around the world are adopting them. Understanding ISSB is essential for ESG professionals because it represents the standard increasingly referenced by regulators, stock exchanges, and institutional investors seeking comparable, decision-useful sustainability information.

1. IFRS S1 General Requirements

IFRS S1 sets out the overall framework for disclosing sustainability-related risks and opportunities that could reasonably be expected to affect an organization’s cash flows, access to finance, or cost of capital over the short, medium, and long term.

IFRS S1 requires disclosures organized around four content areas, mirroring the structure originally developed by the TCFD:

Governance – the processes and controls used to monitor and manage sustainability-related risks and opportunities. Strategy – how sustainability-related risks and opportunities affect the organization’s business model, strategy, and financial planning. Risk management – the processes used to identify, assess, prioritize, and monitor sustainability-related risks. Metrics and targets – the metrics and targets used to measure and manage performance against sustainability-related risks and opportunities.

A key feature of IFRS S1 is that it is topic-agnostic — it is not limited to climate and instead provides the general framework applicable to any sustainability-related topic that could affect enterprise value, with IFRS S2 providing the climate-specific detail.

2. IFRS S2 Climate-Related Disclosures

IFRS S2 applies the same four-pillar structure specifically to climate-related risks and opportunities, and it incorporates the TCFD recommendations almost in full. Key requirements include disclosure of:

Physical risks (such as extreme weather events) and transition risks (such as policy, technology, and market shifts) facing the organization. Climate-related targets, including any greenhouse gas emissions reduction targets. Scope 1 and Scope 2 greenhouse gas emissions, measured according to the GHG Protocol, with Scope 3 also required subject to certain reliefs. The organization’s climate resilience, informed by climate-related scenario analysis. Cross-industry metrics such as transition risk exposure, physical risk exposure, and climate-related opportunities.

IFRS S2 is designed to give investors comparable, decision-useful information on how climate change could affect an organization’s financial position and prospects, rather than a broad account of environmental performance for its own sake.

3. Connectivity with Financial Statements

A defining feature of ISSB standards is the requirement for connectivity between sustainability-related disclosures and the financial statements. This means:

Sustainability disclosures should be presented alongside (or clearly linked to) an organization’s general purpose financial statements, typically in the same reporting package and covering the same reporting period. Assumptions and estimates used in sustainability disclosures — for example, expected costs of transition plans — should be consistent with those used in the financial statements wherever they overlap. The aim is to help investors see a single, coherent picture of how sustainability-related risks translate into financial effects, rather than treating sustainability reporting as a separate, disconnected narrative.

4. Industry-Based Disclosure Requirements

IFRS S2 incorporates industry-based guidance, largely built on the SASB industry classification and metrics, to ensure disclosures are relevant to the specific risks and business model of each sector. Rather than requiring every organization to report identical generic metrics, industry-based requirements direct companies toward the climate-related metrics most likely to be financially material for their sector — for example, energy-intensity metrics for manufacturers versus underwriting exposure metrics for insurers.

This industry-based approach is intended to improve both the relevance of disclosures to investors and the comparability of disclosures between direct industry peers.

5. Transition Reliefs and Effective Dates

Recognizing that many organizations are building sustainability reporting capability for the first time, the ISSB included transition reliefs to ease initial adoption, such as:

Permitting some organizations to report only climate-related disclosures (IFRS S2) in the first year of application, before extending to other IFRS S1 topics. Allowing longer timeframes for reporting Scope 3 emissions data. Providing relief from restating comparative information in the first year of application.

Effective dates and the availability of these reliefs vary depending on when a jurisdiction formally adopts the standards into its own regulatory or listing requirements.

6. Jurisdictional Adoption of ISSB Standards

Because IFRS S1 and IFRS S2 are global baseline standards rather than automatically binding law, they only take legal effect once a jurisdiction, regulator, or stock exchange formally incorporates them into local requirements. Adoption approaches vary:

Some jurisdictions adopt the ISSB standards directly as issued. Others incorporate them with local modifications or phased timelines. Some jurisdictions instead reference ISSB standards as one acceptable basis for compliance alongside other frameworks such as ESRS.

Comparison: IFRS S1 vs IFRS S2

Key Takeaways

IFRS S1 provides the general framework for disclosing sustainability-related risks and opportunities using four pillars: Governance, Strategy, Risk Management, and Metrics and Targets. IFRS S2 applies the same four pillars specifically to climate, incorporating the TCFD recommendations and requiring Scope 1, 2, and (with reliefs) Scope 3 emissions disclosure. ISSB standards require connectivity between sustainability disclosures and financial statements so investors see a coherent picture of financial effects. Industry-based disclosure requirements, largely drawn from SASB, direct organizations toward the metrics most relevant to their sector. Transition reliefs, such as climate-only first-year reporting and Scope 3 timing relief, ease initial adoption. ISSB standards become mandatory only once adopted by a jurisdiction, regulator, or exchange, and adoption approaches differ around the world.