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, including information about any transition plan the company has. In December 2025 the ISSB issued targeted amendments to IFRS S2's greenhouse gas requirements, effective for periods beginning on or after January 1, 2027 (early application permitted), that limit Scope 3 category 15 reporting to financed emissions and expand jurisdictional relief on measurement methods and global warming potential values.

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. The ISSB is also developing nature-related disclosure requirements that draw on the TNFD's recommendations, with an exposure draft targeted for October 2026.

Who Uses It

ISSB adoption is accelerating globally:

• Capital markets regulators and standard setters — as of April 2026, 28 jurisdictions had adopted ISSB Standards in some form. Australia, Japan, Singapore, Hong Kong, and Nigeria are among those building them into disclosure requirements, while the UK and Canada have issued ISSB-based standards for voluntary use (the UK's FCA has proposed requiring them for listed companies from 2027, and Canada's securities regulators paused their mandatory climate rule in April 2025)
• 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 any climate-related transition plan the company has, and disclose climate targets, including milestones and progress
• Disclose the financial effects of climate-related risks and opportunities on the balance sheet, income statement, and cash flows (qualitative information is allowed where effects are not separately identifiable or too uncertain to measure usefully)
• 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 — the ISSB Standards don't require it, but many adopting jurisdictions do: Australia moves from limited to reasonable assurance, and Japan and Singapore are phasing in limited assurance. Engagements typically follow sustainability assurance standards such as the IAASB's ISSA 5000, issued in November 2024.

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 a similar structure (governance, strategy, management of risks or impacts, and metrics and targets), and the IFRS Foundation and EFRAG published interoperability guidance in May 2024 showing a high degree of alignment on climate. ESRS cover more topics and add impact materiality. 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-aligned reporting infrastructure now will be ready as those requirements arrive; as of April 2026, 28 jurisdictions had adopted the standards in some form. 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.