The International Sustainability Disclosure Standards – IFRS S1 and IFRS S2 – Best read

The International Sustainability Disclosure Standards – IFRS S1 and IFRS S2

On 26 June 2023 the International Sustainability Standards Board (ISSB) released its first two International Sustainability Disclosure Standards (IFRS SDS or the Standards) that become effective for periods beginning on or after 1 January 2024. Together they mark the start of a new era of requiring companies to make sustainability-related disclosures.

The ISSB was launched by the IFRS Foundation at COP26 with the aim of improving the consistency and quality of sustainability reporting across the globe, by matching the importance of sustainability reporting with the current regulations around financial reporting. To reinforce this message, the ISSB sits alongside the International Accounting Standards Board (IASB) and is overseen by the trustees of the IFRS Foundation and the Monitoring board.

The International Sustainability Disclosure Standards – IFRS S1 and IFRS S2

The ISSB brings together the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF), the name behind the Integrated Reporting Framework and the Sustainability Accounting Standards Board (SASB) Standards.

Frequently asked questions

Would a company that applies IFRS Accounting Standards also be required to comply with IFRS Sustainability Disclosure Standards?

The ISSB has agreed that companies can adopt a climate-first approach, giving them the relief to only report on climate-related risks and opportunities in their first reporting period. This will give companies an additional year to report on the full range of sustainability-related risks and opportunities. Note this does not override any local jurisdiction requirements that are in place on sustainability reporting.

Other reliefs for the first-year application include exempting a company from:

  • Reporting on comparative information
  • Disclosing scope 3 emissions (see below)
  • Using the GHG protocol (so long as another methodology is used)
  • Reporting at the same time as the related financial statements. This means companies will be permitted to report their sustainability-related financial disclosures after their financial statements, allowing for more time to collate and report on sustainability.

Would IFRS Sustainability Disclosure Standards be mandatory?

Jurisdictional authorities would decide whether to require the application of IFRS Sustainability Disclosure Standards, just as they have decided whether to require the application of IFRS Accounting Standards. The ISSB does not have the right to mandate the application of its standards. However, companies can choose to apply them.

When are the standards to come into effect?

The Standards are effective for annual reporting periods beginning on or after 1 January 2024, but companies can adopt them early if they wish.

Now the Standards are issued, regulators around the world will work to integrate the ISSB into their own mandatory reporting programs. Local jurisdictions will be responsible for determining local mandatory reporting timelines.

Introduction to The International Sustainability Disclosure Standards

Sustainability reporting is becoming increasingly important for stakeholders, with many larger companies already adopting some form of sustainability reporting to accommodate the demands of their key stakeholders. One of the key challenges faced by many investors and other stakeholders is they have not had access to good quality and globally comparable sustainability information, a stark difference to financial data. The developments being made by the ISSB are therefore game changing for sustainability reporting globally.

This is recognised by the international community. The ISSB has international support and is backed by the G7, G20, the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board, amongst others.

The Standards issued by the ISSB will help combat the challenges of companies “greenwashing”, meaning stakeholders will be able to make better-informed decisions with confidence.

Overview of the IFRS Sustainability Disclosure Standards



Statement of compliance

A company is required to make an explicit and unreserved statement of compliance when


The four pillars of governance, strategy, risk management and metrics & targets from the Taskforce on Climate-Related Financial Disclosures (TCFD) have been used to develop the Standards. See below.

Forward-looking information

Disclosures need to provide information on the impact of sustainability-related risks and opportunities on the company’s strategy, business model and financial statements over the short, medium and long-term.

Materiality – investor focused

Materiality is the same as the IFRS definition, commonly referred to as “Financial Materiality”. Information is deemed material if omitting, misstating or obscuring it could reasonably be expected to influence the users decision.

Cross references

Information required to be disclosed by IFRS Sustainability Disclosure Standards can be included in an entity’s sustainability-related financial disclosures by cross-reference, provided that the cross-referenced information is available on the same terms and at the same time as those disclosures and the complete set of sustainability-related financial disclosures is not made less understandable by including information by cross-reference.

Consolidation of existing bodies

The Standards draw content from other current sustainability standard setters such as the TCFD, SASB, CDSB, and the VRF.

Report location

The sustainability report will be included as part of a company’s general purpose financial reports. Report location in a company’s general purpose financial report will be subject to regulatory or other requirements that apply to the company.

Judgements and uncertainties

An entity must disclose information about both:

  • The various judgements made that have the most significant effect on the information included in its sustainability-related financial disclosures; and

  • The most significant uncertainties affecting the amounts reported in those disclosures.

Same reporting date

Reporting will be required at the same time and for the same period as the financial statements.

Sensitive information

Disclosure of information about sustainability-related opportunities that is either prohibited by local laws or regulations or is commercially sensitive (provided that specific criteria in IFRS S1 are met and the information relates to an opportunity) may not need to be disclosed, but the entity will need to disclose the nature of the restriction that prevented the disclosure.

Consistent data and assumptions

To the extent possible, considering the requirements of the relevant accounting standards, the data and assumptions used in preparing the sustainability-related financial disclosures must be consistent with the corresponding data and assumptions used in preparing the entity’s financial statements.

Prior period errors

Material prior period errors must be corrected by restating the comparative amounts for the prior period(s) disclosed unless it is impracticable to do so.

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

The main objective of this Standard is to disclose all information about sustainability-related risks and opportunities that could reasonably be expected to affect a company’s prospects.

IFRS S1 provides the basic requirements for sustainability disclosures, which should be used with IFRS S2 as well as the future Standards the ISSB releases. The Standard:

  • requires disclosure of material information about sustainability-related risks and opportunities with the financial statements, to meet investor information needs
  • requires industry specific disclosures and refers to the industry-based SASB standards for guidance when identifying disclosures about sustainability-related risks or opportunities
  • refers to sources to help companies identify sustainability-related risks and opportunities and information (for everything other than in the scope of IFRS S2)
  • requires disclosures that enable investors to understand the connections between the sustainability-related risks and opportunities and the sustainability-related financial disclosures and financial statements.
  • is GAAP agnostic

The Four Pillars of Governance, Strategy, Risk Management and Metrics & Targets


Companies will need to report the processes, controls, and procedures that are used to manage sustainability-related risks and opportunities. The report will need to identify those individuals responsible and describe management’s role in identifying, assessing and managing sustainability-related risks and opportunities.


Disclose what management assesses to be the company’s sustainability risks and opportunities and how management is addressing these by:

  1. Identifying the company’s sustainability-related risks and opportunities
  2. Disclosing the impact on the company including its business model, decision making and financial planning
  3. Explaining the resilience of the company to these risks.

The Standard provides details on how a company should report on sustainability risks and opportunities:

  • Identify the risks and opportunities – describe the risk/opportunity, including the time horizon over which each could be reasonably expected to have a financial effect
  • Define the time horizon – how does the company identify short, medium, and long-term.

Companies are required to disclose the current and anticipated effects of such issues on its value chain and how these issues will impact the financial statements over time.


Explaining how the company identifies sustainability-related risks and opportunities. This includes an explanation of the extent to which these risk management activities are integrated into the overall management risk process.

Concerning risks, disclosing information on:

  1. How the company assesses the likelihood and impact of such risks
  2. How the company prioritises such risks
  3. The input parameters considered during the risk assessment process eg data sources
  4. Whether the process is consistent with prior years.

Concerning opportunities, how the company:

  • Assesses and prioritises
  • Monitors, manages, and mitigates.


Disclose how the company measures, monitors, and manages its sustainability-related risks and opportunities. Companies will need to disclose targets set relating to sustainability risks and opportunities identified and the metrics used to assess progress being made.

Assurance over these disclosures is not a mandatory requirement under these standards (this would be dictated by local jurisdictions), however companies will still need to disclose whether the measurement is validated or assured by an external party.

To the extent that there is a specific topic-based standard (which currently only exists for climate-related risks and opportunities (IFRS S2)), an entity must also apply the specific disclosure requirements of that standard. Consequently, until such time as the ISSB issues further standards on sustainability matters other than climate, an entity’s disclosure of sustainability-related risks and opportunities will be subject to the general disclosure requirements in IFRS S1 (i.e., by applying a hierachy of pronouncements similar to that which IFRS S1 applies to the identification of sustainability-related risks and opportunities).

A ‘proportionality’ principle has been incorporated into IFRS Sustainability Disclosure Standards with IFRS S1 and IFRS S2 both specifying that, in preparing certain sustainability-related financial disclosures, an entity should:

  • Use reasonable and supportable information that is available without undue cost or effort; and
  • Consider whether it has the skills, capabilities and resources to provide particular disclosures (e.g., quantitative information about anticipated financial effects of a sustainability-related risk or opportunity)

General features

Sustainability-related financial disclosures must be:

  • Prepared and reported for the same reporting entity as the related general purpose financial statements, which may be prepared in accordance with IFRS Accounting Standards or other generally accepted accounting principles or practices
  • Reported at the same time and cover the same reporting period as the entity’s related financial statements. Comparative information for the previous period must also be disclosed

Together, an entity’s general purpose financial statements and its sustainability-related financial disclosures form part of the entity’s general purpose financial reporting. The primary users of general purpose financial reports (being existing and potential investors, lenders and creditors) use this information to make decisions about providing resources to an entity. For this reason, IFRS S1 also requires an entity to draw connections between the following items of information to enable users to understand the connections between them:

This Standard focuses on specific climate-related information to be disclosed.

The two Standards are designed to be applied together. However, IFRS S2 has been developed to capture climate-specific requirements which includes:

  • Strategy disclosures that distinguish between physical risks and transitional risks (the latter defined as risks that arise from efforts to transition to a lower-carbon economy)
  • Disclosure of the plans of the company (and its subsidiaries) to respond to climate-related risks and opportunities, including how climate-related targets are set and any targets it is required to meet by law or regulation
  • Companies have to develop scenarios to analyse and explain how various climate-related events may impact the business in the future
  • Climate-related metrics and target disclosures should include:
    • Cross-industry metrics that are relevant to all companies e.g. greenhouse gas emissions, refer to our publication on ‘What are sustainability scope 1, 2 and 3 emissions?’ for more information on greenhouse gas emissions.
    • Industry-based metrics relevant to companies within the related industries, and
    • Company specific metrics considered by the board or management when measuring progress towards set targets.


Examples of some of the specific climate-related financial disclosures on strategy required by IFRS S2 include:

  • An explanation of whether the climate-related risks that an entity has identified are physical risks or transition risks
  • How an entity plans to achieve any climate-related targets that it has set
  • Information about current and anticipated changes to an entity’s business model, including changes to its strategy and resource allocation to address the climate-related risks and opportunities that it has identified, and its current and anticipated direct and indirect mitigation and adaptation efforts
  • Information about plans that an entity may have to transition to a lower-carbon economy
  • An entity’s assessment of its climate resilience (see section on Climate resilience below)

The International Sustainability Disclosure Standards – Climate resilience

An entity must use climate-related scenario analysis to assess its climate resilience. IFRS S2 provides guidance on how to conduct the analysis, along with other considerations that are as follows:



Use an pratice to climate-related scenario analysis that is commensurate with an entity’s circumstances.

Consider the degree of an entity’s exposure to climate-related risks and opportunities.

Reasonable and supportable information

Other considerations

Consider all reasonable and supportable information that is available at the reporting date without undue cost or effort.

Consider the skills, resources and capabilities available to an entity when determining its approach to scenario analysis.

An entity may also consider publicly available, off-the-shelf scenarios from authoritative sources that are most relevant to its circumstances and most likely to support disclosure.


There are three main categories of metrics and targets:

  1. Cross-industry metric categories, which relate to:
    1. Greenhouse gas emissions;
    2. Transition risks;The International Sustainability Disclosure Standards
    3. Physical risks;
    4. Climate-related opportunities;
    5. Capital deployment;
    6. Internal carbon prices; and
    7. Remuneration
  2. Industry-based metrics
  3. Climate-related targets

Examples of some of the specific disclosures required by IFRS S2 as part of the cross-industry metric categories listed above include:

  • An entity’s greenhouse gas (GHG) emissions (see further explanation below)
  • The amount and percentage of assets or business activities that are:
    • vulnerable to climate-related transition risks
    • vulnerable to climate-related physical risks
    • aligned with climate-related opportunities
  • The amount of capital expenditure, financing or investment deployed towards climate-related risks and opportunities
  • The price for each metric tonne of GHG emissions that an entity uses to assess the costs of its GHG emissions (i.e., its internal carbon price) and how an entity is applying a carbon price in its decision making
  • The percentage of executive management remuneration recognised in the current period that is linked to climate-related considerations and how those considerations are factored into executive remuneration

Comprehensive disclosures are also required for an entity’s climate-related targets, including the targets that an entity has set, the targets that an entity is required to meet by law or regulation and any GHG emissions targets.

The International Sustainability Disclosure Standards – Greenhouse gas (GHG) emissions

IFRS S2 requires an entity to make various disclosures about its GHG emissions generated during the reporting period, as set out in the diagram below:

An entity must disclose its absolute gross Scope 1, Scope 2 and Scope 3 GHG emissions

Scope 1

Scope 2

Scope 3

For Scope 1 and Scope 2 GHG emissions, a consolidated group must disclose emissions by associates and joint ventures separately from those by the consolidated accounting group

An entity must disclose the categories included within its measurement of Scope 3 GHG emissions, such that users can understand which emissions have been included in, or excluded from, the reported Scope 3 GHG emissions

The International Sustainability Disclosure Standards

An entity must disclose its location-based Scope 2 GHG emissions and provide information about any contractual instruments relating to the source of those emissions

The GHG emissions disclosures must be expressed in metric tonnes of CO2 equivalent and measured in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) unless a jurisdictional authority or an exchange on which an entity is listed requires the use of a different method for measuring GHG emissions.

As part of its GHG disclosures, IFRS S2 also requires an entity to disclose:

  • The approach used to measure its GHG emissions (e.g., the equity share or control approach must be used if GHG emissions are measured in accordance with the Greenhouse Gas Protocol 2004) and the inputs and assumptions used in that measurement (including the emissions factors used)
  • Its ‘financed emissions’ if it is an entity that has activities in asset management, commercial banking or insurance


The International Sustainability Disclosure Standards



The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards The International Sustainability Disclosure Standards

Leave a comment