Overview
Introduced: June 2023
Effective from: January 1, 2024
Last modified: N/A
Region(s): Global (Adoption varies by jurisdiction)
About
The International Sustainability Standards Board (ISSB), established by the IFRS Foundation, introduced its first two global sustainability standards: IFRS S1 and IFRS S2. These standards provide a global baseline for sustainability-related financial disclosures, addressing the growing demand for consistent, comparable, and reliable information on sustainability risks and opportunities, particularly for investors.
The ISSB standards are built upon and have now fully integrated the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which was disbanded in 2023. The ISSB standards aim to simplify and consolidate sustainability reporting by drawing on the strengths of pre-existing frameworks like the TCFD, providing a more detailed and structured approach to sustainability disclosures.
In June 2023, the International Organization of Securities Commissions (IOSCO) endorsed the ISSB Standards and encouraged its 130 financial market members to adopt or apply them. More than 20 jurisdictions, including the EU, UK, Canada, China, and Australia, have announced steps to adopt the ISSB standards, representing over 55% of global GDP and more than half of global GHG emissions.
Criteria for compliance
Entities covered
Companies across all sectors and jurisdictions adopting the IFRS Sustainability Disclosure Standards are required to disclose sustainability-related risks and opportunities. These standards are applicable to both large and small companies, with implementation varying by jurisdiction.
Emissions reporting
- IFRS S1: Requires the disclosure of material sustainability-related risks and opportunities that could affect the entity’s cash flows, access to finance, or cost of capital.
- IFRS S2: Specifically mandates the disclosure of Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions, following the GHG Protocol Corporate Standard.
Compliance timelines
- January 1, 2024: The standards are effective for annual reporting periods beginning on or after this date, subject to jurisdictional endorsement. Early adoption is permitted.
- Transition reliefs: Entities may initially report on IFRS S2 (climate-related disclosures) with limited requirements from IFRS S1 during the first year of adoption.
Disclosure requirements
IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information)
- Companies must disclose material information about sustainability-related risks and opportunities, structured around governance, strategy, risk management, and metrics and targets.
- Requires industry-specific disclosures and allows for the use of SASB Standards for identifying relevant sustainability risks and opportunities.
- Emphasizes the need for quantitative and qualitative disclosures, depending on the materiality and availability of information.
IFRS S2 (Climate-related Disclosures)
- Focuses on climate-related risks and opportunities, requiring detailed disclosures of physical and transition risks.
- Includes requirements for disclosing GHG emissions (Scope 1, 2, and 3) and the financial impacts of climate-related risks on the entity’s financial statements.
- Encourages entities to disclose how they use metrics and targets to manage these risks, with specific industry-based guidance.
Third-party auditing
The ISSB standards are designed to be assurable, meaning that the disclosed information can be independently verified. However, the requirement for third-party assurance is determined by the jurisdictional regulatory frameworks that adopt these standards. The IFRS Foundation anticipates that most jurisdictions will require some level of assurance for these disclosures.
Penalties for non-compliance
Penalties for noncompliance with ISSB standards will vary by jurisdiction, depending on how each country integrates the standards into its regulatory framework. The standards themselves do not impose penalties but are intended to be enforceable within the legal and regulatory systems of adopting jurisdictions.
Global adoption
The ISSB standards have been embraced by major economies such as the EU, China, and Australia. Jurisdictions representing more than half of global GHG emissions are taking steps to adopt the standards. The European Sustainability Reporting Standards (ESRS), part of the EU CSRD, are closely aligned with the ISSB, further supporting global interoperability in sustainability reporting.
