ISSB standards: A guide for companies

The International Sustainability Standards Board (ISSB) standards are transforming how companies worldwide report on sustainability. The standards provide a global baseline for consistent and reliable sustainability-related financial information that supports investor decisions. The first two standards issued in June 2023 have garnered strong global endorsements from jurisdictions, investors, and security regulators.

Whether your company will adopt the ISSB standards voluntarily or by mandate, understanding the standards and their alignment with global reporting frameworks is critical. This blog covers the essentials of the standards and offers practical steps to prepare ISSB-aligned sustainability reports.

What is ISSB? 

The ISSB was established by the International Financial Reporting Standards (IFRS) Foundation on November 3, 2021, during COP26. It aims to eliminate disclosure fragmentation by consolidating the CDSB, TCFD, Value Reporting Foundation’s Integrated Reporting Framework and SASB Standards, and the World Economic Forum’s Stakeholder Capitalism Metrics. As a sister board to the IFRS International Accounting Standards Board (IASB), the ISSB promotes interconnection between financial and sustainability reporting, enhancing transparency for participants in capital markets.

Download the ISSB standards essential requirements and preparation guide:

ISSB standards at a glance

IFRS S1 and S2 standards

IFRS S1 General Sustainability-Related Financial Disclosures

• Mandates companies to disclose material sustainability-related risks and opportunities affecting their cash flows, access to financing, or cost of capital in the short, medium, or long term.

• Sets general requirements for preparing and presenting disclosures.
• Applies the Task Force on Climate-related Financial Disclosures (TCFD) four-pillar structure and broadens it to incorporate non-climate-related sustainability issues.

IFRS S2 Climate-Related Disclosures

• Provides insights into how climate change affects an entity’s operations, strategy, and financial prospects.
• Requires disclosures on climate-related physical risks, transition risks and opportunities, Scope 1, 2, and 3 greenhouse gas emissions, targets, transition plans, and resilience assessments.
• Builds on the TCFD recommendations and incorporates industry-based disclosure requirements from the Sustainability Accounting Standards Board (SASB) standards.

Four disclosure pillars

Both standards are structured around four fundamental content pillars following TCFD:

• Governance: How an organization oversees sustainability-related risks and opportunities.
• Strategy: The impact of these risks and opportunities on the organization’s business model and strategy.
• Risk management: The processes for identifying, assessing, and managing sustainability risks.
• Metrics and targets: The quantitative and qualitative measures used to assess and manage the risks and opportunities.

Timeline

• Effective date: IFRS S1 and S2 standards are effective for annual reporting periods starting from January 1, 2024.
• Early application: Early adoption by companies is permitted if both IFRS S1 and IFRS S2 are applied together.
• Jurisdictional adoption: Adoption timelines may vary by jurisdiction, depending on local regulatory decisions.

Adoption around the world

Over 20 jurisdictions, including the European Union, China, the United Kingdom, Australia, Japan, and Canada, are adopting or aligning with ISSB Standards. Together, these economies represent nearly 55% of global GDP and 40% of global market capitalization.

The International Organization of Securities Commissions (IOSCO) also urges its member jurisdictions, which regulate over 95% of the world’s financial markets, to consider adopting, applying, or being guided by ISSB Standards.

The IFRS Foundation has developed a Jurisdictional Guide to help regulators implement these sustainability disclosure standards globally.

Key elements of ISSB standards

IFRS S1 General Sustainability-Related Financial Disclosures

Materiality

The ISSB requires the disclosure of material risks and opportunities, rather than all risks. Information is considered material if its omission, misstatement, or obscuring could significantly impact investor decisions.

To identify material information, companies should follow topic-specific ISSB standards, such as IFRS S2 for climate-related risks. If no specific standard applies, companies may refer to SASB, CDSB, other frameworks (e.g., CSRD-ESRS and GRI), or industry practices, as long as they meet investor information needs.

Value chain

The value chain is an essential concept in ISSB disclosure requirements. It refers to “the full range of interactions, resources, and relationships” in a company’s business model, from creation to delivery, consumption, and retirement of its products or services.

Companies must consider how external factors, such as supply chain disruptions or product-related GHG emissions, may impact their value in addition to their direct activities.

Measurement uncertainty

Driven by limited value chain data and reliance on trend estimates, sustainability reporting often involves significant measurement uncertainty. Companies must identify and explain critical uncertainties, disclose their sources, and outline the assumptions and estimates used. Transparency about uncertainty helps investors assess the reliability of reported information and enables comparisons between companies.

IFRS S2 Climate-Related Disclosures

Scope 3 measurement framework

Unlike the TCFD, IFRS S2 requires disclosure of material Scope 3 emissions across all 15 categories. ISSB provides a mandatory measurement framework based on the Greenhouse Gas Protocol to guide companies:

• Data: Companies should prioritize data that are 1) based on direct measurement, 2) specific to value chain activities, 3) timely, and 4) verified. Less granular or secondary data is acceptable if direct data is not feasible.
• Estimation: While direct measurement is preferred, the climate standard allows estimation as a practical alternative when necessary.
• Transparency: Companies must disclose their relevant Scope 3 measurement approach, inputs, and assumptions. This helps investors assess the relevance and reliability of the estimates, including the proportion of activity-based and verified data.

Climate resilience

Companies must disclose information that helps investors understand how resilient their strategies and business models are in managing and adapting to climate change. This includes the use of scenario analysis.

Disclosures should cover the climate scenarios used, key assumptions, time horizons, and alignment with climate risks and opportunities. Companies must also explain their current and planned investments in climate resilience and potential operational adjustments.

IFRS S2 outlines the factors companies should consider when assessing their circumstances and determining their approach to scenario analysis. TCFD guidance is recommended for implementing these analyses.

Industry-based disclosures

IFRS S2 requires companies to consider the applicability of its Industry-based Guidance, which is built on the SASB Standards, for two disclosure areas:

• Identifying climate-related risks and opportunities that could materially impact their prospects.
• Disclosing industry-based metrics tied to their business models, activities, or other industry characteristics.

This guidance covers industry descriptions, disclosure topics, performance metrics, technical protocols, and activity metrics. It helps companies identify relevant risks and opportunities, measure performance, and provide standardized, comparable data for reporting on climate-related activities.

Other reporting requirements

• Location of disclosures: Included in a company’s general purpose financial reports, typically within management commentary or similar reports, and must be clearly identifiable.
• Connected reporting: Clear linkage between financial and sustainability information, ensuring alignment with financial statements through consistent data and assumptions following IFRS or other applicable GAAP.
• Assurance: IFRS S1 and S2 do not mandate assurance, but the reports are designed to be assurable. It is up to jurisdictions to set assurance requirements.
• Scalability and proportionality: Companies should use “reasonable and supportable data without undue cost or effort,” with reporting expectations scaled to their “skills, capabilities, and resources.” Larger companies should provide more detailed quantitative disclosures.
• Year-one relief: In the first reporting year, companies are allowed to report only on climate-related risks and opportunities (as per IFRS S2) and IFRS S1 requirements related to S2. They are not required to report Scope 3 emissions, use the GHG Protocol, align disclosures with financial statements, or provide comparative information.

ISSB alignment with global frameworks

The ISSB is aligning its disclosure standards with several global frameworks to harmonize the corporate sustainability reporting landscape.

• Oversight of TPT disclosure materials: The IFRS Foundation will assume responsibility for disclosure-specific materials from the Transition Plan Taskforce (TPT) to streamline and consolidate reporting on transition plans.
• Alignment with the GHG Protocol: IFRS S2 mandates GHG emissions reporting based on the GHG Protocol’s Corporate Standard and Corporate Value Chain Standard. The ISSB and GHG Protocol have built governance structures to ensure ongoing compatibility.
• Partnership with CDP: CDP has aligned its 2024 climate disclosure questionnaire with IFRS S2, offering a platform that helps 75,000 organizations move toward compliance with ISSB Standards.
• Interoperability with GRI: The ISSB and Global Reporting Initiative (GRI) have committed to aligning common disclosures and creating a unified global sustainability reporting system that addresses the needs of both investors and broader stakeholders.
• Informed by TNFD: The ISSB will consider recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD) as it develops future standards related to biodiversity, ecosystems, and ecosystem services.

How to prepare for ISSB standards

1. Understand the integrated reporting landscape

Develop a comprehensive understanding of ISSB standards, their connection to other voluntary frameworks (e.g., TCFD, SASB, CDP, GRI), and how they are adopted in your jurisdiction (e.g., CSRD). This holistic view will help you formulate an ISSB disclosure strategy by addressing key questions such as:

• Are you subject to ISSB-aligned regulations?
• Should you apply ISSB standards voluntarily?
• What is the timeline for compliance?
• Should you transition to ISSB reporting from TCFD or SASB?

2. Assess disclosure gaps

Evaluate your disclosure readiness against ISSB standards or ISSB-aligned jurisdictional disclosure rules to identify gaps, such as Scope 3 GHG inventory, progress on science-based targets, industry-specific metrics, and climate-related risks and opportunities. Use resources like the ISSB voluntary application guide, TCFD transition guide, or European Sustainability Reporting Standards (ESRS) interoperability guidance as starting points.

3. Build robust analytical and reporting capacity

Integrate ISSB preparation into your overall reporting process. Focus on establishing a strong management framework, a solid data foundation, and flexible reporting systems—all aligned with your sustainability goals. This ensures sustainability initiatives are integrated into core operations and adaptable to various standards and frameworks, including ISSB.

About Aligned Incentives

Aligned Incentives offers an AI-powered enterprise sustainability planning platform trusted by the world’s largest organizations. It enables companies to efficiently assess and mitigate environmental impacts, while supporting disclosures for frameworks like ISSB, CSRD, and CDP. Our system can help you:

• Measure Scope 1, 2, and 3 carbon emissions using a custom, scalable LCA approach.
• Assess risks and opportunities with science-based scenarios.
• Generate transparent, line-item documentation for assurance and investor communications.

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