What the ISSB standards actually involve

The International Sustainability Standards Board (ISSB) was established by the IFRS Foundation in 2021 to develop global baseline standards for sustainability-related financial disclosures. Its first two standards, IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures), were published in June 2023. S1 establishes general principles for sustainability disclosure; S2 covers climate-related risks and opportunities using TCFD's four-pillar structure as its foundation. Adoption is at jurisdiction level: Australia, Singapore, Canada, UK, and others are requiring or enabling ISSB-aligned disclosure, with the UK planning mandatory adoption for listed companies.

Why it's harder in practice than it looks

IFRS S2 requires Scope 3 emissions disclosure with limited safe harbours

IFRS S2 requires disclosure of Scope 3 emissions when material, which is the case for most companies where supply chain emissions are significant. This requirement includes all 15 Scope 3 categories with explanations for any exclusions. Most companies' current Scope 3 data quality, heavily reliant on spend-based estimates, is unlikely to withstand the scrutiny that investor-grade financial disclosure requires.

ISSB and CSRD serve different primary audiences and have different coverage

ISSB standards focus on information that is material to financial stakeholders, investors, lenders, analysts, and use an enterprise value (financial materiality) perspective. CSRD uses double materiality, requiring both impact and financial disclosures. Companies operating in both EU and international capital markets must navigate both frameworks, which overlap but are not identical in their requirements or their audience focus.

Scenario analysis requirements are demanding for non-financial companies

IFRS S2 requires disclosure of how climate scenarios have been used to assess climate resilience. The standard emphasises quantitative scenario analysis where possible, which requires financial modelling capability that most sustainability teams do not possess independently.

Transition planning disclosure is becoming central

IFRS S2 and the UK's TPT (Transition Plan Taskforce) framework both require companies to disclose their climate transition plans, including the assumptions and dependencies underlying them. Disclosures that present aspirational targets without credible delivery plans are increasingly challenged by investors and proxy advisers.

What good looks like

ISSB-aligned disclosure integrates sustainability information into or alongside the annual financial report, uses consistent methodology across reporting periods, quantifies material climate risks and opportunities with financial estimates where feasible, provides complete Scope 3 data with documented methodology, and presents a credible transition plan that connects to the capital expenditure and operational plans of the business. ISSB disclosures are designed for financial statement users, so they must meet the same standards of clarity, consistency, and comparability that investors expect from financial reporting.

When to bring in external support

ISSB compliance requires bridging sustainability expertise with financial reporting rigour, a combination that is rare in both sustainability and finance functions. Leafr's network includes ISSB-aligned disclosure specialists who work alongside corporate finance and sustainability teams to develop investor-grade climate and sustainability disclosures that meet the standard's requirements.

Frequently asked questions

What is the ISSB and what standards has it published?

The International Sustainability Standards Board (ISSB) is an independent standard-setting body established by the IFRS Foundation. It has published two standards: IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures). Both were published in June 2023 and are effective for annual reporting periods beginning on or after 1 January 2024, subject to jurisdiction-level adoption.

How does IFRS S2 relate to TCFD?

IFRS S2 is built on TCFD's four-pillar structure, governance, strategy, risk management, and metrics and targets. The ISSB incorporated TCFD's recommendations into S2 and announced in October 2023 that TCFD had fulfilled its remit and would be disbanded, with ISSB taking over responsibility for monitoring climate-related disclosure progress. Companies that have been reporting against TCFD are substantially aligned with IFRS S2 but should review the additional requirements S2 introduces, particularly on Scope 3 and industry-based metrics.

Is ISSB reporting mandatory in the UK?

The UK government has confirmed plans to mandate ISSB-aligned disclosures for UK-listed companies and large private companies, with implementation expected on a phased basis. UK sustainability disclosure standards (UK SDS) will be based on ISSB standards with UK-specific modifications. The timeline for mandatory adoption continues to evolve, companies should monitor FCA and BEIS announcements for implementation details.

Does ISSB use single or double materiality?

ISSB uses single (enterprise value / financial) materiality, it focuses on sustainability information that is material to investors' assessment of enterprise value. This contrasts with CSRD's double materiality approach, which also requires disclosure of the company's impacts on people and the environment regardless of financial materiality. Companies operating under both frameworks must produce disclosures that serve both perspectives, as neither substitutes for the other.

What industry-specific metrics does IFRS S2 require?

IFRS S2 requires disclosure of industry-based metrics derived from the SASB (Sustainability Accounting Standards Board) industry standards, which identify financially material sustainability metrics for specific sectors. The applicable metrics depend on the industries in which the company operates. Companies in multiple industry segments must identify and apply SASB standards for each relevant segment, which can create significant additional disclosure work for diversified businesses.