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ISSB Sustainability Disclosures Explained: IFRS S1 and IFRS S2 Overview

Introduction

Sustainability reporting has become an increasingly important part of how companies communicate their risks, opportunities and performance in recent decades. Yet, the process has often been fragmented and has lacked a globally consistent and comparable approach, limiting international coordination in addressing climate change and other sustainability issues.

To address this challenge, the International Financial Reporting Standards (IFRS) Foundation established the International Sustainability Standards Board (ISSB) in 2021. The Board issued the sustainability disclosure standards, IFRS S1 and IFRS S2, in 2023 to make reporting more consistent and comparable across countries and industries.

These sustainability disclosure standards are now supported by major international economic and financial coordination bodies, including the G7, G20 and the International Organization of Securities Commissions (IOSCO), and are being incorporated into regulatory and reporting frameworks globally, reflecting their increasing importance within the global financial reporting infrastructure.

IFRS S1 and IFRS S2 explained

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information sets out the general requirements for companies to disclose sustainability-related risks and opportunities over the short, medium, and long-term.

IFRS S2 Climate-related Disclosures sets out specific requirements for companies to disclose climate-related risks, metrics, and opportunities, and ESG performance targets.

The standards are designed to work together, with IFRS S2 applying climate-specific disclosure requirements within the broader framework established by IFRS S1.

Both standards are effective for annual reporting periods beginning on or after January 1, 2024, and companies are expected to disclose sustainability-related financial information simultaneously with their financial statements. As adoption of these standards expands, companies should expect increasing scrutiny from auditors, regulators, and investors over the consistency between sustainability disclosures and financial statement assumptions.

IFRS S1 requirements: what the standard actually asks for

Under IFRS S1, organisations must provide details on all material sustainability risks and opportunities that could affect the organisation’s cash flow, access to finance, or cost of capital. The word “material” is crucial here; if a sustainability-related risk or opportunity could reasonably influence investor decisions, it may be considered material and should be disclosed.

Companies often discover that risks previously treated as operational background noise, such as water scarcity at the company’s key manufacturing facility, qualify as material under the standard’s requirements.

The IFRS S1 requirements are structured around four pillars:

Governance: companies must disclose who is accountable for managing sustainability-related risks and how oversight is exercised.
Strategies: companies must explain their strategies for managing the sustainability risks, including their potential financial impact over time.
Risk Management: companies must disclose the procedures for identifying, assessing, prioritizing, and monitoring sustainability risks and opportunities.
Metrics and targets: companies must report the metrics and targets used to monitor sustainability-related risks and opportunities, including progress towards any goals they have set.

It is important to note that industry-specific IFRS sustainability standards do not exist for all sectors yet. If no specific IFRS Sustainability Disclosure Standard exists, companies must consider SASB’s industry standards and check which sector-specific guidance applies to them.

IFRS S2 requirements

Under IFRS S2, companies must disclose how climate risks affect their business and how they manage them. IFRS S2 makes use of disclosures similar to those of IFRS S1, along with climate-specific items:

Governance: companies must disclose who monitors, manages, and oversees climate-related risks and opportunities.
Strategy: companies must disclose how climate change affects their business and strategy, including their exposure to physical and transitional risks. Examples of physical risks include floods, droughts, severe weather and storms. Transitional risks may include carbon prices, stranded assets and regulation. The resilience of the strategy must also be tested against future climate scenarios, including lower- and higher-warming pathways, depending on the company’s circumstances.
Risk management: companies must disclose how they identify, prioritise, and integrate climate risks into enterprise risk management.
Metrics and targets: companies must report greenhouse gas emissions across Scope 1 (direct emissions), Scope 2 (electricity-related emissions) and Scope 3 (value chain emissions).

Scope 3 reporting is difficult because it requires reporting emissions across an organisation’s entire supply chain, and has traditionally been problematic due to data integrity issues. In practice, most organisations undertaking Scope 3 reporting for the first time discover that their procurement functions lack supplier emission data, that their Enterprise Resource Planning (ERP) systems cannot provide the necessary data, and that any estimates based on spend yield figures have uncertainty ranges large enough to reduce their usefulness for decision-making. The standard provides transitional relief by allowing organisations to defer disclosing Scope 3 GHG emissions for the first year of adoption.

What companies are struggling with and how Correntics can help

ISSB reporting requirements involve providing location-specific information on asset-level exposure to floods, droughts, and other risks across short-, medium-, and long-term horizons, which can be challenging. The scenario analysis also involves projecting forward under different warming trajectories. In addition, Scope 3 involves obtaining supplier-level data, which many procurement systems were not originally designed to support.

This is the type of implementation challenge Correntics is designed to address. Our Climate Risk Analytics platform identifies physical risk hotspots across global value chains and performs the forward-looking hazard modeling required by IFRS S2 scenario analysis. Our Climate & Sustainability Disclosures solution automates the data analytics and reporting workflows that underpin compliant IFRS reporting.

How do IFRS S1 and IFRS S2 fit into the broader sustainability reporting frameworks landscape?

IFRS sustainability standards have been deliberately designed to promote interoperability. The IFRS Foundation and the European Financial Reporting Advisory Group (EFRAG) released interoperability guidance in May 2024, indicating a high level of alignment between IFRS S2 and the European Sustainability Reporting Standard ESRS E1 (Climate Change). Mappings are provided showing disclosures that are interoperable, aligned to some extent, or jurisdiction-specific.

For European firms subject to the Corporate Sustainability Reporting Directive (CSRD), a substantial portion of the ESRS E1 disclosures can help meet the IFRS S2 requirements. The similarities in disclosure requirements are sufficient to reduce duplicative reporting efforts.

Additionally, the Climate Disclosure Project (CDP) has made its Climate Change Questionnaire 2024 compatible with the ISSB climate standards. Therefore, CDP reporters are likely to comply with ISSB reporting requirements.

A quick ISSB sustainability reporting checklist

The following ISSB sustainability reporting checklist should help companies ensure they meet the core requirements of the ISSB standards:

Identify material sustainability-related risks and opportunities across environmental, social, and governance topics.
Identify risks related to climate (scope of IFRS S2). Conduct board-level review of sustainability governance.
Gather Scope 1 and Scope 2 greenhouse gas data.
Begin mapping Scope 3 across the value chain.
Conduct climate-scenario analysis of key assets and geographic areas.
Define measurable sustainability and climate-related targets where applicable.
Prepare the sustainability report along with the financial report.

Sustainability reporting should be carried out in accordance with the financial close, representing a significant operational change for many companies. Purpose-built sustainability reporting software and ESG reporting software like Correntics’ disclosure tools can automate much of this process.

Looking ahead

At the start of 2026, more than 30 jurisdictions had either adopted the ISSB standards or were close to adopting them, with 21 already implemented. Moving forward, organisations that establish data systems, governance structures, and capabilities for climate risk management before it becomes mandatory will not only ensure compliance but also gain a competitive advantage.

FAQs

What is ISSB, and why does it matter for businesses?

ISSB stands for the International Sustainability Standards Board, an international organisation created by the IFRS Foundation to develop sustainability standards. The ISSB released two standards in June 2023: IFRS S1 and IFRS S2. Several jurisdictions have adopted, endorsed, or announced plans to incorporate ISSB standards into their reporting frameworks. Many multinational companies are preparing for ISSB-aligned reporting due to investor expectations and evolving regulatory requirements.

What is the difference between IFRS S1 and IFRS S2?

IFRS S1 addresses sustainability risks and opportunities across all material topics, whether environmental, social, or governance, whereas IFRS S2 addresses climate risks and opportunities. It is important to note that both must be used simultaneously; they cannot be treated as substitutes.

How do ISSB standards compare to TCFD?

ISSB vs. TCFD becomes a simple dichotomy: TCFD operated as a voluntary disclosure framework, while ISSB provides formal sustainability disclosure standards that jurisdictions may choose to mandate. Indeed, IFRS S2 fully incorporates the pillars of the TCFD; hence, there is an advantage for those who report under TCFD. Nonetheless, some weaknesses remain, particularly regarding Scope 3 issues and scenario analysis.

What are the key IFRS S1 requirements companies need to meet?

Under IFRS S1, disclosures of all material sustainability-related risks and opportunities must be made at the same time as the publication of the financial statements, covering governance, strategy, risk management, and metrics/targets. The second requirement is for companies to consider sector-specific risks in accordance with the SASB industry standards.

Do ISSB sustainability disclosures apply to companies in Europe and the US?

Not yet mandatory across all regions, however, there has been some momentum, and at least 30 countries have adopted or finalized their ISSB standards by 2026. In Europe, there is an effort to ensure interoperability between the new IFRS S2 and ESRS E1 standards. At the same time, in the U.S., multinational companies face investor pressure to adopt these IFRS standards before a mandate is imposed.