International Sustainability Standards Board (ISSB), Explained

If you’re responsible for your company’s sustainability reporting, it’s time to get familiar with the International Sustainability Standards Board (ISSB). 

In January 2024, the ISSB finalized new standards that, for the first time, create a single global baseline for sustainability reporting. The ISSB standards promise to converge a fragmented and confusing landscape of regulations and frameworks — and spur consistency and quality in climate disclosures. 

ISSB’s standards have been endorsed for use by securities regulators worldwide — and align closely with landmark laws like Europe’s Corporate Sustainability Reporting Directive (CSRD) and California’s new climate accountability package, as well as voluntary frameworks like the Climate Disclosure Project (CDP). 

Below, we’ll discuss the purpose of the ISSB standards, what they require, and how businesses can prepare to meet them. 

What are the ISSB standards? 

Two new standards, the IFRS S1 and IFRS S2, create a global baseline for climate disclosure.

Over the past decade, companies, investors, regulators, and other stakeholders have expressed growing frustration as they attempt to make sense of a tangle of different sustainability reporting frameworks. To address this problem, in 2021, the International Financial Reporting Standards (IRFS) Foundation founded a new entity, the International Sustainability Standards Board (ISSB). The ISSB was charged with converging fragmented guidance into a global baseline that would better fulfill investors’ needs for consistent, comparable, and reliable information about the risks and opportunities companies face from sustainability issues that impact their business. 

The ISSB faced a daunting task: to transform varied, inconsistent recommendations into a global set of standards that are inclusive, proportional, and designed to evolve with time. Crucially, the standards needed to be detailed enough to serve as a guide for regulators.

A New Era in Climate Reporting

On June 26, 2023, the ISSB finalized two new global standards — General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and Climate-related Disclosures (IFRS S2) (“ISSB Standards”). This marked a turning point in climate disclosure. With the standards, the ISSB formally ushered sustainability into the world of securities regulation and established a new disclosure norm for capital markets. 

The G7 and G20 embraced the standards, and the International Organization of Securities Commissions (IOSCO) endorsed them for use by securities regulators around the world. IOSCO called on its 130 members — who represent 95% of global financial markets — to consider how they could apply ISSB’s framework. 

The ISSB is an independent standard setter — it does not impose requirements on any jurisdiction or company. Its standards are designed to serve the markets and to provide a foundation for consistent and comparable regulations across borders. They are already shaping mandatory and voluntary reporting practices in many countries. For example, in 2024, the CDP Climate Change Questionnaire — the gold standard for voluntary reporting — changed to reflect ISSB’s guidance. 

Even if a company is not legally mandated to use the standards, as they become the norm, customers, investors, and other stakeholders will increasingly expect to see ISSB alignment. 

Forging a Common Foundation     

With its new standards, the ISSB has transformed a web of varied, inconsistent recommendations into a single, clear roadmap for capital market-focused sustainability disclosure. 

Most significantly, the framework of the standards is built on the foundational principles embodied in the Recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) — which have shaped surging climate disclosure practices and regulations since they were issued in 2017. IFRS S1 and S2 draw on well-known and oft-used standards and guidance principles, including the Climate Disclosure Standards Board (CDSB) and the Sustainability Accounting Standards Board (SASB). They also provide options for companies to integrate disclosures based on the European Sustainability Reporting Standards (ESRS) and the Global Reporting Initiative (GRI), as long as those disclosures are designed to meet investor needs.

With this strong foundation and inclusive approach, the ISSB Standards also offer a foundation for further reporting on sustainability issues and impacts that matter, but do not fall under the definition of “financially material” under traditional accounting principles and securities laws. The ISSB is working closely with both GRI and EFRAG (European Financial Reporting Advisory Group), the standard-setter responsible for ESRSs, to ensure that the two pillars of sustainability reporting — financial and impact — fit together efficiently and effectively.   

The Transition from TCFD to ISSB 

In 2017, the TCFD published a set of recommendations that ignited a global uptick in climate-related financial risk disclosure, laying the foundation for today’s trend toward mandatory reporting. 

The TCFD framework applied to entities across all jurisdictions and sectors and organized climate impact assessment into four fundamental areas: governance, strategy, risk management, and metrics/targets. 

As the market began to use TCFD guidance more widely, many jurisdictions looked to it as the basis for imposing enforceable disclosure requirements. The TCFD influenced transformative policies around the globe, including the SEC climate rule, Europe’s CSRD, and California’s SB 261. 

The TCFD Recommendations’ legacy remains. Many regulations around the world currently direct companies to apply TCFD’s Recommendations when reporting on climate-related financial risk. That legacy is also fully embedded in the ISSB Standards. After the ISSB Standards were issued in 2023, the Financial Stability Board announced plans to sunset the Task Force, transitioning responsibilities for supporting global reporting on climate-related financial risk from the TCFD to the ISSB. On January 1, 2024, the TCFD officially disbanded, and the IFRS Foundation, which oversees the ISSB, assumed its responsibilities. The TCFD Recommendations have now evolved into the ISSB Standards, and market and regulatory expectations are evolving too.

What are the defining features of ISSB Standards? 

Connection, coverage, and comprehensiveness are hallmarks.

There are three critical features that distinguish the ISSB Standards 

1. Connection. Climate and general sustainability data are linked directly to financial disclosures and published alongside annual General Purpose Financial Reports. In addition, the timing for climate reporting under ISSB Standards aligns with financial reporting. 
2. Coverage. The standards cover sustainability risks and opportunities over the short, medium, and long-term horizons. They apply across the value chain and are designed to increase understanding of the impacts of climate and general sustainability on enterprise value. They also encompass principles from existing standards, as described above. 
3. Comprehensiveness. The ISSB framework features comprehensive reporting for GHG emissions, including scope 3 and financed emissions. It brings an industry-based focus for reporting risks, opportunities, and metrics. It also calls for disclosure of more details about board governance, as well as transition plans and targets. It considers resilience based on scenario analysis and a quantitative assessment of current and anticipated financial effects. 

What Are the Key Components of IFRS S1 and IFRS S2?

The two standards address governance, strategy, risk, metrics, and targets.

The IFRS S1 and IFRS S2 provide a detailed roadmap for climate disclosure to guide regulators as they create reporting requirements. The standards aim to ensure that organizations include financially-material sustainability information alongside their financial statements, as part of the same reporting package. The ISSB intends for the standards to pair with accounting requirements, and they share common concepts with the IFRS Accounting Standards. 

IFRS S1 provides a framework that enables companies to communicate in a common language with investors about the sustainability-related risks and opportunities they face over the short, medium, and long term, while IFRS S2 sets out specific climate-related disclosure guidelines.

IFRS S1: General Requirements or Disclosure of Sustainability-related Financial Information

In its first standard, the IFRS S1 - General Requirements for Disclosure of Sustainability-related Financial Information, the ISSB provides an overarching framework and core principles to guide issuers as they prepare their general-purpose sustainability disclosures. The architecture of S1 follows the four pillars of the TCFD framework, requiring businesses to share information about:

1) Governance: The governance processes, controls, and procedures used to monitor, manage, and oversee sustainability-related risks and opportunities 

2) Strategy: The approach to managing sustainability-related risks and opportunities

3) Risk Management: The processes used to identify, assess, prioritize, and monitor sustainability-related risks and opportunities

4) Metrics and Targets: Performance in relation to sustainability-related risks and opportunities, including progress towards any targets the company has set or is required to meet by law or regulation

IFRS S2: Climate-related Disclosures

The second ISSB standard, the IFRS S2 - Climate-related Disclosures, is meant to be used together with IFRS S1, and focuses specifically on climate. The standard calls on organizations to report how they’re managing the financial risks posed by climate change. These include physical risks, like damage to supply chains from extreme weather, as well as transition risks, like growing consumer demand for electric vehicles. 

Like S1, S2 builds on the TCFD framework. It requires companies to share information that gives stakeholders insight into their governance, strategy, risk management processes, and metrics for managing climate-related risks.  

ISSB: Guiding Questions for Businesses

Governance

• Who is responsible for oversight of sustainability and climate-related risks and opportunities, and where is that responsibility reflected (e.g., terms of reference, board mandates, and other policies?)
• How does your organization determine that the oversight team has the appropriate skills and competencies? How often does the team discuss these topics? How do they set targets and monitor progress?
• How does management assess and handle sustainability and climate-related risks and opportunities? Is that role delegated to a specific management-level position or committee? How is oversight exercised over that position or committee?

Strategy

• What are the climate-related risks and opportunities that could affect your business model, strategy, cash flows, access to finance, and cost of capital over the short, medium, or long term?
• How will these risks and opportunities affect your business model, value chain, and decision-making?
• What is your transition plan for responding to these risks and opportunities?
• What are the effects on your financial position, financial performance, and cash flows for the reporting period, and over the short, medium, and long term? How are these risks and opportunities included in your financial planning?
• How resilient is your strategy to climate-related physical and transition risks?
• How did you analyze your resilience? Companies should conduct a scenario analysis, explain the results, and describe the approach.  

Risk Management

• What processes does your organization use to identify, assess, and manage sustainability and climate-related risks and opportunities?  
• What inputs and factors are part of these processes? How do you prioritize these risks relative to other types of risk?
• How are these processes integrated into your overall risk management process? Into your overall management process?

Metrics and Targets

• How do you measure, manage, and monitor your climate risks and opportunities? Assess performance? Set and track targets?
• What are your absolute gross greenhouse gas emissions for scopes 1, 2, and 3? 
• Emissions should be measured in accordance with the GHG Protocol Corporate Standard (with limited exceptions for jurisdictional protocols). This includes disclosures about how and why you used specific inputs, assumptions, and estimation techniques.
• For scope 2, you must use the “location-based” method for your calculations.
• For scope 3, you also need to consider the categories included in your calculations, along with other information that will allow investors to understand your process (an explanation of methods and estimates, percentage of estimates from inputs from specific activities in its value chain (“primary data”), and the percentage of estimates based on verified inputs). 
• Do you have financed emissions? If your company conducts asset management, banking, and insurance activities, you must disclose financed emissions based on PCAF standards.
• What are the financial impacts of climate on your business? What amounts and percentages of your assets or business activities are vulnerable to transition and physical risk? Aligned with climate-related opportunities? How (and how much) are you deploying capital towards your climate-related risks and opportunities?
• What climate-related targets have you set? How do you measure progress? 

How will the ISSB Standards affect businesses? 

The standards streamline reporting and raise the bar for data.

At a time when investors around the world are petitioning for higher-quality and more transparent sustainability reporting, it is essential to have an anchor to deliver consistency and comparability across international borders. Through its new standards, the ISSB has created this anchor. In developing the IFRS S1 and S2, the ISSB worked with stakeholders around the globe to determine what kinds of sustainability and climate-related information investors consistently need to receive. 

The standards set a high bar for climate disclosure. They call on organizations to conduct detailed scenario analysis and calculate scope 3 emissions. In this context, it’s essential for organizations to establish systems that ensure their climate data is traceable, transparent, and reliable. 

While some businesses may find the requirements burdensome, they will also see substantial benefits. By cutting down on duplicative reporting, ISSB Standards should ultimately lead to more efficient and cost-effective disclosures — saving time and resources. When companies speak the same language on sustainability issues across borders, they can better translate environmental action into a competitive advantage. 

The ISSB aims to facilitate a smooth transition from existing reporting frameworks. If an organization has already been using TCFD recommendations or SASB standards, it is well-positioned to disclose based on ISSB Standards since they draw from these frameworks.

What are ISSB’s “Scalable Solutions”?

The standards allow a phased approach to reporting.

In developing its standards, the ISSB identified two central challenges for companies: 1) scenario analysis; and 2) scope 3 reporting. To help businesses overcome these hurdles — especially in emerging economies — the ISSB has incorporated scalable solutions and a phased approach. 

The organization is also drawing on a time-tested concept from the IFRS, which dictates that disclosures can rely on “reasonable and supportable information that is available at the reporting date without undue cost or effort.”  

While this concept can give companies some comfort as they first tackle reporting challenges, it does not lower expectations. Businesses will be expected to ratchet up reporting as their capabilities increase. For example, in the case of scenario analysis, the IFRS S2 allows some companies to start with a qualitative, narrative-driven analysis of climate risks and opportunities. As data quality improves, maturity in the market around scenario analysis evolves, and preparers develop their capacity, they will need to scale up to quantitative, fulsome scenario analysis.

For scope 3 reporting, the ISSB’s scalable approach includes: 

• A phase-in, with the scope 3 requirements starting after the first year a company applies the ISSB standards
• Allowances for using estimates from entities in the value chain with different reporting cycles
• Transitional allowances for companies currently using different measurement protocols

By asking organizations to share details about their scope 3 measurement processes, estimates, and assumptions, the ISSB also helps ensure information is presented in a way that is useful to investors. For example, a company that determines it is impracticable to calculate scope 3 emissions must explain how it manages and “thinks about” these emissions. 

Lastly, the ISSB will encourage regulators to adopt “safe harbor” provisions in their domestic regulations to give companies a soft landing as they take on the necessary challenge of scope 3 reporting.

Preparing for the Future of Sustainability Reporting

Businesses need to ensure their climate data is transparent, traceable, and reliable.

The adoption of the ISSB standards marks a turning point for climate disclosure and sustainability reporting. In the coming years, it’s likely that nearly every business will be touched by the standards in some manner — whether through regulations, voluntary reporting, or changing stakeholder expectations. The first step in preparing for this transition is to develop a comprehensive understanding of the IFRS S1 and S2 requirements.

Most importantly, you’ll need to establish solid systems for managing your climate data. Given the complexity of the ISSB’s emissions reporting requirements, automated carbon accounting has become crucial — it eliminates the errors and inefficiencies that are far too common in manual accounting. Teams responsible for climate disclosure need to know they’re working with the same up-to-date numbers — and feel confident that their data is transparent, traceable, and reliable. 

Technology can also help you reap the full benefits of your sustainability efforts. As you simplify the process of calculating and reporting GHG emissions, you can redirect time and resources to measures that accelerate decarbonization — ultimately leading to greater climate impact and strengthening your company’s competitive advantage.

Learn more about how Persefoni can help you meet ISSB standards. Get started for free today. 

ISSB FAQs

There are many aspects to understand when following reporting standards like ISSB. Some common questions include:

When did the ISSB standards come into effect?

The final S1 and S2 standards became effective for use as of January 1, 2024, for preparers of any size in any jurisdiction.

Where are the ISSB standards required?

The ISSB is an independent, international standard-setter. It cannot impose requirements on any jurisdiction or company. However, the International Organization of Securities Commissions (IOSCO) has endorsed the standards for use by securities regulators around the world, and they now serve as the baseline for regulatory frameworks. Jurisdictions that decide to use the standards to inform their rules will determine which entities will be in scope and the effective dates for compliance. 

Who can use the ISSB standards?

Since the standards will be available for voluntary use, any company of any size, public or private, can report using the ISSB standards. The ISSB also recognizes that a truly global baseline captures smaller entities and emerging economies, and the organization is dedicated to building reporting capacity for all.

To help emerging and developing economies benefit from the new standards, the ISSB will provide a package of reliefs and guidance that allow organizations to scale up their reporting over time.

What if you’ve been reporting using the TCFD framework? 

The ISSB standards are built upon the TCFD framework, so organizations that have been reporting under TCFD should be well-equipped for the transition. And because the ISSB standards are more extensive, companies that apply ISSB standards will meet TCFD requirements and more. 

How does the ISSB define materiality?

The ISSB follows the IFRS definition of materiality, which classifies information as ‘material’ if omitting, obscuring, or misstating it could reasonably be expected to influence investor decisions. Preparers should apply this investor-focused materiality definition to all disclosures made pursuant to the IFRS sustainability standards.

Does the ISSB require assurance? 

The ISSB standards do not require assurance. However, it is likely that as the standards are adopted into the regulatory and legal frameworks of different jurisdictions, some level of assurance will be required. The standards are meant to generate assurance-ready information. The International Auditing and Assurance Standards Board (IAASB) has consulted with the ISSB as it works to develop IAASB assurance standards for sustainability-related disclosures.