The ISSB: Origins and Mandate

The ISSB was established in November 2021 at COP26 in Glasgow, created by the IFRS Foundation — the same body that oversees the International Accounting Standards Board (IASB) responsible for IFRS financial reporting standards used in over 140 jurisdictions. This institutional pedigree is important: it means ISSB standards are designed to sit alongside financial statements, using the same conceptual framework, the same materiality definitions, and the same governance processes that CFOs and auditors already understand.

The ISSB consolidated several pre-existing frameworks — most notably the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and the industry-specific standards of the Sustainability Accounting Standards Board (SASB). IFRS S2 effectively supersedes TCFD, incorporating its four-pillar structure (governance, strategy, risk management, metrics and targets) while adding substantially more specificity. Companies that have been reporting under TCFD have a foundation, but should not assume that TCFD compliance equates to IFRS S2 compliance.

The ISSB is headquartered in Frankfurt and Montreal, with a board of 14 members drawn from regulatory, corporate, and investor backgrounds. Its standards are developed through a rigorous due process including exposure drafts, public consultation, and field testing — the same process used for IFRS accounting standards. This procedural rigour gives ISSB standards a credibility with regulators and investors that voluntary frameworks have struggled to achieve.

IFRS S1: General Requirements for Sustainability-Related Financial Disclosures

IFRS S1 is the overarching standard that establishes the architecture for all sustainability-related financial disclosure. It requires companies to disclose information about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance, or cost of capital over the short, medium, and long term. The standard is structured around four content pillars:

• Governance: The governance processes, controls, and procedures used to monitor and manage sustainability-related risks and opportunities.
• Strategy: The approach to managing sustainability-related risks and opportunities, including effects on business model, value chain, strategy, and financial position.
• Risk management: The processes used to identify, assess, prioritise, and monitor sustainability-related risks and opportunities.
• Metrics and targets: The metrics and targets used to measure, monitor, and manage sustainability-related risks and opportunities.

Critically, IFRS S1 applies a financial materiality lens — information is material if omitting, misstating, or obscuring it could reasonably be expected to influence investor decisions. This is the same materiality concept used in IFRS accounting standards and is narrower than the “double materiality” approach mandated by the EU’s CSRD. Under IFRS S1, a company is not required to report on its impact on the environment or society unless that impact creates a financial risk or opportunity for the entity.

IFRS S1 also requires companies to consider the SASB industry-specific standards and the CDSB Framework Application Guidance when identifying sustainability-related risks, opportunities, and associated metrics. This effectively makes the 77 SASB industry standards a reference library for ISSB reporting — not mandatory, but a strong expectation that companies will consult them.

IFRS S2: Climate-Related Disclosures

IFRS S2 is the first topical standard issued by the ISSB and addresses climate-related risks and opportunities specifically. It incorporates and builds upon the TCFD recommendations, adding prescriptive requirements that go substantially beyond what most companies currently disclose.

Key requirements include:

• Transition plans: Companies must disclose their climate-related transition plans, including specific targets, the use of carbon offsets, and how the plan is resourced and governed.
• Scenario analysis: Companies must use climate-related scenario analysis to assess resilience of strategy — including, at minimum, a scenario consistent with the latest international agreement on climate change (i.e., the Paris Agreement).
• Greenhouse gas emissions: Mandatory disclosure of Scope 1, Scope 2, and Scope 3 emissions, measured in accordance with the GHG Protocol. Scope 3 is mandatory — not optional — though a transition relief allows companies to defer Scope 3 disclosure for the first annual reporting period.
• Industry-based metrics: Companies must disclose industry-specific climate metrics drawn from the SASB standards applicable to their sector.
• Cross-industry metrics: Seven cross-industry metrics are mandatory, including absolute Scope 1/2/3 emissions, emissions intensity, internal carbon prices, and the proportion of assets or business activities vulnerable to transition and physical risks.

The Scope 3 requirement is the most operationally demanding element. IFRS S2 paragraph 29(a) requires disclosure of absolute gross Scope 3 greenhouse gas emissions, with disaggregation by the 15 GHG Protocol categories where material. The one-year transition relief for Scope 3 acknowledges the data challenges but makes clear that the direction of travel is unequivocal: Scope 3 will be mandatory for all reporters.

Global Adoption: Who Is Mandating ISSB and When

This adoption velocity is unprecedented for a sustainability reporting framework. Within three years of issuance, ISSB standards are on a mandatory or endorsed pathway in jurisdictions representing over 60% of global GDP. For multinational companies, this means ISSB-aligned reporting is not a single-jurisdiction compliance exercise — it is becoming a baseline expectation in virtually every major capital market.

Relationship to CSRD and ESRS

The relationship between ISSB and the EU’s ESRS is the most consequential interoperability question in sustainability reporting. EFRAG and the ISSB have published joint guidance demonstrating high alignment on climate disclosure, but fundamental differences remain.

ESRS applies double materiality; ISSB applies financial materiality only. ESRS covers 12 topical areas; ISSB currently covers climate only (with biodiversity, human capital, and human rights standards in development). ESRS mandates approximately 1,100 data points with limited opt-out; ISSB is more principles-based, relying on materiality judgement to determine scope.

The practical consequence: a company that fully complies with ESRS will substantially — but not entirely — meet ISSB requirements. The reverse is not true. A company reporting only under ISSB will have significant gaps relative to ESRS. Companies operating across both the EU and ISSB jurisdictions should build their data architecture on the ESRS framework and derive ISSB-compliant outputs, rather than attempting to build two separate reporting streams.

The ISSB has signalled its intent to extend beyond climate, with projects on biodiversity (building on the Taskforce on Nature-related Financial Disclosures framework) and human capital. As these standards are issued, the gap between ISSB and ESRS scope will narrow, though the materiality approach will remain a fundamental philosophical difference.

Preparing for ISSB: The Data and Systems Challenge

The transition from voluntary sustainability reporting to mandatory, assurance-ready ISSB disclosure requires a step change in data governance. Three areas demand particular attention.

First, Scope 3 emissions data. For most companies, Scope 3 represents 70–90% of total emissions but relies on data from suppliers, customers, and intermediaries over whom the reporting entity has limited control. Building reliable Scope 3 estimates requires supplier engagement programmes, industry benchmarks, and spend-based estimation methodologies — all of which need time to establish and refine. The one-year transition relief is insufficient for companies starting from zero.

Second, scenario analysis. IFRS S2 requires climate-related scenario analysis that is analytically rigorous, not performative. This means quantified financial impact assessment under multiple climate pathways, integrated into strategic planning processes. Most companies’ existing scenario analysis — if they have any — will need substantial enhancement to meet auditor expectations.

Third, connectivity with financial statements. IFRS S1 paragraph 21 requires that sustainability-related financial disclosures be connected to the financial statements — meaning the assumptions, data, and methodologies used in sustainability reporting must be consistent with those used in financial reporting. This demands integration between sustainability and finance teams that few organisations have achieved.