IFRS S1 & S2: Are You Ready for ISSB Sustainability Disclosures?

The International Sustainability Standards Board (ISSB) issued IFRS S1 and IFRS S2 in June 2023. Since then, a growing number of jurisdictions have moved to mandate them — or are in the final stages of doing so. For companies with listings or significant operations in Australia, the UK, Canada, Singapore, or Japan, the disclosure requirements are becoming legally binding. Understanding what the standards actually require is now a compliance imperative, not a best-practice aspiration.

IFRS S1 and IFRS S2: The Core Requirements

IFRS S1 — General Requirements for Disclosure of Sustainability-related Financial Information establishes the overarching framework. It requires entities 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, or long term. The four disclosure pillars mirror TCFD:

• Governance — how the board and management oversee sustainability risks and opportunities
• Strategy — the sustainability risks and opportunities identified, their effect on business model and strategy, and resilience under scenarios
• Risk management — how sustainability risks are identified, assessed, and managed
• Metrics and targets — the measures used to monitor performance and progress

IFRS S2 — Climate-related Disclosures applies the S1 framework specifically to climate risk and opportunity. It incorporates and builds on the TCFD recommendations, adding more prescriptive requirements around scenario analysis, physical and transition risk disclosure, and Scope 1, 2, and 3 greenhouse gas emissions.

How ISSB Standards Differ from TCFD

Many companies that have been voluntarily reporting under TCFD assume they are close to ISSB-ready. In practice, the gap is more significant than expected:

• Financial focus — ISSB explicitly frames disclosures around financial impact on the entity. Disclosures that describe sustainability impacts without connecting them to financial risk and opportunity do not meet the standard.
• Connectivity with financial statements — IFRS S1 requires sustainability disclosures to be published with, and connected to, the financial statements. Metrics that appear in the sustainability report must reconcile to financial statement figures where applicable.
• Scope 3 emissions — IFRS S2 requires Scope 3 disclosure (subject to a one-year relief for first-time adopters in some jurisdictions). Many TCFD reporters have not yet tackled Scope 3.
• Scenario analysis specificity — ISSB requires disclosure of the specific climate scenarios used and the time horizons assessed, with more rigour than most TCFD reporters have applied.

Jurisdictional Adoption: Where Mandates Stand

The adoption landscape is moving fast. Key jurisdictions as of early 2025:

• Australia — Mandatory AASB sustainability standards (aligned to ISSB) effective from FY2025 for large listed entities, with subsequent waves for smaller entities
• UK — UK Sustainability Disclosure Standards (UK SDS) based on IFRS S1 and S2 expected to be mandated for large UK-listed companies from 2026
• Canada — Canadian Securities Administrators (CSA) moving towards mandatory ISSB-aligned climate disclosure for public companies
• Singapore — SGX-listed companies required to report under IFRS S2-aligned standards from FY2025 for large-cap, FY2026 for mid-cap
• Japan — SSBJ standards (aligned to ISSB) mandated for Tokyo Prime Market companies from FY2027

Preparing Your First ISSB-Aligned Disclosure

• Conduct a climate risk and opportunity identification exercise across short, medium, and long-term horizons
• Select and document at least two climate scenarios — one below 2°C, one representing a higher physical risk pathway
• Build the Scope 1 and 2 emissions inventory if not already in place; develop Scope 3 methodology
• Map governance structures — board committee responsibilities, management-level climate risk roles
• Identify where climate metrics connect to financial statement line items and build reconciliation processes
• Engage your external auditor or assurance provider early on the assurance scope and level