IFRS S1 & IFRS S2: a global baseline of financial sustainability reporting?

GlobalData reporter Kris Cooper hears from IFRS Foundation vice chair Sue Lloyd about the development of the ISSB and the role of accountants in delivering sustainability reporting.

In June, the International Sustainability Standards Board (ISSB) announced the completed versions of the S1 and S2 International Financial Reporting Standards (IFRS) relating to sustainability disclosure reporting. 

Sue Lloyd, Vice Chair of the IFRS Foundation told The Accountant the ISSB aims to achieve “a global baseline of sustainability information to meet the needs of capital markets” to facilitate informed investment decisions. Previously, many businesses have been drawing upon voluntary sustainability disclosure frameworks.  

The standards are investor focused. Despite this being a huge step towards sustainability financial reporting, as with many global guidelines and manifestos, sometimes standards such as these are complex to navigate, so there must be an emphasis on specificity for IFRS S1 and IFRS S2 to have the impact for which the ISSB is hoping.  

Who are the ISSB?

The International Sustainability Standards Board (ISSB) has worked swiftly since its creation at COP26 in 2021 to generate a global baseline of sustainability disclosures and reporting. It is a subsidiary part of the International Financial Reporting Standards (IFRS) Foundation, which previously established the International Accounting Standards Board (IASB) - a global standard for financial reporting for over 30 years.

Gemma Gathercole

ACCA UK strategic engagement lead

Key Features of IFRS S1 and S2

IFRS S1 asks for the disclosure of material information about sustainability-related risks and opportunities with the financial statements, to meet investor information needs.

  • It applies the Task Force on Climate-related Financial Disclosures (TCFD) architecture (governance, strategy, risk management and metrics and targets) for disclosure of information about sustainability-related risks and opportunities. 

  • It requires industry-specific disclosures. 

  • It refers to sources to help companies identify sustainability-related risks and opportunities and information. 

  • It can be used in conjunction with any accounting requirements (GAAP). 

IFRS S2 sets out the requirements for a company to disclose information about its climate-related risks and opportunities.

  • It incorporates the TCFD recommendations. 

  • It is used in accordance with IFRS S1. 

  • It requires disclosure of material information about climate-related risks and opportunities, including physical and transition risks. 

  • It requires industry-specific disclosures, which are supported by accompanying guidance built on the Sustainability Accounting Standards Board (SASB) Standards.” 


The ISSB has built on the framework and standards of the ISAB, TCFD, SASB and Climate Disclosure Standards Board (CDSB) whilst collaborating with the Global Reporting Initiative (GRI). There has been an emphasis on interoperability as a key element to consider in the creation and smooth implementation of IFRS S1 and S2. Commenting on the creation and speed of development of the standards, Lloyd commented: “The ISSB haven’t attempted to reinvent the wheel ... They build on the concepts that underpin the IFRS Accounting Standards.”

Main image credit: MR.Cole_Photographer / Getty Images

Regional and National Developments and Legislation

Shortly after the announcement of IFRS S1 and S2, the European Commission (EC) announced the adoption of the European Sustainability Reporting Standards (ESRS) in July 2023 which was ‘developed in parallel’ with the ISSB. The ESRS covers a wider scope than the ISSB’s, asking companies to report on material impacts on ecosystems as well as financial material disclosures. It also addressed social and governance issues which the ISSB is yet to publish standards on. This is a promising step in the adoption of the ISSB’s standards as it demonstrates integration into a legal framework.  

The UK government in its Green Finance Strategy document has stated a desire to show “international leadership in its support for the IFRS Sustainability Disclosure Standards”. In October 2023 the UK’s Transition Plan Taskforce (TPT) finalised its sector-neutral disclosure framework which is compatible with and builds upon IFRS S2. The TPT framework also considers guidance from the Glasgow Financial Alliance for Net Zero. 

Lloyd, commenting on the progress of adoption across the world, stated: “Already, jurisdictions such as Australia, Japan, Singapore, and the UK are looking at routes to introduce the ISSB Standards. In the global south, jurisdictions such as Nigeria have publicly announced their intention to adopt the ISSB Standards early.” 

Andy Garraway, Senior Climate Policy Analyst at Risilience added: “Regulatory alignment on sustainability reporting across jurisdictions will take time despite shared intentions. Complications arise from nuances in approaches – the SEC standards lack detail compared to the ISSB, while in Europe, the ESRS exceeds ISSB requirements. This creates near-term complexity for companies navigating these overlapping standards.” 

Considerations from National Accounting Standards Boards

In October 2023, various accounting standards boards from across the globe combined their comments on the ISSB’s agenda priorities into a letter to Emmanuel Faber, Chairman of the ISSB and Andrea Backrow of the ISAB. The UK Endorsement Board (UKEB), Canadian Accounting Standards Board (AcSB), Malaysian Accounting Standards Board (MASB), Australian Accounting Standards Board (AASB) and New Zealand External Reporting Board (XRB) all recognised that “communicating the ISSB’s long-term objectives and clarifying how these relate to the IASB’s roadmap was a critical next step.”  

However, the open letter also echoes some of Garraway’s concerns about the complexities of various overlapping regional, national, and international standards. The XRB emphasised: “that simply “Relying on generic aspirations for ‘connectivity’ or ‘interoperability’ may undermine the credibility of the work of the ISSB”.  

The UKEB added: “Stakeholders have requested that the ISSB take this time to set out a long-term roadmap, which clearly sets out the rationale for why any specific project is included on the work plan”. 

The role of the accountant

Commenting on the skill gap the ISSB standards highlight for accountants, Dr Nigel Sleigh-Johnson, ICAEW Director for Audit and Corporate Reporting told IAB: “There is a significant need for upskilling across the corporate reporting ecosystem, including the accounting profession, which we think can and should play a major role in contributing to the coming step change in transparency around sustainability.”  

Sleigh-Johnson added that it could be “a challenging period of transition to consistent and high-quality sustainability reporting and assurance”. 

Garraway also commented on how integrating the ISSB standards into financial reporting is set to expand the role of the accountant: “Accountants can no longer treat sustainability as a separate reporting domain but must interweave it with financial reporting; this integration of sustainability will make an accountant’s role more strategic in assessing and communicating performance across financial and non-financial metrics.” 

Task Force on Climate-related Financial Disclosures 

The ISSB’s sustainability standards incorporate the TCFD’s recommendations which according to the IFRS overcomes “the so-called ‘alphabet soup’ of disclosure initiatives for companies and investors”. The Financial Stability Board (FSB) stated that the publication of these standards indicated “the culmination of the work of the TCFD”. 

Now that IFRS S1 and S2 have been issued and are due to be implemented, more authority and responsibilities have been attributed to the IFRS. The FSB has asked the foundation to take over the monitoring of companies’ climate-related disclosures from the TCFD.

Sustainability Accounting Standards Board

The SASB has an existing set of industry-specific guidelines that have been built on by the ISSB’s new standards and offer supportive guidance for over 77 industries. In August 2022, the ISSB gained the responsibility of the SASB. It remains a useful tool for companies to identify sustainability issues relevant to investor decision-making. Using these standards lays the groundwork for the full adoption of IFRS sustainability disclosure standards.

Global Reporting Initiative

The ISSB also collaborates with the GRI to coordinate their standard setting, guidance and work programmes in an attempt to cut the reporting burden for companies. The GRI has a particular emphasis on meeting multi-stakeholder needs.

Climate Disclosure Standards Board Framework

In 2022, the CDSB was incorporated into the IFSR to support the ISSB. The CDSB framework can be used to report environmental and climate change information.

International Organisation of Securities Commission (IOSCO) endorsement

A key development for international adoption of the standards has been IOSCO endorsement. Lloyd told IAB: “[The IOSCO] is now calling upon its 130 member jurisdictions, regulating over 95% of the world’s securities markets, to consider how they can incorporate the ISSB Standards into their regulatory frameworks. It confirms that the ISSB Standards are fit for capital market use. “