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Climate Disclosures

Breaking Down the International Sustainability Standards Board (“The 5 W’s of the ISSB”)

Article Overview

Start with Why

Why was the ISSB established?

The International Sustainability Standards Board, or ISSB, was founded by the International Financial Reporting Standards (IFRS) Foundation at COP26 in November 2021 as an effort to create high-quality sustainability standards that better fulfill investors’ information needs. One of the primary goals of the ISSB is to help converge the currently fragmented reporting landscape. In the years leading up to 2022, there was a building frustration around the 'alphabet soup' of ESG-related reporting standards. The ISSB was established to pursue convergence on climate and ESG disclosure standards and to simplify the sustainability reporting ecosystem around the world.

The ISSB has been given a daunting task: to transform varied, inconsistent recommendations and voluntary standards into a global set of sustainability disclosure standards that are inclusive, proportional, and designed to evolve with time. Crucially, they will also have to be detailed enough to serve as a baseline for regulation.

The ISSB’s standards will serve two purposes:

  1. They will create the next generation of norms for voluntary reporting, and
  2. They will provide a roadmap for regulators to use the standards as a baseline for mandatory reporting

As part of the ISSB’s mission, it consolidated with major sustainability standards and framework organizations, including the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF), which was comprised of the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB). The ISSB standards build on the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations and are also planned to be incorporated into the CDP climate change questionnaire, building on its existing framework for disclosure. Combined, these integrations will dramatically reduce the fragmentation, complexity, and costs typically associated with reporting.

The ISSB is also focused on coordinating with Global Reporting Initiative (GRI) and the European Financial Reporting Advisory Group (EFRAG), standard-setters whose frameworks are designed to include reporting on a company’s sustainability impacts. By working closely with these groups, the ISSB is working to foster “interoperability” for preparers that are subject to reporting requirements in Europe or choose to report additional information about their sustainability impacts to a broad stakeholder audience.

Why is the ISSB part of the IFRS Foundation?

The IFRS Foundation is a not-for-profit, public-interest organization that has more than two decades of experience setting global accounting standards (IFRS). The members of the  International Accounting Standard-setting Board (IASB) and the new ISSB represent diverse experiences and perspectives from around the world. The Foundation Trustees also bring diverse perspectives and experiences to the governance of both Boards, and the Trustees directly engage with the Monitoring Board, a body chaired by the International Organization of Securities Regulators (IOSCO), including several market regulators, providing an additional layer of public accountability. When IFRS accounting standards were first developed, IOSCO reviewed and endorsed them. Today, they are required in more than 140 countries, and accepted in many more.

The IASB has several consultative groups established to inform its standard-setting, making sure it hears the voices of stakeholders with different perspectives. The ISSB has established similar structures. The IFRS Foundation also has a set process its Boards follow for consulting on the agenda and proposed standards, and for making decisions to issue a final standard. This robust process allows the Boards to understand and consider the views of preparers, users, assurance providers, and others when they set standards - and they receive this input from all over the world.

With this experience, strong governance, independence, and a transparent process for input, the ISSB is well-suited to the task of developing a global set of sustainability disclosure standards.

Why is the ISSB important?

The ISSB will set the norms for the next generation of sustainability reporting. 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. And that is exactly what the ISSB has stepped up to do.  

The ISSB has been working with stakeholders around the globe to determine what sustainability and climate-related information investors need to be receiving on a consistent and reliable basis. The final standards, when used widely in the global marketplace, will drive more comparable disclosures for investors – and the ISSB framework will help companies take sustainability and climate risks and opportunities into account as they shape their business strategies. These types of disclosures allow investors to make informed decisions regarding their allocation of capital.

Why does the ISSB matter to my company?

As the ISSB standards become the new norm for sustainability reporting, companies can use them voluntarily to respond to the increasing pressure from investors and commercial partners for sustainability information. And by using the ISSB standards, companies can meet multiple demands. For example, beginning next year, the CDP’s climate change questionnaire will incorporate the IFRS S2 Climate-related Disclosures Standard.

While the ISSB cannot impose requirements on any jurisdiction or company, many countries will consider using the ISSB standards to shape future sustainability and climate disclosure regulation. Even if a company is not legally mandated to use the ISSB standards, as they become the new norm, their customers, investors, or other stakeholders will request this information.

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Who can use the ISSB standards?

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

Alongside their final standards, the ISSB intends to develop further guidance and training materials so that all market participants can benefit from using the standards. In order for emerging and developing economies to benefit from the opportunities using the ISSB standards provides, the ISSB has announced they will be providing a package of reliefs and guidance to support these economies and enable them to scale up their approach to using them over time.

If an organization has already been reporting using TCFD recommendations or SASB standards, it is ready to complete ISSB reporting because they are built upon these existing frameworks.

What does each of the ISSB’s standards cover?

The ISSB has 2 proposed standards: (1) IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and (2) IFRS S2 Climate-related Disclosures. These standards are not yet final, but the ISSB has held public meetings and provided updates throughout its deliberation process. It considered extensive feedback from preparers and investors and has ensured transparency along the way, so they know what to expect.  

How does the ISSB define materiality?

The ISSB follows the IFRS definition of materiality, which defines 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.

How does the ISSB define sustainability?

“The ability for a company to sustainably maintain resources and relationships with and manage its dependencies and impacts within its whole business ecosystem over the short, medium, and long term. Sustainability is a condition for a company to access over time the resources and relationships needed (such as financial, human, and natural), ensuring their proper preservation, development, and regeneration, to achieve its goals.”

The ISSB definition explains that sustainability affects a company’s ability to deliver value for investors and is inextricably linked to its stakeholders, the society it operates in, and the natural resources it depends upon.

What Does S1 Say?

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 sustainability disclosures. The core content and architecture of S1 builds upon the four pillars of the TCFD, governance, strategy, risk management, and metrics and targets. S1 sets standards for investor-focused disclosures about its material sustainability-related risks and opportunities and sustainability-related financial information.

The ISSB’s long-term objective is to develop additional standards on specific sustainability topics, building on the general requirements. To support preparers and drive comparability for investors from the outset, S1 includes guidance for identifying sustainability-related risks and opportunities and related metrics, drawing on existing standards.

The ISSB standards expect preparers to consider the SASB standards for their industry and also allow preparers to draw on other sources that are designed to meet the needs of investors. In its February meeting, the ISSB also decided to include the Global Reporting Initiative (GRI) Standards and the European Sustainability Reporting Standards (ESRS) as possible sources for identifying disclosures about sustainability-related risks and opportunities and possible metrics, subject to materiality as defined by IFRS.   In reaching this conclusion, the ISSB emphasized that preparers should ensure that any disclosures based on these sources meet the needs of users of general-purpose financial reporting.

As the ISSB moves forward to consider standards on other sustainability topics, it will look to the SASB standards, and other relevant standards, and engage in a feedback process similar to that they conducted with the S1 and S2 standards. After the ISSB finalizes a future standard, preparers would follow only the relevant IFRS Sustainability Standard on that topic.

What Does S2 Say?

The second standard, the IFRS S2 Climate-related Disclosures, focuses on climate-related risks and opportunities, also structured around the four pillars of the TCFD. It outlines requirements for identifying, measuring, and disclosing this information. This second standard does so in an inclusive manner by building scalable solutions for disclosure without sacrificing its usefulness to investors.

While companies should refer to final standards for precise requirements, you can begin to prepare. Building on the TCFD foundation, the standards cover topics such as:


  • 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 oversight has the appropriate skills and competencies to oversee strategies designed to respond to sustainability and climate-related risks and opportunities? How often does oversight discuss these topics? How do they set targets and monitor progress?
  • How does management assess and manage sustainability and climate-related risks and opportunities? Is that role delegated to a specific management-level position or committee, and how is oversight exercised over that position or committee?


  • What are the sustainability and climate-related risks and opportunities that your organization reasonably expects could affect your business model, strategy and cash flows, your access to finance, and your cost of capital, over the short, medium, or long term?
  • How will these risks and opportunities affect your organization's 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 are the processes your organization uses 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?
  • To provide investors with comparable information across industries, the standards include a requirement to disclose absolute gross greenhouse gas emissions for scopes 1, 2, and 3. GHG emissions should be measured in accordance with the Greenhouse Gas Protocol Corporate Standard (with limited exceptions for jurisdictional protocols).
  • This includes disclosures about how and why you used specific inputs, assumptions, and estimation techniques, including any changes made.
  • For scope 2, your company will need to use the “location-based” method for your calculations.
  • For scope 3 emissions, you also need to consider and disclosure the categories included in your calculations, along with other information designed to 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). The ISSB will provide more guidance to support preparers in measuring scope 3, and has also built in “scalable solutions” to address some of the challenges you may face (described below).
  • If your company conducts asset management, banking, and insurance activities, you will also need to disclose financed emissions, based on PCAF standards.
  • What are the financial effects? 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? You will also need to disclose the details to help an investor understand your target and how you measure your progress.

What are “scalable solutions” the ISSB has included?

The two topics companies told the ISSB would be the most challenging is scenario analysis and scope 3. To help companies meet these challenges and allow for an inclusive standard, the ISSB incorporates a time-tested concept from the IFRS for addressing challenging topics based on estimates - disclosures should be based on “reasonable and supportable information that is available at the reporting date without undue cost or effort.”  

The ISSB, investors, and preparers all recognize that there will be challenges. While this concept can give companies some comfort as they first tackle these challenges, it does not lower expectations. The ISSB will provide further guidance on how to think about the concept, but importantly, it also will provide guidance and capacity-building support to companies so that they can meet these challenges and better communicate their sustainability-related risks and opportunities to the market.

For scenario analysis, the ISSB will provide flexibility in the application of this requirement. For example, the standard allows companies to start with a qualitative, narrative-driven analysis of a company's climate risks and opportunities. As data quality improves, maturity in the market around scenario analysis evolves, and preparers develop their capacity, they can scale up to quantitative, fulsome scenario analysis.

For scope 3, the ISSB has also focused on providing scalable solutions. These include:

  • A phase-in for scope 3, with the requirement 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; and
  • Transitional allowances for companies currently using different measurement protocols.

The disclosures about the scope 3 measurement processes, estimates, and assumptions will also help preparers convey the information they have in a way that makes them useful to investors. This includes a provision that would require a company that determines it is impracticable to calculate scope 3 to explain how it manages and “thinks about” its scope 3 emissions. To help companies avoid being in this situation, the ISSB will also develop implementation guidance. And most importantly, it will also provide help through its capacity-building efforts and many partners who will support those efforts.

Lastly, the ISSB will encourage regulators to adopt “safe-harbor” provisions in their domestic regulations to give companies even more comfort as they take on the necessary challenge of scope 3.

When will the ISSB standards come into effect?

We expect the final S1 and S2 standards to be issued by the end of June 2023. While the standards will be available for voluntary use as soon as they are issued, they will be formally effective for use as of January 1, 2024 for preparers of any size in any jurisdiction.

Where will the ISSB standards be required?

The ISSB is an independent, international standard-setter. It does not impose requirements on any jurisdiction or company. Jurisdictions that decide to use the standards to inform their rules will determine what entities will be in scope and the effective dates. Following the issuance of the final standards, the International Organization of Securities Commissions (IOSCO) will consider endorsing the standards for use by their members, and securities regulators around the world.

What about assurance?

Investors and other stakeholders need assurable climate-related information, especially on GHG emissions. Assurance processes help improve the credibility and data quality of sustainability and climate-related information by obtaining external validation of the information they are reporting on. In recent years, investors and issuers have called for a “global baseline” standard for assurance.

In its September 2022 statement encouraging standard-setters’ work on the assurance of sustainability-related corporate reporting, IOSCO reported that after engaging with investors, issuers, assurance providers, and standard setters, assurance is needed to enhance the reliability of corporate sustainability reporting. In response, The International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) are working to create standards for providers of sustainability assurance following an early 2022 IOSCO roundtable in which they created a dedicated workstream to support and promote the development of a sustainability-related assurance framework. The IAASB and IESBA are working collaboratively to ensure international financial reporting, sustainability standards, and assurance standards are compatible. To ensure compatibility, they are working together with the ISSB.

How can technology help?

Software can build capacity to apply the ISSB standards by reducing the cost and complexity of GHG emissions calculations and reporting. Additionally, software provides the reliability needed to support the full spectrum of assurance needs. To illustrate, software facilitates companies’ measurement and reporting of their carbon footprint through three main functions. First, it simplifies the process of measuring and reporting a company’s carbon footprint by taking otherwise complex information and breaking it down into information familiar to business managers. Whether an organization is at the beginning stages of carbon accounting, calculating its carbon footprint, or developing its carbon reduction plan, software reduces the technical barriers around carbon accounting.

Second, software facilitates data ingestion into the platform, making the data more useful and reducing the cost of data acquisition. Data can be entered through application programming interface (“API”), bulk uploads, or manual entry. The most efficient means of data acquisition is by API, which allows data to flow directly from its source (for example, the company’s financial system or a utility provider) into the software in real-time. This process reduces the time and effort that many companies currently devote to entering data into spreadsheets or responding to questionnaires.  

Third, software can apply appropriate emission factors to the data and conduct calculations in accordance with the GHG Protocol (and for financed emissions, in accordance with PCAF) to derive companies’ GHG emissions. This facilitates and streamlines a process that currently can be expensive and time-consuming for companies relying on consultants and spreadsheets to calculate their emissions footprints. It also reduces the opportunity for error and creates transparency regarding the calculations conducted.

By simplifying the process of calculating GHG emissions, organizations will have more time and resources to enhance the benefits of climate disclosure. Beyond measuring and reporting a carbon footprint, software has the capabilities to enable preparers to track their progress on their sustainability strategies and improve decision-making towards their decarbonization goals, such as with science-based targets.

Learn more about how Persefoni’s carbon accounting platform can help your organization prepare to report following upcoming ISSB standards.

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