Mastering the Future of Sustainability Reporting: Deciphering IFRS S1 and S2 Core Contents According to ISSB Standards

In June 2023, the International Sustainability Standards Board (ISSB) released two new standards: IFRS (International Financial Reporting Standards) S1 and IFRS S2. IFRS S1 is concerned with the disclosure of sustainability-related financial information and IFRS S2 with the disclosure of climate-related information.


ISSB’s new standards ensure that companies provide sustainability information and financial statements in the same report. This allows for greater consistency and comparability of the reporting entity’s climate information, especially the introduction of industry-specific indicators. 


To achieve more transparent information on sustainability, reporting entities should disclose significant information about all significant sustainability-related risks and opportunities they face. The assessment of significance should be conducted when information necessary for primary users of general-purpose financial reports is available. The entity’s financial reports should include a complete, neutral, and accurate description of its sustainability-related financial information. 


Contents of IFRS S1

IFRS S1 proposes a comprehensive set of core content for sustainability-related financial information disclosure. This establishes a comprehensive baseline, which helps the main users of financial reports make decisions related to entity resources. Information on sustainability-related risks and opportunities is useful to existing and potential investors as it demonstrates the entity’s ability to generate cash flows in the short and long term.  

The sustainability-related financial information that the standard requires entities to disclose should revolve around the core contents of governance, strategy, risk management and metrics and targets. Metrics are used to measure, monitor, and manage significant sustainability-related risks and opportunities. 


This approach is consistent with the TCFD’s four-element framework and expands the TCFD framework to all risks and opportunities related to sustainability. IFRS S1 also includes general requirements such as related basic concepts, reporting time, reporting location, and information quality characteristics. 


Contents of IFRS S2

IFRS S2 was developed in response to the demand for more consistent, complete, comparable, and verifiable information in financial reports. 


By having businesses disclose information about the climate-related risks and opportunities they face, primary users of general-purpose financial reports can:

1) Evaluate the impact of significant climate-related risks and opportunities on the entity’s enterprise value. 

2) Understand how the entity uses resources and the corresponding inputs, activities, outputs, and outcomes to support the entity’s response measures and management strategies for significant climate-related risks and opportunities. 

3) Assess the entity’s ability to adjust its planning, business model, and operations in response to significant climate-related risks and opportunities. 


Entities are required to apply IFRS S2 when preparing and disclosing climate-related information, in accordance with IFRS S1. The standard provides disclosure indicators with additional requirements for different industries, based on classification in the SASB industry standards. Consistent indicators and standardised narrative disclosures are also provided. 


IFRS S2 includes three appendices, which have the same effect as the main text of IFRS S2: 

Appendix 1 defines terms such as business model, disclosure theme, general purpose financial reporting, main users of general-purpose financial reports, and value chain.  


Appendix 2 is an application guide, providing detailed guidance on climate resilience, greenhouse gases, cross-industry indicator categories, and climate-related targets to support entities in applying IFRS S2.  


Appendix 3 is the effective date and transitional provisions, stipulating that entities should adopt IFRS S2 from the annual report starting on or after January 1, 2024. 


Entities are not required to disclose comparable information when they first adopt IFRS S2. They can use one or both of the following transitional exemptions:  


(1) If the entity used a greenhouse gas emission measurement method other than the Greenhouse Gas Accounting Procedure: Corporate Accounting and Reporting Standard (2004) during the annual reporting period before the first implementation date of this standard, the entity could continue to use that method. 


(2) The entity needs to disclose Scope 3 greenhouse gas emissions, and if the entity engages in asset management, commercial banking, or insurance activities, they need to disclose additional information related to financed emissions.

Key issues of IFRS S2:

      Key issues of S2

The disclosure of Scope 3 is mandatory in the international emission Greenhouse Gas (GHG) accounting system. In the first year, enterprises have a one-year grace period in which they can choose not to disclose.  


S2 also stipulates the method for measuring greenhouse gas emissions. If there are policy regulations in the country or clear regulations in the exchange, enterprises should calculate accordingly. If there are no relevant regulations, they should calculate according to ISO14061-1, accompanied by a one-year buffer period. It also stipulates the information on financed emissions that asset management, commercial banks, insurance and other financial institutions must disclose. 


      Mandatory scenario analysis 

Scenario analysis is very difficult to define precisely, but this method is indeed widely used, and S2 stipulates that scenario analysis is a must. For relatively small and simple enterprises, ISSB suggests that they can start with qualitative descriptive language when they first start doing scenario analysis.


Impact of the New ISSB Standards on Enterprises

      ESG changes will help achieve sustainable development goals globally. 

      The introduction of the new ISSB standards provides investors with a fairer and more objective judgment. 

      The future corporate social responsibility will disclose and be responsible for all stakeholders. 

      New challenges faced by enterprises under the ISSB standard:

– Disclosure is required from the supply chain to joint ventures. 

– The requirement for Scope 3 carbon emissions is a big challenge for enterprises, as there are many suppliers and related data needs to be collected step by step. 

– Climate scenario analysis requires a lot of data from enterprises.

      Having a unified international standard allows for consistency between enterprises, but data preparation needs to be carried out step by step. 

      Carbon data accounting and emission reduction are the two main tasks for energy manufacturing enterprises to complete ESG indicators. 

      Manufacturing enterprises need to establish a carbon management system, which considers the collection, recognition, and validity of data. 

      It is necessary to develop disclosure methods for specific industries and give corresponding time arrangements. 

      Large enterprises should gradually internalize external ESG construction requirements and prepare for the implementation of future carbon taxes. 

      Transparent corporate ESG disclosure reports are an opportunity to attract capital and promote their own growth. 


Sustainable disclosure is a trend, and the ISSB sustainable disclosure standard is positioned as a global benchmark standard. Enterprises should take the initiative to ensure that they can efficiently disclose high-quality sustainable information, once the standard is applicable. For enterprises that are listed in multiple places, have multinational branches, or are on the global value chain, the challenge of sustainable information disclosure is particularly urgent.  


Enterprises need to make corresponding sustainable disclosures in line with regional sustainable disclosure requirements. Businesses on value chains may also need to provide sustainable related information or data according to requirements (as Scope 3 of the enterprise).  We suggest that such enterprises immediately familiarise themselves with the relevant standard requirements. Businesses should understand and study the applicability of requirements, assess potential impacts, and plan and establish a sustainable disclosure plan that meets the standard requirements in advance. 


Next Steps

Enterprises need to determine which standards are applicable to themselves. For enterprises that are also listed elsewhere or with significant businesses, it is important to explain the sustainability-related risks and opportunities the company faces to management.  Companies should ensure that their strategy to deal with these risks is clear and easy to understand throughout the organization. 

Enterprises need to gradually establish and improve the internal methods for disclosing climate change-related information in accordance with IFRS S2. There should be a focus on accounting and measurement methods for Scope 3 emissions newly included in mandatory disclosure. Enterprises should also consider forming an internal data reporting team structure and verification plan mechanism. This would help to advance the data accounting work of the upstream and downstream supply chain in stages. 

At the same time, enterprises should focus on the construction of a carbon emission data management system, which facilitates the carbon accounting process of the whole supply chain. The system should also improve the efficiency of data statistics work for information disclosure during the reporting period, as well as reduce complex verification processes, and improve data accuracy. 


How CER Can Help

Strategic Carbon Reporting, Assessment, and Certification

Our Carbon Efficiency Rating and CRP Consulting teams assist commercial furniture manufacturers by addressing the increasing demand for precise and comprehensive carbon impact reporting. We innovate evaluation frameworks that measure and report the carbon footprint and circular design practices of products. 

Certification & Rating

The dc Circular Design Certification demonstrates a product’s commitment to sustainable practices. It not only adheres to the Design Conformity specification but also furnishes a comprehensive report on: 

       Carbon Footprint

       Carbon Efficiency 

       Design Circularity 

       Environmental Impact 

       Energy Efficiency 

We continuously innovate and hone our methodologies at Design Conformity, ensuring that our collaborators and clientele remain at the front of sustainable practices. 


Carbon Efficiency Rating and CRP Consulting help you to navigate the intricate landscape of carbon reporting and sustainable design. Our teams are equipped to support management in the following domains.

Strategic Carbon Reporting

       Crafting comprehensive carbon and circular design annual reports, encompassing both internal and external communication strategies

       Gathering and systematizing carbon data and developing KPIs 

       Offering assurance on carbon and circular design reporting

       Facilitating impact analysis, inclusive of carbon savings and returns on sustainable investments 

To summarise:

The introduction of the new ISSB standards brings both opportunities and challenges for enterprises. These standards will reshape corporate social responsibility, demanding transparency from supply chains to joint ventures. The requirement for Scope 3 carbon emissions presents the significant challenge of meticulous data collection. However, a unified international standard promises consistency across enterprises. To navigate these changes, businesses must identify applicable standards, clarify their strategies, and establish robust internal disclosure methods. Emphasis should be on accounting for Scope 3 emissions and creating a carbon emission data management system. The future of sustainability reporting is here, and proactive adaptation is key.


If you are interested in finding out more about our approach to carbon reporting, assessment, and certification, get in touch:

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