What are the IFRS S1 and S2?

At Diginex, it’s our business to stay abreast of changes in the landscape of international reporting standards. This is a simple guide to everything worth knowing about the ISSB – what it stands for, why it exists, how it’s structured and how it works.  

Firstly, some definitions.

ISSB stands for the International Sustainability Standards Board. It was formed by the IFRS (the non-profit accounting standards organisation).  

IFRS S1 stands for IFRS Sustainability 1. These are the ‘General Requirements for Disclosure of Sustainability-related Financial Information’.

IFRS S2 stands for IFRS Sustainability 2. These are the ‘Climate-related Disclosures’.

These are two different disclosure standards compiled by the ISSB. Further standards are in the development stage.  

About the International Sustainability Standards Board

According to the IFRS website, the ISSB has set out four key objectives:

1. To develop standards for a global baseline of sustainability disclosures;

2. To meet the information needs of investors;

3. To enable companies to provide comprehensive sustainability information to global capital markets; and

4. To facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.

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Active since November 2021 when it was announced at COP26 in Glasgow, the ISSB was formed in order to develop standard frameworks - aimed at becoming the global baseline for sustainability disclosures focused on the needs of investors and the financial markets.

This in response to market demand for comparability in a world where ‘green’ factors are an established part of investment decision making.  

The landscape of voluntary sustainability standards and frameworks is fragmented and often highly localised. For businesses that operate across multiple jurisdictions, compliance with several distinct standards is expensive and compliance with one doesn’t add enough value – especially without benchmarking data.  

Backed by the G7, the G20, the International Organization of Securities Commissions (IOSCO), the Financial Stability Board, African Finance Ministers and Finance Ministers and Central Bank Governors from more than 40 jurisdictions, the ISSB has the potential to eliminate the issue of fragmentation.  

The ISSB builds on existing standards with similar investor-focused disclosures such as the TCFD and the industry-specific standards developed by the SASB (more on this later). The aim is to be cost-effective and decision useful. This means maximum efficiency, comparability and interoperability when working across markets and jurisdictions globally.  

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More on S1

IFRS S1 – the general requirements for disclosure of sustainability-related financial information - provides guidance for the disclosure of sustainability-related risks and opportunities facing a business which may influence users of general purpose financial reports when making investment decisions regarding that business.

It requires entities to disclose information about all sustainability-related risks and opportunities that could affect the entity’s cash flows, its access to finance or cost of capital.  

It also prescribes how an entity should prepare and structure their disclosures for maximum applicability.  

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According to the IFRS website, entities are required to disclose:

1. The governance processes, controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities;

2. The entity’s strategy for managing sustainability-related risks and opportunities;

3. The processes the entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities; and

4. The entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.

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The S1 is industry agnostic. For guidance on industry specific disclosures, the ISSB recommends referral to the SASB standards which are under ISSB stewardship.

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More on S2

The IFRS S2 – Climate related disclosures – functions similarly to the S1. It provides guidance on reporting climate-related business risks and opportunities for use by investors when making decisions based on general purpose financial reports. These can be:

1. Climate-related physical and transition risks to which the entity is exposed

2. Climate-related opportunities available to the entity.

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According to the IFRS website, IFRS S2 requires entities to disclose information enabling investors to understand:

1. The governance processes, controls and procedures the entity uses to monitor, manage and oversee climate-related risks and opportunities;

2. The entity’s strategy for managing climate-related risks and opportunities;

3. The processes the entity uses to identify, assess, prioritise and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the entity’s overall risk management process; and

4. The entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by law or regulation.

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Unlike S1, the S2 framework has built-in guidance for industry specific disclosures.  

It should be noted that from a strict standard-setting perspective, S1 and S2 are designed to be applied as a package. Because IFRS S1 provides the foundational reporting architecture and materiality principles, an entity cannot claim full, un-modified compliance with ISSB standards without applying both.

However, the real-world regulatory landscape looks a bit different. Many jurisdictions are choosing a phased implementation strategy by mandating specific components of the climate standard (S2) to align with immediate climate risk priorities, while keeping the broader sustainability requirements of S1 voluntary or delayed for future reporting cycles.

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What about S3?

Variously called Nature-related disclosures and the IFRS S3 on Biodiversity, this standard was set to provide further guidance for companies reporting on their nature-related risks and opportunities.  

This year the S3 was abandoned in favour of developing a ‘Practice Statement’ (a non-mandatory document providing guidance on specific topics to be used alongside IFRS Standards) instead – with a view to causing minimal disruption to the existing standards. The statement will draw on work being done by the Task Force on Nature Related Financial Disclosures (TFND), and the ISSB are aiming to publish a draft in October this year.  

Other standards in the developmental stage include the putative ‘S4’ on human capital. The format this standard may take remains to be seen.  

ISSB-aligned frameworks

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Many countries are moving toward full adoption, phased rollouts or customised versions of S1 and S2.

• Nigeria made ISSB reporting mandatory in January 2024.

• Singapore phased in mandatory S1 and S2 reporting in 2025, with large non-listed companies joining by 2030.

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Other geographies are developing customised disclosure requirements based on the ISSB.

• Australia began implementation of the AASB S1 and S2 disclosures in 2025.

According to the Australian government website:  

‍"Australian stakeholder feedback generally favoured the ASRS incorporating the ISSB Standards’ requirements with minimal or no modifications. However, many stakeholders were of the view that there are a few Australian-specific circumstances that would warrant departure from the ISSB’s global baseline."

• The UK have done the same with the UK SRS.  

• Japan and South Korea are building national standards based on ISSB, with custom features and longer timelines.

• China is drafting a closely aligned framework, even if formal adoption isn’t yet confirmed.

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The question of the EU

For businesses operating both within and outside Europe, navigating the intersection of the ISSB and the EU’s European Sustainability Reporting Standards (ESRS) is a major focus. The primary hurdle has always been a conceptual one: the ISSB focuses strictly on financial materiality (how sustainability impacts a company’s financial prospects), whereas the EU mandates ‘double materiality’ (reporting on financial impacts plus how the company's operations affect society and the planet).

Rather than letting this create a fragmented gridlock, the IFRS Foundation and EFRAG (the EU's standard-setting body) have actively collaborated to reduce the compliance burden. They have issued official Joint Interoperability Guidance, which effectively maps the frameworks together. This means that a company currently reporting under the active ESRS mandates can naturally satisfy the climate-related disclosure requirements of IFRS S2 without facing redundant double-reporting across jurisdictions.

That’s all folks!

Now you know, in simple terms, what the ISSB is about. At Diginex we know that staying abreast of the sustainability reporting landscape can be a complicated endeavour. Stay tuned for more regulatory updates and insights into the industry.

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