2.5 The ISSB and IFRS S1 Sustainability-Related Financial Disclosures

2.5 The ISSB and IFRS S1 Sustainability-Related Financial Disclosures

Exam context: Two FR learning outcomes sit here. The regulatory framework area asks you to explain the purpose and role of the ISSB, and the reporting-performance area asks you to describe the objective, scope and core content of IFRS S1. Both are set at the knowledge and comprehension level, so the examiner wants accurate description rather than application. This is exactly the sort of two-mark objective-test material that is cheap to secure and expensive to guess at. Note the boundary: IFRS S1 is examinable in FR; IFRS S2 Climate-related Disclosures is not — IFRS S2 appears on the examinable documents list for Strategic Business Reporting only.

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1. Why a Second Board Was Created

By 2020 investors faced a crowded and contradictory landscape of voluntary sustainability reporting frameworks. The same company could report emissions one way to one framework and another way to a second, and there was no equivalent of IFRS Accounting Standards to make the disclosures comparable.

        THE PRE-ISSB LANDSCAPE                   THE ISSB SOLUTION
  +-----------------------------+          +-----------------------------+
  | • GRI Standards             |          |                             |
  | • SASB Standards            |   ====>  |   A GLOBAL BASELINE of      |
  | • TCFD Recommendations      |          |   investor-focused          |
  | • CDSB Framework            |          |   sustainability disclosure |
  | • Integrated Reporting <IR> |          |   standards, issued by a    |
  | • Numerous national codes   |          |   single standard setter    |
  +-----------------------------+          +-----------------------------+
     Voluntary, overlapping,                  Consistent, comparable,
     incomparable, investor-                  capable of being required
     confusing                                by jurisdictions

The IFRS Foundation Trustees announced the creation of the ISSB at COP26 in November 2021. To avoid adding yet another framework to the pile, the Foundation consolidated existing bodies into the new structure, absorbing the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation — the body that held the SASB Standards and the Integrated Reporting Framework. The ISSB's standards also build directly on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which is why the four core content pillars described below will look familiar to anyone who has read a TCFD-aligned annual report.

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2. The Purpose and Role of the ISSB

[!TIP] The relationship to the IASB is parallel, not hierarchical. The ISSB does not report to the IASB and cannot amend IFRS Accounting Standards; the IASB cannot amend IFRS Sustainability Disclosure Standards. The two boards share a parent, a conceptual audience and a commitment to connectivity — sustainability disclosures and the financial statements should tell a consistent story about the same entity, using consistent data and assumptions where they overlap.

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3. IFRS S1: Objective and Scope

Objective

The objective of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.

Read that objective next to the Conceptual Framework's objective of financial reporting in section 1.1 and the parallel is deliberate: same users, same decision, different subject matter.

Scope

An entity applies IFRS S1 when preparing and reporting sustainability-related financial disclosures in accordance with IFRS Sustainability Disclosure Standards. The scope threshold is the "could reasonably be expected to affect" test:

  DISCLOSE a sustainability-related risk or opportunity if it could
  reasonably be expected to affect the entity's:

        • CASH FLOWS                     over the
        • ACCESS TO FINANCE       -->    SHORT, MEDIUM
        • COST OF CAPITAL                or LONG TERM

  (collectively, "the entity's prospects")

This threshold does two jobs. It brings in matters that no accounting standard would recognise — a supply chain concentrated in a water-stressed region, a workforce whose skills are being made obsolete, a product line facing a future carbon levy — and it excludes matters with no plausible effect on the entity's prospects, however socially important they might be.

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4. The Four Core Content Pillars

IFRS S1 requires disclosure about each sustainability-related risk and opportunity under four headings inherited from the TCFD architecture:

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5. General Requirements That Bind the Disclosures to the Financial Statements

These are the rules most likely to appear as an objective-test question, because they are precise and memorable:

• Same reporting entity. The sustainability-related financial disclosures must cover the same reporting entity as the related financial statements. A group that consolidates a subsidiary in its financial statements reports that subsidiary's sustainability information too.
• Same reporting period. Disclosures cover the same period as the financial statements.
• Same time. They must be reported at the same time as the related financial statements, forming part of the entity's general purpose financial reports rather than a separate publication issued months later.
• Comparative information. Comparatives for the previous period are required for all amounts disclosed.
• Statement of compliance. An entity whose disclosures comply with all applicable requirements makes an explicit and unreserved statement of compliance with IFRS Sustainability Disclosure Standards.
• Sources of guidance. Where no IFRS Sustainability Disclosure Standard applies to a particular matter, the entity uses judgement, referring first to the requirements in IFRS Sustainability Disclosure Standards dealing with similar matters, and it may then consider other sources such as the SASB Standards.
• Materiality. Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions of primary users — the same threshold used throughout financial reporting.

Effective date. IFRS S1 applies to annual reporting periods beginning on or after 1 January 2024, with earlier application permitted provided IFRS S2 is applied at the same time. Transition reliefs were provided, including a "climate-first" option allowing an entity to disclose only climate-related information in its first year of application.

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6. Worked Illustration: Separating What IFRS S1 Captures

Scenario

Brackmoor Foods plc is a listed food manufacturer preparing its financial statements for the year ended 31 December 20X7. Management identifies four matters during its year-end review.

Why this matters for interpretation

Section 7.4 of this guide covers non-financial performance indicators and their role in interpreting an entity's position. IFRS S1 disclosures are the structured, comparable source of exactly that information. A candidate answering a Section C interpretation requirement can legitimately point to a sustainability disclosure — a reformulation target missed, or an unmitigated supply concentration — as evidence that a favourable current ratio trend may not be sustainable.

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7. Common Exam Traps

[!WARNING] Trap 1: Confusing the ISSB with the IASB or the Trustees. The Trustees appoint members and oversee governance. The IASB issues IFRS Accounting Standards. The ISSB issues IFRS Sustainability Disclosure Standards. None of the three can do another's job.

[!WARNING] Trap 2: Applying a double materiality lens. IFRS S1 uses financial materiality — the effect of sustainability matters on the entity. Frameworks such as the European Sustainability Reporting Standards apply double materiality, which additionally captures the entity's effect on people and the environment. Writing that IFRS S1 requires disclosure of the entity's environmental impact regardless of financial effect is wrong.

[!WARNING] Trap 3: Treating the disclosures as a separate report. IFRS S1 requires publication at the same time as, and for the same entity and period as, the financial statements. A standalone sustainability report published in the following quarter does not comply.

[!TIP] Learn the four pillars as a sequence. Governance (who watches), strategy (what it means for the business), risk management (how it is identified and handled), metrics and targets (how we are doing). Almost every descriptive question on IFRS S1 can be answered by working through that order.