The standards are part of a global initiative to consolidate sustainability disclosures to help investors assess the value of companies.

By Paul A. Davies, Sarah Fortt, Nicola Higgs, Betty M. HuberMichael D. Green, and James Bee

On 31 March 2022, the International Sustainability Standards Board (ISSB) released exposure drafts of the first two IFRS Sustainability Disclosure Standards (ISSB Standards) for public consultation. The ISSB indicated that its aim is for the complete set of ISSB Standards, once finalized, to provide a comprehensive global baseline of sustainability disclosures for investors in global capital markets to use when assessing the value of companies.

The ISSB was established by the IFRS Foundation (responsible for the issuing of globally recognised accounting standards) at COP26 in November 2021, and has already received support from institutions including the G7 Finance Ministers, the International Organization of Securities Commissions (IOSCO), and the UK government, which has stated an intent to incorporate the ISSB’s standards into its proposed Sustainability Disclosure Regulation.

The ISSB envisions  a considerable number of ISSB Standards across a variety of sustainability-related topics in due course. The two exposure drafts that the ISSB published at this time are:

  1. IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information (the General Requirements Standard); and
  2. IFRS S2 – Climate-related Disclosures (the Climate Standard).

The exposure drafts follow on from prototype standards issued in November 2021, and are released at a time when global action in relation to sustainability-related corporate disclosures is gaining momentum. By way of example, the U.S. Securities and Exchange Commission (SEC) promulgated a proposed rule on climate-related disclosures on 21 March 2022, and the EU continues to progress its proposed Corporate Sustainability Reporting Directive (CSRD) through its legislative process, both of which are initiatives that share similar goals to the ISSB Standards (although, notably, even at this early stage each of these proposals has a number of distinguishing features).

The General Requirements Standard and the Climate Standard both also draw upon existing sustainability-related disclosure frameworks, including the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the industry-specific SASB Standards. The Value Reporting Foundation,  which will be consolidated into the ISSB in June 2022, currently oversees the SASB Standards. The ISSB hopes that its conscious efforts to lean on the work of frameworks that are followed by a number of reporting companies, will lead to a more streamlined uptake process by companies when the ISSB Standards are finalised.

The General Requirements Standard

The proposed General Requirements Standard would require companies to disclose information about their material sustainability-related risks and opportunities, and sets out the baseline content of what such disclosures would require. Some of the key aspects of the General Requirements Standard are discussed below.


Given the broad scope of the information that may be considered “sustainability-related”, the definition of “materiality” used in this context becomes of significant importance. The assessment of materiality is made based on the sustainability-related financial information necessary for users of general purpose financial reporting (e.g., investors) to assess enterprise value. Enterprise value is itself defined as the total value of a reporting entity’s equity and net debt and reflects the amount, timing, and uncertainty of future cash flows over the short, medium, and long term. In short, these are issues that may impact the bottom line.

This focus on enterprise value and the financial impacts of the sustainability-related information represents the investor-centric purpose of the ISSB Standards, and is a clear example of what has become referred to in sustainability disclosure circles as “single materiality” or “financial materiality”. This contrasts with “double materiality”, whereby both the impact of sustainability-related factors on the company and also the impact of the company on factors such as the environment and broader society (even to the extent they may not impact the company’s bottom line) may be considered material. Nonetheless, in a seeming attempt to demonstrate a bridge between single and double materiality, the ISSB’s summary of the General Requirements Standard notes that “information about a company’s impacts and dependencies on people, the planet and the economy [would be considered material] when relevant to the assessment of the company’s enterprise value”.

Core Content and Structure

The General Requirements Standard proposes requiring the disclosure of sustainability-related risks and opportunities centred around four pillars: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets. These are the same four pillars that the TCFD uses in the climate context and that forms the architecture of the SEC’s March 2022 proposed climate-related disclosure rule, but by including them in the General Requirements Standard, the ISSB is extending them to sustainability-related disclosures more broadly and not just the climate.

To identify which sustainability-related risks and opportunities are relevant and potentially significant to their businesses, companies would be required to consider specific ISSB Standards (such as the Climate Standard in relation to climate issues). They would also be required to consider additional disclosure topics referred to in industry specific SASB Standards, and any other recent announcements of reputable standards setters. Specific metrics, both industry-specific and of broader applicability that companies may wish to use, are also provided in the General Requirements Standard.

A company’s impact on its value chain is an issue that has become an increasingly important environmental, social, and governance (ESG) consideration in recent years, with specific legislation being enacted or proposed alongside existing voluntary standards (such as the OECD Guidelines). The General Requirements Standard also requires disclosure of information about material sustainability-related risks across a company’s value chain, which is given the broad definition of the “full range of activities, resources and relationships related to a company’s business model and the external environmental in which it operates”. This definition is wider in scope than, for example, in the EU’s proposed Corporate Sustainability Due Diligence Directive (CSDDD), which is restricted to the company’s “established business relationships”. However, given the current focus on single materiality in the General Requirements Standard, companies will only have to disclose information on their supply chain to the extent it could impact their enterprise value (which is a narrower scope than the CSDDD’s double materiality threshold).

The General Requirements Standard also sets out requirements in relation to issues such as comparative information, frequency of reporting, location of information, and other topics, which are adapted from the IFRS Accounting Standards. In general, the ISSB proposes that sustainability-related information would be reported at the same time (but not necessarily in the same location) as a company’s financial statements are reported.

The Climate Standard

The Climate Standard, specifically prioritised among topic-focused standards by the ISSB, follows the same broad approach as the General Requirements Standard, and therefore leans heavily on the TCFD Recommendations (with specific additions). As a result, the ISSB notes that companies that fully comply with the Climate Standard will automatically have complied with their requirements, if any, to provide TCFD reporting.

Companies would be required to disclose information about the management and governance processes they use to monitor and manage climate-related issues and opportunities across their operations, including which body (e.g., the board or a committee) has ultimate oversight of these issues. Companies would also be required to disclose information on how their business model, strategy, and cash flows could be impacted by physical and transition climate risks, such as flood damage or reputational damage based on carbon intensive product lines that may limit their ability to access financing.

In addition, companies would be required to disclose any plans or targets related to climate issues, alongside detailed information in relation to how these plans will be resourced, and how progress against these targets will be reviewed over time. The Climate Standard would also require a company, save where it is “unable to”, to use climate-related scenario analysis to assess its risks and opportunities, with a recommendation to use a scenario that aligns with the Paris Agreement (or subsequently revised international climate change agreements). Scenario analysis is a process for identifying and assessing a potential range of outcomes of future events under conditions of uncertainty — in this case leading an entity to explore the physical and transition risks of climate change that may affect its business and financial performance over time.

Companies would be required to disclose their absolute Scopes 1 (direct emissions from operations), 2 (from energy use), and 3 (from their broader value chain) greenhouse gas (GHG) emissions, as well as the intensity of those emissions per unit of economic or physical output, and calculation of emissions would be required to be conducted in accordance with the relevant standards of the GHG Protocol. Whilst the General Requirements Standard highlights the importance of information disclosed being “verifiable”, there is no separate requirement for these GHG disclosures to be verified by a third party contained within the Climate Standard, which is a key differentiator between the Climate Standard and the SEC’s proposed climate disclosure rule, the latter of which would require independent verification of Scopes 1 and 2 emissions. Other metrics required to be disclosed include the amount and percentage of a company’s assets or business vulnerable to physical or transition risks or climate-related opportunities, and the percentage of executive management remuneration linked to climate-related considerations. It is also worth noting the requirement on companies that report as a consolidated group to report the group’s GHG emissions separately from the emissions of their associates and joint ventures, an approach that differs from the TCFD.

Finally, the Climate Standard contains additional, industry-based climate-related disclosure requirements. Seventy-seven industry classifications from 11 sectors, derived from the industry specific SASB Standards, are included in an Appendix to the proposed Climate Standard, of which 68 industries are subject to specific disclosure standards that are contained in separate volumes. The proposed industry-based disclosure requirements  are largely unchanged from the SASB Standards, other than changes to reference certain international standards  and definitions (including building on the GHG Protocol’s Scope 3 standard), and changes regarding the measurement and disclosure of financed or facilitated emissions in the financial sector.  With respect to the latter, the Climate Standard proposes adding disclosure topics and associated metrics in four industries: commercial banks, investment banks, insurance and asset management. This industry-specific approach marks a departure from the climate-related disclosures required under TCFD or the proposed SEC climate disclosure rule, and is an example of the Climate Standard drawing on a wide range of existing standards and taking a considerably more “industry-focused” view.

Alignment with Other Frameworks

As noted above, the ISSB Standards consciously lean on and incorporate existing frameworks, in particular that of the TCFD and the SASB Standards, in relation to the Climate Standard. Alongside the Climate Standard, the ISSB published a document comparing the Climate Standard with the TCFD recommendations, which notes that the requirements of the Climate Standard are consistent with the four core elements, and 11 recommended disclosures, of the TCFD, but differ in some respects from the additional guidance that the TCFD provides. The discrepancies are briefly summarised in the table below.

Topic TCFD Climate Standard

Transition plans

Transition plans are an aspect of a company’s strategy, and so are subject to strategy disclosure requirements Similar to TCFD, but introduces explicit requirements around disclosure of emission reduction targets and use of carbon offsets
Climate-related metrics Requires disclosure of metrics used by a company to assess climate-related risks and opportunities in line with its strategy Similar to TCFD, but requires disclosure of industry-based metrics relevant to a company’s business
Disclosure of GHG emissions Requires disclosure of Scopes 1 and 2 GHG emissions and, if appropriate, Scope 3 GHG emissions

Separate disclosure of emissions for (1) the consolidated accounting group, and (2) associates, joint ventures, or affiliates not included in the group

Scope 3 emissions disclosure required

Targets Requires disclosure of targets used to manage climate-related risks and opportunities and performance against those targets

Requires disclosure on how any target has been calculated, whether it has been externally verified by a third party, and whether it aligns with the latest international agreement on climate change (e.g., Paris Agreement)

Disclosure on whether a target was devised using a sectoral decarbonisation approach is required


In addition, the ISSB has publicly demonstrated a willingness to continue to work with other standards setting organisations, including recent announcements that it will continue to build on the SASB Standards after the June 2022 consolidation of the Value Reporting Foundation into the ISSB, and leverage the industry-based approach of the SASB Standards to developing standards moving forward (much in the same way it has demonstrated in the Climate Standard).

Further, on 24 March 2022, a week before the release of the General Requirements Standard and Climate Standard exposure drafts, ISSB signed a memorandum of understanding with the Global Reporting Initiative (GRI), under which the two institutions will seek to align and coordinate their activities moving forward. The exact nature of this alignment remains to be seen, but the collaboration has been advertised as a combination between a set of standards for the investor-focused capital markets (ISSB) and a set of standards based on impact for wider stakeholder needs (GRI).

Next Steps

The exposure drafts of the General Requirement Standard and Climate Standard will be available for public consultation until 29 July 2022, and the ISSB hopes that it will be able to have finalised these two standards by the end of 2022. The effective date of the standards (i.e., when companies will begin reporting to them) is one of the queries that the ISSB has raised for public input during the consultation process.

The ISSB has also indicated its intention to consult on its standard-setting priorities, including which other sustainability topics it should produce standards on first, later in 2022. It has indicated that these standards will likely build on the current provisions of the SASB Standards, and therefore investors or companies seeking further insight into what these standards may entail may be advised to turn their attention there. Further, the ISSB has indicated that proposals for an IFRS Sustainable Disclosure Taxonomy, enabling the structured electronic tagging of a company’s sustainability disclosures, will be published shortly.

Neither the IFRS Foundation nor the ISSB have the authority to make the ISSB Standards mandatory, and therefore companies’ compliance will be based on a willingness to engage with the standards. However, companies should consider not only the investor pressure that may be placed on companies who wish to disclose sustainability-related information to comply with the ISSB Standards, but also the possibility that national governments may introduce legislation that incorporates the ISSB Standards, an approach that the UK government has indicated it is considering with respect to its upcoming Sustainability Disclosure Regulation. Finally, given the requirement under the Climate Standard (and other standards developing worldwide) to report Scope 3 emissions, companies may also face increasing business and/or contractual expectations to report sustainability-related information from counterparties that wish to report their Scope 3 emissions (or otherwise report on sustainability issues across their supply chain), as this data will become commercially important.

Latham & Watkins continues to monitor the ongoing development of the ISSB Standards and ESG corporate disclosure requirements more generally.