Our Strategy and ESG Advisory team – who are here to help you navigate these standards and strengthen your sustainability reporting – share their knowledge below.

Contact the Sustainability Team >

Developed by the IFRS Foundation, the International Sustainability Standards Board (ISSB) introduced a global baseline of disclosure standards known as IFRS S1 and IFRS S2. These standards seek to reshape corporate sustainability by setting new global standards for reporting, promoting greater transparency on sustainability and climate-related issues. Together, these standards come together to achieve more consistent and comparable reporting on sustainability and climate-related risks and opportunities.

Background and context

By building on the work of leading reporting initiatives, ISSB was born with the intention to consolidate the ‘alphabet soup’ of existing voluntary sustainability reporting initiatives. This includes the Climate Disclosure Standards Board (CDSB), the International Integrated Reporting Framework (IIRF), the Sustainability Accounting Standards Board (SASB) Standards, as well as the absorption of the Taskforce for Climate-Related Financial Disclosures (TCFD).

By integrating key elements from these various frameworks, both IFRS S1 and S2 have high levels of interoperability with other sustainability frameworks. The result of this has been streamlined reporting processes with reduced complexity when it comes to aligning with multiple separate frameworks, all with consistent and comparable disclosures across different markets. For example, IFRS S1 makes reference to the very sector-specific SASB Standards as guidance for identifying sustainability-related risks and opportunities beyond climate. That said, while IFRS S1 requires companies to take note and consider those topics and metrics found in the SASB Standards, it is not mandatory to report on them unless they are explicitly material to the undertaking’s context.

Core Content
As mentioned, the IFRS Foundation officially absorbed the recently disbanded TCFD. With this, both IFRS S1 and S2 are structured in accordance with the TCFD’s four pillars: Governance, Strategy, Risk Management, and Metrics and Targets. These pillars guide each disclosure requirement, with each standard detailing specific disclosures.

Defining Materiality

The ISSB Standards regard information as material “if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide information about a specific reporting entity”.

Through this lens, information is material in that if it is omitted or misrepresented, it could influence financial decisions. The key focus is on how sustainability and climate-related risks and opportunities impact financial performance and decision-making. Therefore, these standards are designed to meet the needs of current and future investors, lenders, and creditors, as well as help companies understand ESG considerations that are most material to their operations. By focusing on financial materiality, IFRS S1 and S2 ensure that businesses report on sustainability and climate-related risks and opportunities that impact their bottom line, making these standards valuable for investors and other financial decision-makers.

This understanding of materiality differs from other reporting standards and frameworks such as the Global Reporting Index (GRI) and the Corporate Sustainability Reporting Directive (CSRD), both of which adopt a double materiality lens. Double materiality considers not only how sustainability and climate-related risks and opportunities can impact the financial performance of a company (the inward lens of financial materiality), but also the company’s impact on society and the environment (an outward lens of impact materiality).

ISSB in South Africa

Adoption of the ISSB standards remain up to individual jurisdictions. As it stands, there are four early adopters leading the way in Africa – Nigeria, Zimbabwe, Ghana, and Kenya.

In their Sustainability Reporting FAQ, SAICA (2024) explains why the ISSB standards are not yet mandated in South Africa. Currently, Section 29 of the Companies Act No. 71 of 2008 states that “in the case of financial reporting standards for public companies, must be in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB) or its successor body…”. The Companies Act will therefore need to be amended to incorporate the IFRS Standards or they will remain voluntary.

That said, it may be wise for South African companies to stay ahead of the curve by adopting the standards and starting their path to alignment so as to avoid overwhelming reporting burdens if, or when, a mandatory alignment does come into effect.

SAICA (2024) states that “the sooner companies start looking at all of their risks and mitigating them, the less of an obstacle it will be when reporting eventually becomes mandatory in South Africa”.

Why early alignment?

As a South African business, there are numerous benefits of aligning early to IFRS S1 and S2. Some of these include:

• Regulatory readiness: Early preparation will assist companies in navigating the complex and detailed requirements of the ISSB standards, which are likely to be time-consuming if intending to implement effectively. There are approximately 160 disclosures under S1 and 200 disclosures under S2, and so early adoption will position companies well for future regulatory changes.
• Investor confidence: Demonstrating a proactive approach to managing and mitigating potential risks will further instil investor confidence.
• ESG risk management: Reporting in alignment with such a detailed framework will enable companies to stay abreast of their financially material sustainability and climate-related risks, consequently having a positive impact on long-term financial gains.
• Market positioning: Entities who are on top of sustainability reporting trends and best practice typically gain a competitive edge in the market, specifically those who are considered leaders in their industry. This can lead to increased opportunities, partnerships, and further investments.

By starting your alignment journey now, you can better manage your risks, stay ahead of regulatory changes, and enhance your market position through increased investor confidence.

Steps to Alignment:

1. Internal benchmarking: Begin by assessing your current sustainability practices and where you are in your sustainability reporting journey. This process will assist in identifying where your company stands in terms of existing disclosures, data availability, and compliance with sustainability frameworks.

2. Define ambition: Establish or review your company’s sustainability goals and determine how deeply you would like to align with ISSB standards, as well as the level of transparency you are aiming for in your reporting and what motivates this decision.

3. Conduct ISSB alignment analysis: Perform a gap analysis against IFRS S1 and S2 to highlight areas of non-disclosure or partial disclosure.

4. Develop an action plan: Based on the alignment analysis, develop a roadmap to address identified gaps.

5. Continuous improvement: Sustainability reporting is an evolving landscape. As regulations develop, refine your strategy and disclosures to stay ahead of regulatory and market expectations.

Contact the Sustainability Team >