## Learning Outcomes

After reading this article, you will be able to explain the scope and requirements of ISSB sustainability standards IFRS S1 and S2, outline the core pillars of climate-related disclosures, identify required climate-related metrics, and discuss the approach to materiality and assurance of sustainability information. You will also be equipped to apply these concepts to scenario-based ACCA SBR exam questions.

## ACCA Strategic Business Reporting (SBR) Syllabus

For ACCA Strategic Business Reporting (SBR), you are required to understand the impact of recent developments in sustainability reporting and the International Sustainability Standards Board (ISSB) disclosure standards. Specifically, you must be able to:

- Explain the objectives and core requirements of IFRS S1 and IFRS S2.
- Discuss the structure and components of sustainability and climate-related reporting.
- Identify and apply the four-pillar approach to climate-related disclosures (governance, strategy, risk management, and metrics/targets).
- Evaluate the measurement and reporting of climate-related metrics.
- Discuss the principles of materiality and assurance for sustainability-related information.
- Apply ISSB requirements to practical SBR case scenarios.

## Test Your Knowledge

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, look more closely at that area during your revision._

1. Which body sets the IFRS S1 and S2 standards for sustainability-related disclosures?
   a) IASB
   b) ISSB
   c) FRC
   d) IFAC

2. Which of the following is **not** one of the four core pillars of climate-related disclosures under IFRS S2?
   a) Governance
   b) Principles of recognition
   c) Risk management
   d) Metrics and targets

3. Name two types of climate-related metrics that must be disclosed under IFRS S2.

4. True or false? All climate-related information must be included in the entity's main financial statements.

5. Explain the principle of materiality as it relates to climate-related disclosures.

## Introduction

Global investors, regulators, and other stakeholders increasingly require companies to report on sustainability and climate-related matters in a consistent and comparable manner. To address this demand, the International Sustainability Standards Board (ISSB) has issued IFRS S1—General Requirements for Disclosure of Sustainability-related Financial Information—and IFRS S2—Climate-related Disclosures.

These standards set out a common framework and enable incorporation of sustainability risks and opportunities into corporate reporting. ACCA SBR candidates must be familiar with the objectives, content, and practical implications of ISSB sustainability reporting—especially as relevant scenario questions are being tested.

> **Key Term: ISSB**
> The International Sustainability Standards Board, established by the IFRS governing body to develop global baseline sustainability reporting standards.
>
> **Test Tip:**
> When revising Climate-related disclosures and metrics (IFRS S2), connect each definition, method, or rule to the kind of question the assessment is likely to ask.

### THE ISSB STANDARDS: IFRS S1 AND IFRS S2 OVERVIEW

IFRS S1 requires companies to disclose sustainability-related risks and opportunities that could reasonably be expected to affect their prospects, cash flows, or access to finance. IFRS S2 focuses specifically on climate-related disclosures, supplementing S1.

Both standards apply to general purpose financial reporting and aim for interoperability with jurisdiction-specific frameworks where possible.

> **Key Term: IFRS S1**
> The ISSB standard setting out general requirements for disclosure of sustainability-related financial information.
> **Key Term: IFRS S2**
> The ISSB standard requiring specific climate-related disclosures, including governance, strategy, risk management, and metrics/targets.

### THE FOUR CORE PILLARS OF CLIMATE-RELATED DISCLOSURE (IFRS S2)

Entities must structure their climate-related disclosures around four key areas:

![IFRS S2 greenhouse gas emissions disclosures covering Scope 1, Scope 2, material Scope 3, GHG Protocol boundaries and methods, and data quality limitations.](https://static.pastpaperhero.com/images/acca-sbr-sustainability-related-reporting-issb-ifrs-s1-s2-climate-related-disclosures-and-metrics-ifrs-s2_00.png)

_Greenhouse gas metrics under IFRS S2 include direct, energy indirect, and material value-chain emissions, with methodological boundaries and estimation uncertainties._

### 1. Governance

Companies must describe oversight by the board and management of climate-related risks and opportunities, their roles and responsibilities, and how these are integrated into wider governance.

### 2. Strategy

Disclosures must explain the actual and potential impacts of climate-related risks and opportunities on the business model, strategy, and financial planning—over short, medium, and long-term horizons.

Entities must also describe scenario analysis used to assess robustness against different climate pathways, such as a transition to a low-carbon economy.

> **Key Term: Scenario analysis**
> The process of assessing potential business outcomes under various plausible climate futures.

### 3. Risk Management

Organisations are required to explain how they identify, assess, and manage climate-related risks—including alignment with overall risk processes.

### 4. Metrics and Targets

Entities must report the key metrics used to monitor climate-related risks and progress against climate-related targets. IFRS S2 requires both qualitative and quantitative information, including:

- **Greenhouse gas (GHG) emissions**: Scope 1 (direct), Scope 2 (indirect, energy), and, if material, Scope 3 (value chain).
- Internal carbon prices, when used in decision-making.
- Climate-related revenues, capex, or costs, if tracked.
- Targets adopted and progress toward those targets.

> **Key Term: Greenhouse Gas (GHG) emissions**
> The total direct and indirect emissions of gases that contribute to global warming, classified as Scope 1, 2, or 3.

### Worked Example 1.1

> **Question:**
> A company with significant logistics operations is setting climate-related targets. It has reliable data for its vehicle fleet (Scope 1) and purchased electricity (Scope 2), but its suppliers’ emission data (Scope 3) is incomplete. Is it required to disclose Scope 3 emissions under IFRS S2?
>
> **Answer:**
> IFRS S2 requires disclosure of Scope 3 GHG emissions if they are material to the entity’s operations or if they form a significant portion of its overall climate risk. Where data is incomplete, companies should disclose estimation approaches and data quality limitations.
>
> **Exam Warning:**
> When answering SBR questions on ISSB standards, you must not only describe the content areas but also justify why each disclosure helps users assess enterprise value. Failure to link disclosures back to investor decision-making can cost marks.

### MATERIALITY IN SUSTAINABILITY-RELATED REPORTING

Information is considered material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions that primary users make on the basis of general purpose financial reports.

> **Key Term: Materiality (sustainability context)**
> The threshold at which sustainability or climate information could affect investor decisions regarding an entity.

Materiality judgments often require both quantitative factors (e.g., emissions totals) and qualitative factors (e.g., regulatory, reputational risks).

### ASSURANCE, LOCATION, AND PRESENTATION OF DISCLOSURES

- IFRS S1 and S2 require sustainability information to be included in an entity's general purpose financial reporting—often the annual report, but not necessarily in the financial statements themselves.
- Where a jurisdiction requires or permits, limited assurance over sustainability disclosures may also be required.
- Disclosures must be clearly cross-referenced within the general purpose financial report.

> **Key Term: General purpose financial reporting**
> Reports intended to meet the information needs of a wide group of external users, not tailored to specific parties.

### ADDITIONAL CLIMATE DISCLOSURE REQUIREMENTS

IFRS S2 requires specific disclosures, such as:

- How the entity identifies climate-related opportunities (e.g., new products or markets).
- Whether climate-related performance is linked to executive remuneration.
- Quantified financial impacts (where possible) of climate-related risks and opportunities.
- Use of external standards and methodologies (e.g., GHG Protocol).

### Worked Example 1.2

> **Question:**
> A manufacturing company adopts science-based targets to reduce emissions and ties its executive bonus scheme to progress. What should be disclosed under IFRS S2?
>
> **Answer:**
> The company should disclose adopted targets and their scientific basis, metrics used to measure progress, current performance against targets, and a description of how progress influences executive remuneration decisions. Users should be able to understand the link between sustainability objectives and financial outcomes.

### COMPARABILITY, VERIFIABILITY, AND RELATIONSHIP TO FINANCIAL STATEMENTS

IFRS S1 and S2 require companies to:

- Use consistent measurement approaches year-on-year.
- Disclose estimation uncertainty and limitations.
- Explain the connections between climate metrics and other financial disclosures (e.g., asset impairment or provisions).
- Where relevant, reconcile amounts and assumptions to related figures in the financial statements.

## Summary

ISSB standards IFRS S1 and S2 establish a global, investor-focused baseline for sustainability and climate-related reporting. Entities must provide clear, decision-useful information structured around governance, strategy, risk management, and metrics/targets, applying a rigorous materiality lens and cross-linking disclosures to other financial information. These requirements will increasingly shape both exam scenarios and real-world company reporting.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- Explain the objectives and coverage of ISSB IFRS S1 and S2 standards
- Identify and describe the four required disclosure pillars for climate reporting
- Distinguish between Scope 1, 2, and 3 emissions metrics
- Outline materiality and assurance principles for sustainability disclosures
- Apply ISSB climate-related requirements to SBR exam context

## Key Terms and Concepts

- ISSB
- IFRS S1
- IFRS S2
- Scenario analysis
- Greenhouse Gas (GHG) emissions
- Materiality (sustainability context)
- General purpose financial reporting


Sustainability-related reporting (ISSB IFRS S1/S2) - Climate-related disclosures and metrics (IFRS S2)