## Learning Outcomes

This article covers the ISSB IFRS S1 and S2 requirements for sustainability-related reporting, focusing on general principles, materiality, and user needs. After reading, you should be able to explain the scope and purpose of ISSB sustainability standards, apply materiality to sustainability disclosures, and address the link between sustainability factors and financial reporting, as required in the ACCA SBR exam.

## ACCA Strategic Business Reporting (SBR) Syllabus

For ACCA Strategic Business Reporting (SBR), you are required to understand how sustainability standards are integrated into corporate reporting and the implications for users. Pay particular attention to:

- The scope and general principles of ISSB IFRS S1 and S2 for sustainability-related reporting
- How materiality is determined and applied in the context of sustainability information
- The relationship between sustainability disclosures and financial statements
- The needs of primary users and the link to enterprise value over the short, medium, and long term
- The professional and ethical requirements surrounding sustainability-related disclosures

## 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. What is the primary objective of ISSB IFRS S1 in sustainability-related reporting?
2. State the main criteria for determining materiality of sustainability information according to ISSB standards.
3. How do ISSB standards define the group of users for sustainability-related financial disclosures?
4. Is climate-related information always material under IFRS S2? Give a brief explanation.

## Introduction

Sustainability issues such as climate change, social responsibility, and governance are increasingly important for investors and other stakeholders. The International Sustainability Standards Board (ISSB) has developed IFRS S1 and S2, providing a global baseline for sustainability-related financial reporting. These standards introduce clear requirements for disclosure, focusing on how sustainability risks and opportunities affect an entity's enterprise value and decision-making by primary users. Materiality, as applied to sustainability, ensures that only information relevant for users' decisions is reported.

> **Key Term: ISSB (International Sustainability Standards Board)**
> The global body that sets IFRS Sustainability Disclosure Standards, aiming to standardize sustainability-related financial reporting internationally.
>
> **Test Tip:**
> When revising General requirements and materiality for sustainability, connect each definition, method, or rule to the kind of question the assessment is likely to ask.

### The Purpose and Scope of ISSB Sustainability Standards

IFRS S1 and S2 create a framework for reporting information about significant sustainability-related risks and opportunities. The focus is on information that could affect an entity’s enterprise value across short, medium, or long-term horizons. These standards are designed for entities preparing general purpose financial reports (including financial statements and sustainability-related financial disclosures) in accordance with IFRS or compatible local standards.

> **Key Term: IFRS S1**
> The standard outlining general requirements for disclosing sustainability-related financial information, including governance, strategy, risk management, and metrics.
> **Key Term: IFRS S2**
> The standard specifying the requirements for disclosing climate-related information, such as greenhouse gas emissions, scenario analysis, transition plans, and climate risks.

### Materiality in Sustainability-Related Reporting

Materiality determines whether information should be disclosed. Under ISSB, information is material if omitting, misstating, or obscuring it could reasonably be expected to influence primary users’ decisions regarding the provision of financial resources.

Materiality for sustainability disclosures is entity-specific and judged using both quantitative and qualitative factors. Unlike traditional thresholds or percentages, consideration must be given to the nature and circumstances of the item or event, the sector context, and user information needs.

> **Key Term: materiality (sustainability context)**
> Information is material if its omission, misstatement, or obscuration could influence users’ decisions about providing resources to the entity, focusing on enterprise value.

### Who Are the Primary Users?

The primary audience for ISSB sustainability disclosures mirrors the users of IFRS financial statements: current and potential investors, lenders, and other creditors. These users need information to evaluate an entity's prospects for cash flows and to assess management’s stewardship over resources. The standards clarify that not all stakeholders' interests are the focus for materiality—only those whose decisions impact the allocation of financial capital.

> **Key Term: enterprise value**
> The total value of an entity, reflecting current and potential future value to investors, lenders, and creditors, as affected by sustainability factors.

### General Requirements for Sustainability-Related Disclosure (IFRS S1/S2)

To comply with ISSB S1 and S2, an entity must:

![Sustainability materiality assessment under IFRS S1 and IFRS S2, from risk identification to disclosure, with non-material matters monitored and reassessed.](https://static.pastpaperhero.com/images/acca-sbr-sustainability-related-reporting-issb-ifrs-s1-s2-general-requirements-and-materiality-for-sustainability_00.png)

_Enterprise-value-based materiality assessment evaluates sustainability matters for disclosure, while IFRS S2 climate topics are presumed material in most industries._

- Disclose all material sustainability-related risks and opportunities that could reasonably affect enterprise value
- Provide comparable and connected information across financial and sustainability reporting, allowing users to see how sustainability matters may affect financial outcomes
- Present disclosures in a way that is clear and concise, avoiding overload or obscuring material information
- Explain the processes for identifying, assessing, and managing relevant sustainability-related risks and opportunities

Climate-related data (IFRS S2) is explicitly required, with the presumption that in most industries it is material. Entities must consider both quantitative and qualitative factors—including emerging regulations, sector impacts, and evolving user expectations.

### Worked Example 1.1

A global manufacturer evaluates whether to disclose details of its supply chain exposure to water shortages. Some facilities are in regions that are becoming more drought-prone. Should this be considered material under ISSB S1?

> **Answer:**
> If the supply chain risks from drought could have a significant financial impact—such as production halts or increased costs—this information may reasonably influence users’ capital allocation decisions. Therefore, it should be treated as material and disclosed.

### Worked Example 1.2

A utility company’s climate reporting under IFRS S2 shows a 2% reduction in emissions year-on-year. However, new government regulations may require much larger reductions, with possible large penalties for non-compliance. Is reporting just the 2% reduction sufficient?

> **Answer:**
> Merely reporting the 2% reduction is insufficient if pending regulations and potential penalties represent a significant risk to future enterprise value. The entity must disclose not only the emissions data but also the regulatory context and corresponding risks/opportunities, if material to users.
>
> **Exam Warning:**
> Be careful not to interpret materiality as a fixed quantitative threshold (such as 5% of profit). In sustainability reporting, materiality requires judgement and must reflect both quantitative and qualitative impacts on decisions about providing resources.

### Presentation and Connected Information

ISSB requires entities to present sustainability disclosures alongside, and connected to, the financial statements within the same general purpose report. The aim is to help users understand the relationships between financial and sustainability information and ensure that disclosures are consistent and reconcilable.

### Worked Example 1.3

A mining group discloses governance over climate risks in its annual report but places this information in a separate report, published months after its financial statements. Does this meet the general requirements of ISSB S1/S2?

> **Answer:**
> No. Sustainability-related disclosures must be included in the same general purpose report as the financial statements so that users can evaluate the complete picture and relationship between financial and sustainability information at the same time.

## Summary

ISSB IFRS S1 and S2 set out global minimum requirements for disclosing material sustainability- and climate-related information that could impact enterprise value. Entities must apply judgement to identify which matters are material for users’ decision-making, focusing on those affecting financial capital providers. Connected and concise disclosures support stakeholders in making informed economic decisions.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- Explain the objective and scope of ISSB IFRS S1 and S2 for sustainability reporting
- Define and apply materiality for sustainability-related disclosures
- Identify the primary users and their required information
- Connect sustainability disclosures with financial statement reporting
- Describe general presentation and disclosure requirements under ISSB standards

## Key Terms and Concepts

- ISSB (International Sustainability Standards Board)
- IFRS S1
- IFRS S2
- materiality (sustainability context)
- enterprise value


Sustainability-related reporting (ISSB IFRS S1/S2) - General requirements and materiality for sustainability