ISSB Standards: Focus on adoption and implementation

From the IFRS Institute – March, 14, 2025

Authors: Julie Santoro and Catarina Vieira

Preparer needs shaping priorities

It’s been almost two years since the International Sustainability Standards Board (ISSB) published its first two standards: IFRS S1 (General Requirements for Sustainability-related Disclosures) and IFRS S2 (Climate-related Disclosures). In the time since, key milestones have included the completion of an agenda consultation, which culminated in a commitment to helping companies embed the first standards; and the formation of a Transition Implementation Group (TIG), which discusses implementation questions in a public forum.

Supported by the ISSB™’s jurisdictional adoption guide, to date more than 30 jurisdictions have decided to use or are taking steps to introduce the standards into their legal or regulatory frameworks, either by requiring reporting across all topics or using a climate-first approach. Many preparers will soon be required to comply with ISSB requirements as well as European Sustainability Reporting Standards (ESRS) – making interoperability the watchword of the moment.

In this article, we discuss select ISSB developments that are key to interoperability and the needs of preparers. For companies also interested in EU developments, read our article, EU releases Omnibus proposals.

A commitment to helping implementation

Although most companies had already been preparing annual sustainability reports, the advent of IFRS Sustainability Disclosure Standards and ESRS marks a move to mandatory sustainability reporting as an integral part of the financial reporting ecosystem. For many companies, this is also the first time that the finance function has become involved in sustainability reporting – having previously been the responsibility of a dedicated sustainability team, corporate communications and/or marketing.

Therefore, the ISSB’s commitment to supporting implementation has been a significant boost for companies. Although research in preparation for the next wave of standards has not stopped (see Next on the horizon), a great deal of effort has been spent on outreach and on building the ISSB’s Knowledge Hub, which includes resources such as guides, webcasts and podcasts that aim to educate and inform.

The importance of the interoperability guide

For companies preparing to report under the EU’s Corporate Sustainability Reporting Directive, the top priority has been dual compliance with both IFRS Sustainability Disclosure Standards and ESRS – and how to prepare efficiently and effectively from a single set of datapoints. In addition to differences in disclosures and measurement approaches, the two frameworks are born from different concepts of materiality (see Figure 1).

In May 2024, the ISSB and the European Financial Reporting Advisory Group (EFRAG) jointly published their Interoperability Guidance, ESRS–ISSB Standards (interoperability guide), which is a detailed, bottom-up analysis of the climate-related disclosure requirements in IFRS S2 and the corresponding requirements in ESRS.

Although the guide represented a point-in-time analysis of identified differences and did not include all areas of the standards, it gave companies confidence that the ISSB and EFRAG had agreed on common areas of their climate-related disclosures and highlighted significant alignment. Having an agreed list of areas of difference to watch out for allowed companies applying both frameworks to move forward confidently with gathering data and preparing disclosures.

This commitment from the standard-setters that the standards have a high degree of alignment has allowed implementation efforts to proceed without worrying that slight differences in wording may always lead to a different interpretation. Of course, the devil remains in the details, but it drives all of us toward the goal of maximum interoperability in practice.

Both IFRS Sustainability Disclosure Standards and ESRS consider financial materiality – i.e. information that would influence an investor’s decisions.

In addition, ESRS consider impact materiality – i.e. matters that relate to a company’s actual or potential positive or negative impacts on people or the environment. Some of these disclosures may also be financially material.

This difference in approach is fundamental to determining which sustainability matters – and which information about those matters – need to be included in a company’s sustainability reporting.

Assessing what’s material

Recognizing that materiality judgments are fundamental to sustainability reporting, in November 2024 the ISSB published guidance that can help companies understand and apply its approach to materiality. The guidance explains:

how to identify sustainability-related risks and opportunities that could reasonably be expected to affect a company’s prospects; and
how to determine whether information about the identified risks and opportunities is material.

Learn more in our article, Helping companies to decide what's material for sustainability reporting. Reinforcing the takeaways from the interoperability guide, this guidance makes it clear that a company’s dual reporting can, to a large extent, make use of its ESRS double materiality assessment to identify sustainability matters under the IFRS Sustainability Disclosure Standards.

The role of the TIG

Unlike the IFRS Interpretations Committee, the TIG does not have a formal role in publishing interpretive guidance. Instead, the mandate of the TIG is to:

solicit, analyze and discuss stakeholder questions arising from implementation;
inform the ISSB about those questions, which helps the ISSB determine what, if any, action it needs to take; and
provide a public forum for stakeholders to learn from others involved with implementation.

The TIG discussions do not represent the views of any individual ISSB Board or staff member, and do not determine acceptable or unacceptable applications of the standards. However, TIG members are experienced practitioners and the discussions have proven to be a valuable resource – highlighting practical issues that are challenging preparers and providing useful, albeit informal, commentary.

An example of how the TIG can be effective in informing the Board is the planned amendments related to greenhouse gas (GHG) emissions (see Practical amendments underway).

Practical amendments underway

With respect to the measurement of GHG emissions, the IFRS Sustainability Disclosure Standards leverage the GHG Protocol’s Corporate Standard (2004). As implementation and analysis has progressed, the TIG has discussed practical questions about application of the standards that have informed the ISSB’s actions.

In January 2025, the ISSB added a project to its agenda to propose targeted amendments to IFRS S2, with an exposure draft expected in Q2 2025. The following is an overview of the expected proposals, which are responsive to stakeholder concerns and intended to be pragmatic.

Expected proposal	Impact
Using alternative global warming potential (GWP) values
Allow companies to use GWP values required by local regulators or stock exchanges instead of values published by the Intergovernmental Panel on Climate Change.	Companies would no longer need to use two sets of GWP values – one to meet IFRS S2 requirements and the other to meet local jurisdictional needs. Irrespective of the proposals, companies would need to disclose their measurement approach, inputs and assumptions, including the GWP values used. The relief would be available as long as the local requirement exists.
Applying the jurisdictional relief to use a method other than the GHG Protocol Corporate Standard to measure GHG emissions
Clarify when companies can use jurisdictional relief if a local regulator requires a methodology other than the GHG Protocol.	Parent companies would be able to consolidate information using different methods if required by local jurisdictions. The relief would reduce duplicate reporting for companies with subsidiaries in different jurisdictions.
Disclosing Scope 3 Category 15 GHG emissions – i.e. GHG emissions that arise from a company’s financial investments
Limit the disclosure to financed emissions as defined in IFRS S2 and specifically exclude derivatives. IFRS S2 defines financed emissions as “the portion of gross greenhouse gas emissions of an investee or counterparty attributed to the loans and investments made by an entity to the investee or counterparty.” Require a company to provide information about what was excluded.	Companies would not need to include emissions related to the following in their total Scope 3 emissions, even if material: derivatives; investment banking activities; insurance-associated emissions; and other non-financed emissions. The relief would not be time-bound but may be reconsidered if circumstances change. There would be no change to the requirement for all types of companies (e.g. insurers) to disclose financed emissions, if material.
Using the Global Industry Classification Standard (GICS) when disaggregating financed emissions by industry
Introduce a hierarchy for selecting an industry-classification system for lending and investment activities: If a company is already using GICS within its group, it would apply it across the entire group. If the company does not use GICS but is required by a local regulator or stock exchange to use an alternative classification system for other reporting purposes, it would use that alternative system. Otherwise, the company could choose an industry-classification system that provides information in a way that is useful to investors. If a company is using more than one industry-classification system, it would select one, prioritizing climate-related reporting and then other reporting purposes. Companies would disclose the industry-classification system used and explain the basis for its selection.	Companies would be able to use their existing industry-classification system instead of GICS when reporting disaggregated financed emissions. This relief would benefit companies already required to use a different system for regulatory reporting or other established reasons.

Expected proposal	Impact
Using alternative global warming potential (GWP) values
Allow companies to use GWP values required by local regulators or stock exchanges instead of values published by the Intergovernmental Panel on Climate Change.	Companies would no longer need to use two sets of GWP values – one to meet IFRS S2 requirements and the other to meet local jurisdictional needs. Irrespective of the proposals, companies would need to disclose their measurement approach, inputs and assumptions, including the GWP values used. The relief would be available as long as the local requirement exists.
Applying the jurisdictional relief to use a method other than the GHG Protocol Corporate Standard to measure GHG emissions
Clarify when companies can use jurisdictional relief if a local regulator requires a methodology other than the GHG Protocol.	Parent companies would be able to consolidate information using different methods if required by local jurisdictions. The relief would reduce duplicate reporting for companies with subsidiaries in different jurisdictions.
Disclosing Scope 3 Category 15 GHG emissions – i.e. GHG emissions that arise from a company’s financial investments
Limit the disclosure to financed emissions as defined in IFRS S2 and specifically exclude derivatives. IFRS S2 defines financed emissions as “the portion of gross greenhouse gas emissions of an investee or counterparty attributed to the loans and investments made by an entity to the investee or counterparty.” Require a company to provide information about what was excluded.	Companies would not need to include emissions related to the following in their total Scope 3 emissions, even if material: derivatives; investment banking activities; insurance-associated emissions; and other non-financed emissions. The relief would not be time-bound but may be reconsidered if circumstances change. There would be no change to the requirement for all types of companies (e.g. insurers) to disclose financed emissions, if material.
Using the Global Industry Classification Standard (GICS) when disaggregating financed emissions by industry
Introduce a hierarchy for selecting an industry-classification system for lending and investment activities: If a company is already using GICS within its group, it would apply it across the entire group. If the company does not use GICS but is required by a local regulator or stock exchange to use an alternative classification system for other reporting purposes, it would use that alternative system. Otherwise, the company could choose an industry-classification system that provides information in a way that is useful to investors. If a company is using more than one industry-classification system, it would select one, prioritizing climate-related reporting and then other reporting purposes. Companies would disclose the industry-classification system used and explain the basis for its selection.	Companies would be able to use their existing industry-classification system instead of GICS when reporting disaggregated financed emissions. This relief would benefit companies already required to use a different system for regulatory reporting or other established reasons.

To learn more about the measurement of GHG emissions in general, read our Handbook, GHG emissions reporting. For additional information about the IFRS S2 requirements, read our article, Using the GHG Protocol to measure and report Scope 1, 2 and 3 GHG emissions.

Next on the horizon

The developments discussed so far in this article have been part of the ISSB’s efforts to assist in implementing its first two standards, an outcome of its first agenda consultation. The other component of the ISSB’s 2024-2026 workplan has been to enhance the Sustainability Accounting Standards Board (SASB) Standards and begin research on two new topics.

In addition to the IFRS S2 amendments (see Practical amendments underway), the following are expected in Q2 2025.

Exposure draft on enhancing the SASB Standards. The ISSB is expected to propose targeted amendments to “maintain consistent measurement of common topics across industries.”
Review the staff’s research on biodiversity, ecosystems and ecosystem services with a view to scoping a future project. Biodiversity comprises the variety of life on earth, including animals, plants and other living organisms, which together form an ecosystem.
Review the staff’s research on human capital with a view to scoping a future project. Human capital comprises the people who make up a company’s workforce, including their competencies, capabilities, experience and motivation to innovate.

The takeaway

These are our recommended actions.

Monitor the exposure draft on IFRS S2

Use our resources to help understand the standards: ISSB Standards Today

Don’t hesitate to speak to your usual KPMG contact with any implementation or interoperability questions

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Julie Santoro

Partner, Dept. of Professional Practice, Sustainability, KPMG LLP

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Catarina Vieira

Sócio D, SAO - FW - RM DPP, KPMG

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From the IFRS Institute – March, 14, 2025

A commitment to helping implementation

The importance of the interoperability guide

Figure 1: The different concepts of materiality

Assessing what’s material

The role of the TIG

Practical amendments underway

Expected proposal

Impact

Using alternative global warming potential (GWP) values

Applying the jurisdictional relief to use a method other than the GHG Protocol Corporate Standard to measure GHG emissions

Disclosing Scope 3 Category 15 GHG emissions – i.e. GHG emissions that arise from a company’s financial investments

Using the Global Industry Classification Standard (GICS) when disaggregating financed emissions by industry

Expected proposal

Impact

Using alternative global warming potential (GWP) values

Applying the jurisdictional relief to use a method other than the GHG Protocol Corporate Standard to measure GHG emissions

Disclosing Scope 3 Category 15 GHG emissions – i.e. GHG emissions that arise from a company’s financial investments

Using the Global Industry Classification Standard (GICS) when disaggregating financed emissions by industry

Next on the horizon

The takeaway

KPMG US IFRS® Institute

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Catarina Vieira

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ISSB Standards: Focus on adoption and implementation

From the IFRS Institute – March, 14, 2025

A commitment to helping implementation

The importance of the interoperability guide

Figure 1: The different concepts of materiality

Assessing what’s material

The role of the TIG

Practical amendments underway

Expected proposal

Impact

Using alternative global warming potential (GWP) values

Applying the jurisdictional relief to use a method other than the GHG Protocol Corporate Standard to measure GHG emissions

Disclosing Scope 3 Category 15 GHG emissions – i.e. GHG emissions that arise from a company’s financial investments

Using the Global Industry Classification Standard (GICS) when disaggregating financed emissions by industry

Expected proposal

Impact

Using alternative global warming potential (GWP) values

Applying the jurisdictional relief to use a method other than the GHG Protocol Corporate Standard to measure GHG emissions

Disclosing Scope 3 Category 15 GHG emissions – i.e. GHG emissions that arise from a company’s financial investments

Using the Global Industry Classification Standard (GICS) when disaggregating financed emissions by industry

Next on the horizon

The takeaway

KPMG US IFRS® Institute

Explore more

Meet our team

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