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Practical lessons from implementation of ISSB standards

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Victor Chan

International Director, Global IFRS Services, Ernst & Young Global Limited

5 minute read 14 Nov 2025
Related topics
IFRS
Assurance

First-year reporting experiences of adopters of ISSB sustainability standards offer practical insights for companies preparing their own reports.

In brief

  • The reporting entity concept determines the boundaries of a company’s sustainability report, ensuring it aligns with the scope of its financial statements.
  • Care is needed in defining the reporting entity, especially in respect of sustainability related risks from joint ventures and associates.
  • To benefit from applicable reliefs, companies need to distinguish between current and anticipated financial effects of sustainability risks disclosed.

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In recent months, a number of companies released their first-ever sustainability reports applying the ISSB standards; these companies’ reports offer valuable insights into the practical issues of first-year implementation. Their experience may help other companies in planning and preparing their sustainability reporting journey. This article considers the most salient lessons learned from defining the reporting entity and applying the materiality concept, to navigating climate resilience disclosures and managing measurement uncertainties. Watch a detailed video covering these topics.

 

Reporting entity

The reporting entity concept defines the scope of the sustainability report. A company’s sustainability-related financial disclosures are for the same reporting entity as the related financial statements. For example, a company prepares consolidated financial statements in accordance with IFRS accounting standards and reports on sustainability in accordance with ISSB standards. For both financial and sustainability reporting purposes, the reporting entity, in this instance, is comprised of the holding company and its consolidated subsidiaries (the group). The company’s joint ventures and associates are not part of the reporting entity as they are subject to equity accounting, but are not consolidated in the group.

 

While joint ventures and associates are not part of the reporting entity, they are investees of the company or its consolidated subsidiaries and, as such, this investment relationship could give rise to sustainability-related risks and opportunities for the reporting entity. Often joint ventures and associates are suppliers or customers of the reporting entity and these relationships could also give rise to sustainability-related risks and opportunities.      

 

Materiality    

In ISSB standards, the materiality concept is consistent with that for financial reporting under IFRS accounting standards and a company is required to consider both quantitative and qualitative materiality factors. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information requires companies to assess what information is material and subject to disclosure. Therefore, materiality is assessed at the information level and is not only based on the numerical figure embodied in that information. In assessing whether information is material, a company must consider the magnitude and the nature of the effect of a sustainability-related risk or opportunity.

Given that many disclosures in a sustainability report are qualitative in nature, companies will likely need to pay sufficient attention to the qualitative factors, relative to financial reporting, when identifying material information to be disclosed.    

Current and anticipated financial effects

IFRS S1 requires companies to disclose information to enable users of general purpose financial reports to understand current as well as anticipated financial effects of those sustainability-related risks and opportunities.

The boundary between the current and anticipated financial effects of a company’s sustainability-related risks and opportunities is based on whether its financial position, financial performance and cash flows are affected in the current reporting period.

Therefore, the current financial effects are those reported in the financial statements for the current period and the anticipated financial effects are those effects that are expected to be reported in the financial statements in future periods. Distinguishing current from anticipated financial effects is important because there are reliefs available only for the disclosure of anticipated financial effects, but not for current financial effects. For the disclosure of anticipated financial effects, a reporting entity, firstly, must use all reasonable and supportable information that is available at the reporting date without undue cost or effort. Secondly, the reporting entity needs to use an approach that is commensurate with the skills, capabilities and resources available to it in preparing those disclosures.

Climate resilience and scenario analysis

IFRS S1 includes disclosure requirements on resilience, with more specific disclosure requirements for climate-related risks and opportunities being required by IFRS S2 Climate-related Disclosures. A company is required to disclose under IFRS S2, information that enables users of general purpose financial reports to understand the resilience of the company’s strategy and business model to climate-related changes, developments and uncertainties. When doing so, the company needs to take into consideration its identified climate-related risks and opportunities.

With respect to scenario analysis, companies are required to disclose details of: how and when the climate-related scenario analysis was carried out; whether it is associated with climate-related transition or physical risks; the key assumptions the company made in the analysis; which scenarios were used and why they picked them. Companies must also consider whether the disclosures related to climate resilience and scenario analysis are robust enough based on these requirements.

Judgement and measurement uncertainties

IFRS S1 requires that companies disclose qualitative and, if applicable, quantitative information to enable users to understand the judgements they have made in the process of preparing their sustainability reports that have the most significant effect on the information included in those disclosures.

With respect to measurement uncertainty, a company is required to identify the amounts it has disclosed that are subject to a high level of measurement uncertainty. For each of the amounts identified, a company is required to disclose information about the sources of measurement uncertainty and the assumptions, approximations and judgements it has made in measuring the amount.

Don’t just use boilerplate language to acknowledge the involvement of judgement and the existence of measurement uncertainty − companies need to provide sufficient detail about each judgement and amount subject to measurement uncertainty so as to better inform users.

Structure and presentation of content

A logical structure in the sustainability report will help users better understand the overarching messages as well as the specific disclosures made by a company. Some companies may wish, in addition to the disclosure requirements under the ISSB standards, to provide other disclosures that are not considered material to investors, lenders and other creditors. IFRS S1 is clear that such non-material disclosures can be included in the report. However, it is necessary to ensure that these disclosures do not obscure the required disclosures or mislead the users. To avoid overshadowing the required disclosures, when including non-material information, companies will find helpful to use, for example, a different font and style from that used for material information or include the non-material information elsewhere in the annual report outside of the sustainability report.

Companies currently planning and preparing for their sustainability reports may wish to consider how these issues will impact their reports and how they will be able to best communicate useful and transparent information to users of these reports.

Summary

The first-year reporting experiences of recent adopters of ISSB sustainability standards provide some practical insights for companies that are in the process of preparing their own reports. Key issues are highlighted, such as, defining the reporting entity, and where sustainability-related financial disclosures must align with those in IFRS consolidated financial statements. The importance of applying the materiality concept with care is emphasised, considering both quantitative and qualitative factors. Companies also need to disclose how resilient their strategies and business models are to climate-related risks and opportunities.

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    About this article

    Photographic portrait of Victor Chan
    Victor Chan
    International Director, Global IFRS Services, Ernst & Young Global Limited
    Develops insights on applying IFRS to emerging accounting issues. Focuses on leases, crypto-assets, investment property and latest standard-setting activities. Enjoys relaxing with family.
    Related topics
    IFRS
    Assurance

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