ISSB Standards for Investor ESG Reports

The ISSB Standards are transforming how organisations disclose ESG (Environmental, Social, and Governance) data, focusing on investor needs. With 89% of investors considering ESG in decisions and ESG investments projected to reach £26.7 trillion by 2026, these standards aim to standardise and improve sustainability reporting globally. Key highlights:

• IFRS S1: Covers governance, strategy, risk management, and metrics, linking ESG data with financial reporting.

• IFRS S2: Focuses on climate-related risks and opportunities, including physical and transition risks.

• UK Alignment: The UK plans to mandate ISSB standards for major companies by 2026, supported by draft UK Sustainability Reporting Standards (UK SRS).

Organisations must prioritise materiality, data quality, and integration of ESG and financial data. Early preparation, supported by technology platforms, ensures compliance and builds investor confidence.

IFRS S1 & S2 Sustainability reporting Standards

ISSB Standards Breakdown

The ISSB standards are designed to support an investor-focused approach to sustainability reporting. At their core are two key standards that work in tandem to ensure organisations can provide detailed, transparent sustainability disclosures. These standards are particularly important for companies aiming to meet regulatory demands while preparing ESG reports that resonate with investors.

IFRS S1: General Sustainability Disclosure Requirements

IFRS S1 forms the backbone of sustainability-related disclosures. It requires organisations to report on ESG risks and opportunities that could affect the value of the business across short, medium, and long-term horizons.

The standard is structured around four main pillars:

• Governance: Organisations need to disclose how their board and management oversee sustainability matters.

• Strategy: This involves explaining how sustainability risks and opportunities influence the business model, value chain, and strategic plans.

• Risk Management: Companies must outline the processes they use to identify, assess, and manage sustainability-related risks.

• Metrics and Targets: This includes providing numerical data on performance and updates on progress towards sustainability goals.

A key aspect of IFRS S1 is its emphasis on linking sustainability disclosures with financial statements. By integrating ESG data with financial reporting, organisations can provide a clearer picture of how sustainability impacts their financial performance. This approach reflects the increasing importance of aligning sustainability insights with financial management, ensuring investors have a complete understanding of the organisation’s position.

The standard also allows flexibility by enabling organisations to use existing frameworks, as long as these align with IFRS S1’s core principles. This flexibility can ease the transition for companies adapting their current reporting practices.

IFRS S1 sets the stage for IFRS S2, which delves deeper into climate-related factors.

IFRS S2: Climate-Related Disclosures

IFRS S2 zeroes in on climate-related risks and opportunities, requiring organisations to disclose how these factors impact cash flows, access to financing, or capital costs. Effective for reporting periods beginning on or after 1 January 2024, IFRS S2 also permits early adoption if IFRS S1 is applied.

This standard builds on industry-specific requirements from SASB Standards and focuses on three main areas:

• Physical Risks: Covers acute events like floods and storms, as well as chronic changes such as rising sea levels and temperature increases.

• Transition Risks: Includes challenges like policy shifts, technological advancements, market changes, and reputational factors tied to the move towards low-carbon economies.

• Climate Opportunities: Highlights potential benefits, such as improved resource efficiency, innovative products and services, or entry into new markets.

To help organisations make thorough and meaningful disclosures, the IFRS Foundation has issued specific guidance on transition plans. Sue Lloyd, ISSB Vice-Chair, explains:

"This guidance document addresses the fragmentation of disclosures about transition plans - which is costly for both preparers of information and investors - and provides inspiration for entities who are applying IFRS S2 when making disclosures about their climate-related transition plans."

Materiality and Data Quality Requirements

Both IFRS S1 and IFRS S2 are underpinned by strict materiality and data quality principles. These standards prioritise investor materiality, meaning information is considered material if omitting or misrepresenting it could influence investment decisions. This is a narrower focus compared to frameworks that consider a broader range of stakeholders.

To ensure reliability, organisations are required to establish strong data governance practices. This includes assigning clear roles and responsibilities, documenting processes, and implementing controls similar to those used in financial reporting. Regular monitoring of data quality is also essential.

Consistency and comparability are critical. Companies must apply the same measurement methods across reporting periods and provide comparative data from previous years. If methodologies change, organisations need to explain why and quantify the impact wherever possible.

The framework also stresses the importance of forward-looking information. Rather than focusing only on past performance, companies should provide insights into how sustainability factors could influence future financial outcomes. Tools like scenario analysis and clear explanations of assumptions and uncertainties help achieve this.

For businesses operating across multiple regions, maintaining systems that deliver consistent, audit-ready data is crucial. These systems must meet local reporting requirements while ensuring global comparability, reflecting the growing demand for high-quality, standardised sustainability information.

Steps to Align ESG Reports with ISSB Standards

Adopting the ISSB framework for ESG reporting involves a structured approach. The process typically includes three key steps: conducting a gap analysis, integrating sustainability and financial data, and establishing strong governance structures.

Gap Analysis Process

The first step towards ISSB alignment is understanding the gaps in your current ESG reporting practices. A gap analysis helps identify specific areas needing improvement and lays out a clear plan to address them.

"A Gap Analysis is a strategic assessment that compares your current ESG and sustainability practices with recognised frameworks, regulatory requirements, or internal goals - highlighting gaps, misalignments, and improvement areas." - Sachin Sharma, ESG and Sustainability Article

To carry out a gap analysis effectively, involve stakeholders from across the organisation. This ensures a holistic review of practices and goals. The process typically includes gathering input, aligning objectives, reviewing requirements, setting timelines, and creating an actionable plan.

A key part of this process is a double materiality assessment, which identifies ESG issues that are most relevant from both financial and impact perspectives. Engaging employees, suppliers, managers, and partners is essential to uncover practical challenges and opportunities. This analysis not only sets a baseline for tracking ESG performance but also helps prioritise areas that will have the greatest impact when creating strategies, action plans, and performance indicators.

Once gaps are identified, the next step focuses on integrating sustainability data with financial systems.

Combining Sustainability and Financial Data

ISSB standards emphasise presenting sustainability data alongside financial information, offering a unified view of organisational performance. This shift moves away from the traditional practice of keeping these data streams separate.

Finance teams play a crucial role in this integration. With 78% of CFOs under pressure from various stakeholders to advance sustainability efforts, they are increasingly taking the lead in ESG reporting initiatives.

"Meeting demands for sustainability data will be integral to company performance. Making a CFO responsible for sustainability is essential for ensuring a company meets its ESG goals. Companies are much more likely to extensively embed ESG in core management processes when the CFO has accountability for ESG metrics." - Accenture

Start by defining clear data parameters and mapping data flows. This helps streamline data collection and identify where manual processes cause inefficiencies, paving the way for technology to enhance operations. For example, one European company successfully integrated ESG and financial data using a dashboard approach.

The benefits of integration are compelling. Companies with strong ESG performance have shown 2.6 times higher total shareholder returns compared to medium performers between 2013 and 2020. Additionally, sustainable investments now account for approximately $30 trillion globally. Maintaining audit-ready, traceable data across the value chain is crucial, requiring well-documented processes and regular quality checks similar to those used in financial reporting. For a deeper dive into ISSB-aligned reporting, visit neoeco.

With data integration in place, the final step is establishing governance structures to ensure compliance and long-term success.

Setting Up Governance Structures

Strong governance ensures that ESG principles are embedded into the organisation’s strategy and operations rather than being treated as a standalone initiative. A well-designed governance framework addresses immediate compliance needs while fostering long-term trust with investors.

Board-level oversight is a cornerstone of effective governance. Boards should take the lead in embedding ESG principles, which may involve setting up dedicated committees to oversee the accuracy and integrity of ESG disclosures.

Key governance areas include:

• Board Structure: Skills, diversity, committee roles, oversight capacity, and independence.

• Risk Management: Strategies for mitigating ESG risks, ensuring regulatory compliance, and maintaining audit independence.

• ESG Reporting: Ensuring transparency, accuracy, timely disclosures, and comprehensive reporting.

• Company Policies: Incorporating ESG into policies, tracking KPIs, and ensuring compliance beyond basic requirements.

For instance, a German industrial goods company saw significant improvements after implementing ISSB standards in 2022. They reported a 20% reduction in carbon emissions (up from 5% pre-implementation), increased employee engagement from 65% to 85%, and a rise in customer satisfaction from 70% to 90%.

Strategic planning should integrate ESG goals into the core business framework, with risk management systems expanded to include ESG considerations. New roles may also emerge to support compliance efforts. Regular monitoring, including internal and external audits, ensures alignment with evolving regulations and keeps stakeholders informed. Companies with robust governance frameworks have demonstrated 6% greater resilience during economic downturns. However, a Morningstar Sustainalytics survey revealed that 46% of sustainability professionals see corporate governance as the weakest link in ESG initiatives.

Technology Solutions for ISSB Compliance

To meet ISSB-aligned reporting standards, organisations should integrate technology into their governance frameworks. By combining sustainability and financial data, technology platforms enable quicker and more accurate reporting. ESG platforms, in particular, are indispensable for meeting investor demands while ensuring audit-ready compliance.

ESG Reporting Platform Benefits

Switching from manual ESG reporting to automated platforms eliminates inefficiencies and reduces errors. This transition is already underway, with 68% of executives reporting the use of digital software for ESG reporting.

Automation connects directly with existing systems, cutting out manual data entry and reducing human error. These platforms handle all aspects of reporting, from tracking greenhouse gas emissions to monitoring governance metrics.

By using a unified platform, organisations can adhere to multiple reporting standards like ISSB and CSRD without juggling separate processes. All required reports can be generated from a centralised data source, simplifying compliance efforts.

Features like automated audit trails and data validation ensure that sustainability metrics meet the same standards as financial reporting.

The business case for technology is clear. Over 80% of institutional investors now consider ESG factors in their decisions. However, 85% of executives feel their organisations lack the right tools to meet the demands of ESG reporting. Key features to prioritise include comprehensive emissions coverage (Scope 1, 2, and 3), alignment with IFRS S1 and S2 for governance and risk management, and real-time dashboards that enhance transparency across departments.

neoeco Platform Overview

The neoeco platform offers a fresh approach to ESG compliance through its Financially-integrated Sustainability Management (FiSM) system. Unlike traditional methods that treat sustainability data as separate, neoeco embeds ESG factors directly into financial transactions using double-entry accounting principles.

This approach bridges the gap between sustainability performance and financial outcomes. By integrating with accounting software, neoeco automatically calculates the environmental impact of financial transactions, acting as an AI-driven sustainability bookkeeper.

What sets neoeco apart is its use of AI-driven automation and Life Cycle Assessment (LCA) methodologies. This allows for detailed insights across 96 ESG impact categories, going beyond basic emissions tracking to deliver a comprehensive view of sustainability performance.

Real-world results highlight its effectiveness. Kreston Reeves, a UK-based accounting firm, reported a tenfold increase in emissions data granularity, a 60% reduction in manual data collection time, and an 80% improvement in assurance readiness after adopting neoeco.

"neoeco stood out by going beyond traditional carbon accounting with its use of Life Cycle Assessment."

• Dan Firmager BFP ACA, ESG Advisor at Kreston Reeves & ICAEW Climate Champion

The platform supports multiple global standards, including ISSB (IFRS S1 & S2), CSRD, GHGP, and TCFD, making it suitable for organisations operating in various regulatory environments. For finance teams leading ESG initiatives, neoeco’s seamless integration with financial systems eliminates the need for separate sustainability tools, simplifying compliance and decision-making. This integration builds investor confidence with accurate, audit-ready disclosures. For further details on its ISSB reporting capabilities, visit neoeco.

Manual vs Technology-Based Reporting Comparison

When comparing manual and technology-driven ESG reporting, the advantages of automation become clear:

Beyond saving time, technology platforms offer advanced features like scenario analysis and forecasting. These tools allow organisations to model climate scenarios and assess their potential impacts, a key requirement for ISSB compliance, which mandates disclosure of climate-related risks and opportunities.

Supplier engagement also becomes easier, as platforms can aggregate data from multiple sources and provide industry benchmarks. This is particularly useful for accurate Scope 3 emissions reporting.

With 58% of organisations already exploring new technology to enhance ESG reporting, investing in these platforms often pays off through reduced administrative workload and improved data accuracy. For organisations aiming to meet ISSB standards, technology platforms are no longer optional - they are essential infrastructure. Choosing the right solution tailored to your organisation’s needs ensures a smoother path to compliance and stronger operational insights.

Key Points for ISSB-Aligned Reporting

The ISSB standards mark a major shift towards consistent ESG reporting on a global scale, designed specifically to meet the needs of investors. With the UK government planning to mandate ISSB-aligned reporting for listed companies starting from accounting periods on or after 1 January 2026, businesses need to start preparing now.

What sets the ISSB standards apart is their integration with financial reporting. Unlike standalone sustainability reports, IFRS S1 and S2 are designed to work hand-in-hand with general-purpose financial statements. This ensures that sustainability disclosures focus on material risks and opportunities, providing investors with the reliable, comparable data they need to make informed decisions.

Data quality and materiality are at the heart of effective ISSB reporting. Companies must prioritise sustainability information that has a material impact on enterprise value, supported by rigorous data collection and validation processes. This emphasis on high-quality data aligns with the UK's push for early compliance.

The UK's regulatory momentum further highlights the urgency of early preparation. The UK Sustainability Disclosure Technical Advisory Committee has already recommended endorsing the first two IFRS Sustainability Disclosure Standards, with the Financial Conduct Authority expected to oversee their implementation. Additionally, transition plan disclosures and other requirements are being explored to align with both ISSB standards and local frameworks.

Technology platforms play a crucial role in meeting these complex requirements. Manual processes simply cannot deliver the level of data quality, audit readiness, and compliance across multiple frameworks that the ISSB standards demand. Technology solutions, such as neoeco’s unified platform, help eliminate data silos and streamline reporting.

Aligning with ISSB standards offers benefits beyond regulatory compliance. Early adoption builds investor trust, improves access to capital, and prepares organisations for future regulations. Companies that establish strong governance over ESG data now will be better equipped to handle mandatory disclosure requirements as they emerge.

To get started, organisations should conduct a thorough gap analysis to identify where their current reporting falls short of ISSB standards. This process should focus on materiality assessments, data quality controls, and integration with financial reporting systems. Clear governance structures should also be established, assigning responsibility for climate strategy and incorporating sustainability goals into executive performance reviews.

The alignment of investor expectations, regulatory requirements, and technological advancements creates a compelling case for adopting ISSB standards. Businesses that act early will not only meet compliance demands but also position themselves as leaders in sustainability governance and attract greater investment opportunities.

FAQs

What sets the ISSB standards apart from other ESG reporting frameworks?

The ISSB standards aim to provide a unified, globally relevant framework for ESG reporting. What sets them apart from other frameworks - like SASB or TCFD - is their effort to combine multiple standards into one cohesive system, ensuring consistency and comparability across different markets.

A key feature of ISSB is its emphasis on financial materiality. This means disclosures focus on aspects that matter most to investors and directly impact financial performance. While other frameworks may explore broader social or environmental topics, ISSB aligns sustainability reporting with financial reporting, making it particularly useful for organisations looking to meet investor needs and comply with regulations.

How can organisations in the UK prepare for the mandatory adoption of ISSB standards by 2026?

To get ready for the mandatory adoption of ISSB standards in the UK by 2026, organisations should start by understanding the regulatory requirements and timelines. This includes reviewing recent UK consultations on sustainability reporting and getting to grips with how the ISSB framework aligns with existing standards.

The next step is to assess your current ESG data collection and reporting processes. Look for any gaps and ensure these systems are capable of meeting ISSB requirements. Tools like neoeco can be particularly helpful here, as they combine finance and sustainability data to produce audit-ready, ISSB-compliant reports.

It’s also important to stay updated on phased implementation plans and engage in industry discussions. Being proactive in these areas will make it easier for your organisation to adapt and meet compliance deadlines smoothly.

How do technology platforms help integrate sustainability and financial data to meet ISSB standards?

How Technology Platforms Integrate Sustainability with Financial Data

Technology platforms make it easier to combine sustainability and financial data by offering a unified system that prioritises both traceability and accuracy. They take care of real-time data collection, simplify the tracking of greenhouse gas emissions across Scopes 1, 2, and 3, and ensure organisations are ready for audit by aligning ESG reporting with ISSB standards.

Take neoeco, for example. This platform is tailored to help organisations comply with global frameworks like ISSB (IFRS S1 & S2), ensuring they can meet both investor expectations and regulatory demands. By delivering structured ESG disclosures and enhancing data transparency, these tools not only streamline compliance processes but also build trust with stakeholders.

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