Overview

This educational material supports implementation of IFRS S1 and IFRS S2 by explaining how entities identify and disclose material sustainability-related risks and opportunities that could reasonably be expected to affect their prospects. It clarifies how materiality is applied in sustainability-related financial disclosures to provide decision-useful information to primary users: investors, lenders and other creditors. The document does not add to ISSB requirements but illustrates their application through simplified examples.

Main messages

Materiality under ISSB Standards is entity-specific and focused on whether omitting, misstating or obscuring information could influence primary users’ decisions. The standards require disclosure of material information about sustainability-related risks and opportunities that may affect cash flows, access to finance or cost of capital over the short, medium or long term. Materiality acts as a filter for information, not as a test of whether a risk or opportunity itself is “significant”. Connectivity with financial statements and interoperability with ESRS and GRI are emphasised, while maintaining a primary-user, financially focused perspective.

Chapter 1—The definition of material information and its application in ISSB Standards

This chapter defines material information in the context of sustainability-related financial disclosures. Information is material if its omission, misstatement or obscuring could reasonably be expected to influence primary users’ decisions. Primary users assess expected returns, including dividends, interest, principal repayments and market value changes, based on future cash flows and stewardship.

Materiality judgements require consideration of both quantitative and qualitative factors. Quantitative factors may include the scale of impacts on cash flows or resources, while qualitative factors include governance arrangements, business model dependencies, industry characteristics and geographic exposure. Information about low-probability but high-impact events may be material, particularly when risks are aggregated. Judgements are reassessed at each reporting date to reflect changed circumstances or assumptions.

Chapter 2—Sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects and its application in ISSB Standards

This chapter explains sustainability-related risks and opportunities as arising from an entity’s interactions with stakeholders, society, the economy and the natural environment across its value chain. Entities depend on, and impact, resources and relationships such as human capital, natural resources, finance and stakeholder trust. These dependencies and impacts may give rise to risks or opportunities affecting prospects.

Prospects are defined as impacts on cash flows, access to finance and cost of capital over different time horizons. Identification requires an external perspective, reflecting what primary users could reasonably expect, even where management views exposure as limited. The standards do not prescribe a single identification method but require entities to refer to and consider SASB Standards and other specified guidance. A proportionality mechanism applies: entities use all reasonable and supportable information available at the reporting date without undue cost or effort. Reassessment is required only after significant events or changes in circumstances.

Chapter 3—Identifying and disclosing material information

This chapter sets out a four-step process: identify potentially material information, assess materiality, organise disclosures, and review disclosures as a whole. Entities first consider ISSB requirements and relevant guidance to identify information that primary users may need. They then assess materiality using quantitative and qualitative factors, including possible future events and uncertainty.

Disclosures should be clear, entity-specific and avoid obscuring material information through excessive aggregation, disaggregation or inclusion of immaterial detail. Information must be organised to support understandability and connectivity with financial statements. Entities may omit commercially sensitive information about opportunities in limited circumstances but must disclose use of this exemption. The final review considers information both individually and in combination to ensure a fair presentation of sustainability-related risks and opportunities.