ISSB Standards Go Live: What GCC Companies Need to Know About IFRS S1 and S2

What Are IFRS S1 and S2?

The International Sustainability Standards Board (ISSB), established under the IFRS Foundation at COP26 in November 2021, published its first two standards in June 2023:

• IFRS S1 — General Requirements for Disclosure of Sustainability-related Financial Information: Requires companies to disclose information about sustainability-related risks and opportunities that could reasonably be expected to affect their cash flows, access to finance, or cost of capital. It establishes the overarching architecture: governance, strategy, risk management, and metrics and targets (aligning with the TCFD framework that it effectively supersedes).
• IFRS S2 — Climate-related Disclosures: Specifies climate-specific requirements, including physical and transition risk disclosures, Scope 1, 2, and 3 GHG emissions reporting, climate scenario analysis, and transition plan disclosure.

Both standards are effective for annual reporting periods beginning on or after 1 January 2024, with first reports expected in 2025. However, jurisdictional adoption varies, and transitional reliefs are available.

GCC Adoption Timeline

GCC securities regulators and stock exchanges have signalled clear intent to adopt ISSB standards, though timelines and approaches differ:

Qatar Stock Exchange (QSE)

QSE introduced voluntary ESG reporting guidance in 2020 and has progressively tightened expectations. In 2024, QSE announced that ISSB-aligned sustainability reporting would become mandatory for listed companies in phases:

• 2025: Mandatory IFRS S1 disclosure for companies in the QE Index (Qatar's blue-chip index)
• 2026: Extension to all listed companies; IFRS S2 climate disclosures required for large emitters
• 2027: Full IFRS S2 compliance including Scope 3 emissions for all listed companies

Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM)

The Securities and Commodities Authority (SCA) published ESG disclosure requirements in 2023, with alignment to ISSB standards mandated from 2025 for ADX- and DFM-listed entities. ADX has been particularly proactive, launching an ESG data portal and providing listed companies with reporting templates aligned to IFRS S1/S2 structure.

Saudi Exchange (Tadawul)

The Capital Market Authority (CMA) published draft ESG disclosure guidelines in 2024. Mandatory ISSB-aligned reporting is expected from 2026 for companies in the TASI 30 index, with phased extension to all listed entities by 2028. The CMA has signalled that Scope 3 reporting will initially be on a comply-or-explain basis.

Other GCC Markets

Bahrain Bourse, Muscat Securities Market, and Boursa Kuwait are at earlier stages. All have published voluntary ESG guidance and indicated intent to align with ISSB standards, with mandatory adoption likely from 2027–2028.

Key Requirements: What Must Companies Disclose?

Governance

Companies must disclose the governance processes, controls, and procedures used to monitor, manage, and oversee sustainability-related risks and opportunities. This includes board-level oversight, management roles, and the skills and competencies available to the governing body.

Strategy

Disclosure of how sustainability-related risks and opportunities affect the company's business model, value chain, strategy, and financial planning. IFRS S2 specifically requires disclosure of:

• Climate-related physical risks (acute and chronic) affecting assets and operations
• Transition risks from policy, legal, technology, market, and reputational changes
• Climate-related opportunities in products, services, markets, and resource efficiency
• The effects of climate risks on financial position, performance, and cash flows

Climate Scenario Analysis

IFRS S2 requires companies to use climate scenario analysis to assess the resilience of their strategy. This does not mandate specific scenarios but requires at minimum a scenario consistent with limiting warming to 1.5°C. For GCC companies, this is particularly challenging because:

• Hydrocarbon demand scenarios under 1.5°C pathways show significant production declines that directly affect Gulf economies
• Physical risk scenarios for the Arabian Gulf project extreme heat stress, sea level rise, and increased frequency of marine heatwaves
• Transition risk scenarios must consider carbon border adjustments (CBAM), methane regulation, and evolving customer preferences

Scenario analysis is not forecasting. It is a tool for testing strategic resilience against plausible futures — including uncomfortable ones.

Risk Management

Companies must describe their processes for identifying, assessing, prioritising, and monitoring sustainability-related risks, and how these are integrated with overall risk management. For many GCC companies, this requires connecting climate risk assessment with existing enterprise risk management frameworks that were not designed with environmental variables in mind.

Metrics and Targets

IFRS S2 mandates disclosure of:

• Scope 1 emissions: Direct emissions from owned or controlled sources (mandatory from first reporting period)
• Scope 2 emissions: Indirect emissions from purchased electricity, heat, or steam (mandatory from first reporting period)
• Scope 3 emissions: All other indirect emissions across the value chain (one-year transitional relief available)
• Emissions intensity: Metrics expressed per unit of revenue or physical output
• Transition plan targets: Any targets the company has set, including net-zero commitments, interim milestones, and progress against them

The Scope 3 Challenge

Scope 3 emissions represent the most technically challenging disclosure requirement for GCC companies. For oil and gas producers, Scope 3 Category 11 (use of sold products) dwarfs Scope 1 and 2 combined — for QatarEnergy, downstream combustion of exported LNG constitutes an estimated 85–90 per cent of total lifecycle emissions.

Other sectors face different Scope 3 challenges:

• Construction and real estate: Embodied carbon in materials (Category 1) and tenant energy use (Category 13)
• Banking and finance: Financed emissions (Category 15) across lending and investment portfolios
• Industrial manufacturing: Supply chain emissions (Category 1) and product end-of-life (Category 12)

ISSB provides transitional relief allowing companies to omit Scope 3 in their first year of reporting. However, GCC companies should use this year to build data collection systems and supplier engagement programmes rather than treating it as a free pass.

How ISSB Relates to GHG Verification

IFRS S2 requires GHG emissions to be measured in accordance with the GHG Protocol Corporate Standard or a jurisdictional equivalent (such as ISO 14064-1). While IFRS S2 does not mandate third-party verification of emissions data, several factors make verification practically essential:

• Assurance requirements: The IAASB is developing an assurance standard (ISSA 5000) for sustainability information. Limited assurance is expected to be required from initial adoption, with reasonable assurance following. Verified GHG data provides the foundation for assurance engagements.
• Regulatory expectations: GCC securities regulators are likely to require independent verification of emissions data as part of their ISSB adoption frameworks.
• Investor expectations: Institutional investors, including major sovereign wealth funds, increasingly require verified emissions data as a condition of investment.
• Internal control: Verification identifies data quality issues, methodology inconsistencies, and completeness gaps that internal teams may miss.

GAB-accredited verification under ISO 14065 provides the highest-quality assurance for GHG emissions statements. The verification process examines methodology, data sources, calculations, and completeness against ISO 14064-1, producing a verification opinion that can be referenced in sustainability reports and investor communications.

Practical Steps for GCC Companies

Immediate Actions (2025)

• Conduct a gap analysis between current sustainability reporting and IFRS S1/S2 requirements
• Establish or strengthen board-level sustainability governance
• Complete or update a Scope 1 and 2 GHG inventory to ISO 14064-1 standard
• Engage a GAB-accredited verification body for third-party assurance of GHG data
• Begin Scope 3 screening to identify material categories

Near-term Actions (2025–2026)

• Conduct climate scenario analysis covering at least two scenarios (including 1.5°C alignment)
• Integrate climate risk into enterprise risk management frameworks
• Develop or refine transition plans with quantified interim targets
• Build Scope 3 data collection systems and supplier engagement processes
• Invest in internal capacity through ESG and climate training programmes

Medium-term Actions (2026–2028)

• Prepare for reasonable assurance requirements by strengthening internal controls over sustainability data
• Develop integrated financial and sustainability reporting capabilities
• Benchmark performance against sector peers using verified data

Common Pitfalls to Avoid

• Treating ISSB as a standalone exercise: IFRS S1/S2 are designed to be integrated with financial reporting. Siloed sustainability teams producing disconnected reports will struggle with the connectivity requirements.
• Over-relying on consultants: External support is valuable for initial implementation, but long-term compliance requires internal capability. Invest in training and systems, not just reports.
• Ignoring materiality assessment: IFRS S1 requires disclosure of sustainability-related information that is material to investors' decisions. Not everything is material; focus on what matters for your sector and business model.
• Delaying Scope 3: The one-year transitional relief for Scope 3 should be used to build systems, not to ignore the issue. Companies that wait until the deadline will face data collection challenges that take years to resolve.
• Underestimating scenario analysis: Climate scenario analysis requires genuine engagement with uncomfortable possibilities. Superficial exercises that confirm existing strategy will not satisfy investor or regulatory scrutiny.

Conclusion

IFRS S1 and S2 represent the most significant shift in corporate reporting since the adoption of IFRS financial standards. For GCC companies, the combination of mandatory exchange requirements, investor expectations, and the practical need for verified environmental data creates both urgency and opportunity. Companies that move early — building robust GHG inventories, engaging accredited verification, and investing in genuine climate risk analysis — will find that ISSB compliance is not just a regulatory obligation but a competitive advantage in capital markets that increasingly price sustainability performance.