ISSB Sustainability Standards: What Indonesia Businesses Need to Know

The International Sustainability Standards Board, established under the IFRS Foundation, released its inaugural standards IFRS S1 and IFRS S2 in June 2023, marking a watershed moment in global sustainability reporting. These standards create a global baseline for sustainability-related financial disclosures, and their adoption across jurisdictions including the Indonesia is expected to reshape how companies report on climate and sustainability risks. Indonesian businesses should understand these standards now, as adoption timelines are accelerating.

IFRS S1: General Requirements

IFRS S1 sets out the overarching requirements for sustainability-related financial disclosures. It requires companies to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity's cash flows, access to finance, or cost of capital over the short, medium, or long term. The standard is structured around four thematic pillars drawn from the TCFD framework: governance, strategy, risk management, and metrics and targets. Companies must describe how their governance bodies oversee sustainability-related risks, how these risks affect their business model and strategy, how they identify and manage sustainability risks, and what metrics and targets they use to monitor performance. Importantly, IFRS S1 requires companies to consider the full range of sustainability topics, not just climate, though the level of disclosure depends on materiality assessments.

IFRS S2: Climate-Related Disclosures

IFRS S2 provides specific requirements for climate-related disclosures and is designed to be applied alongside IFRS S1. It requires companies to disclose their Scope 1, Scope 2, and material Scope 3 greenhouse gas emissions, measured in accordance with the GHG Protocol. The standard also mandates disclosure of climate-related transition risks such as policy changes, market shifts, and technology disruption, as well as physical risks including acute events like floods and chronic changes like rising temperatures. Companies must disclose how climate scenarios have been used in strategic planning, including the resilience of their strategy under different temperature pathways. For companies in Indonesia, where physical climate risks such as extreme heat events and water stress are material concerns, the scenario analysis requirements will be particularly relevant.

Expected Indonesia Adoption Timeline

While the Indonesia has not yet formally mandated ISSB standards, strong signals indicate adoption is forthcoming. The Indonesia and Commodities Authority has expressed support for international alignment in sustainability reporting. The Jakarta Securities Exchange has explicitly referenced ISSB standards as the direction of travel for its disclosure requirements. Industry observers expect a phased mandatory adoption beginning with large listed companies, potentially as early as 2027 for reporting on 2026 fiscal years, with extension to smaller listed entities and large private companies in subsequent years. Companies should not wait for formal mandates to begin preparation, as the complexity of first-time implementation, particularly around Scope 3 measurement and climate scenario analysis, requires significant lead time.

Practical Preparation Steps

Companies can take several practical steps now to prepare for ISSB adoption. Conducting a gap analysis between current sustainability disclosures and ISSB requirements will identify the most significant areas needing development. Building or enhancing greenhouse gas emissions measurement capabilities, particularly for Scope 3, should be a priority given the data collection challenges involved. Engaging with climate scenario analysis, even at a qualitative level initially, will build organizational familiarity with this new requirement. Training board members and senior leadership on sustainability governance obligations is essential, as the standards place significant emphasis on governance-level oversight. Finally, companies should evaluate their current sustainability data systems and consider investing in technology solutions that can support the granularity and auditability required by ISSB standards.