The IFRS Foundation and EFRAG have jointly published guidance material that illustrates the high level of interoperability between the International Sustainability Standards Board’s IFRS Sustainability Disclosure Standards (ISSB Standards) and the European Sustainability Reporting Standards (ESRS). The guidance provides concrete information on how companies can efficiently apply both sets of standards, supported by direct comparisons of the required disclosures. As more and more companies around the world are required to report on sustainability-related information through the ISSB Standards and ESRS, this guidance seeks to reduce the complexity and duplication of already extensive work.

This article was written by Leene Timmerman and Iman Zalinyan. Leene ([email protected]) and Iman ([email protected]) are part of RSM Netherlands Business Consulting Services, with a strong focus on ESG and Strategy matters.

EFRAG develops the European Sustainability Reporting Standards (ESRS) to ensure comprehensive disclosure of environmental, social, and governance information by all companies within the Corporate Sustainability Reporting Directive (CSRD) scope. They consist of two cross-cutting standards describing general reporting requirements and ten topical standards. Whether a sustainability topic must be reported on is based on double materiality. A topic is a material, such as whether a company has a positive or negative impact on people, society, or the environment (impact materiality) and if it has a financial impact on the company (financial materiality).  

The ISSB developed its standards as a global baseline for sustainability disclosures. The standards pay particular attention to disclosures on how climate change affects companies. They consist of requirements designed to ensure that companies provide consistent, comparable, and reliable information on their sustainability-related risks and opportunities. These standards are crucial for investors, regulators, and other stakeholders who must understand how ESG factors impact financial performance and long-term value creation.

The ISSB standards cover a broad range of topics, including but not limited to:

  • Climate-related Disclosures: Requirements for reporting greenhouse gas emissions, climate risks, and mitigation strategies.
  • Governance: Information on governance structures, policies, and processes for managing sustainability-related risks and opportunities.
  • Social Impact: Disclosures on human capital, community engagement, and other social factors influence a company's sustainability performance.
  • Environmental Impact: Detailed reporting on resource use, waste management, and other environmental impacts beyond climate change.
  • The interoperability guidance published by the IFRS Foundation and EFRAG represents a step towards global alignment in sustainability reporting.  

The need for interoperability

Global reporting standards are often fragmented, resulting in inconsistencies, comparability issues, and a higher reporting burden on multinational companies. The need for interoperability among frameworks has become increasingly important. In response, the IFRS Foundation, the European Commission services, and EFRAG have collaborated closely to develop their standards.

This collaboration has led to aligning financial materiality definitions in ESRS and IFRS S1. Additionally, both sets of standards share common terminology, with a particular emphasis on aligning climate-related disclosures.

The guidance document aims to provide practical support for companies reporting under both standards. It explains the interoperability regarding materiality and presents and discloses non-climate sustainability topics. Since particular attention was paid to aligning climate-related disclosure, which is currently the key issue in ISSB Standards, most of the guidance document addresses these requirements. An overview of corresponding climate-related disclosure requirements illustrates that almost all ISSB standards disclosures are included in ESRS. Then, information is provided for entities starting with ESRS and those starting with ISSB to enable compliance with both sets of standards.

Forward-Thinking: Future Revisions and Enhancements

As the sustainability landscape evolves, companies must adopt a forward-thinking approach. This includes staying prepared for future revisions and enhancements of the guidance or the standards. Companies should anticipate updates and be ready to integrate new requirements into their reporting frameworks.

Interoperability with other global standards is another critical consideration. Companies should explore how the interoperability guidance aligns with other international reporting frameworks, such as the Global Reporting Initiative (GRI) or the Task Force on Climate-related Financial Disclosures (TCFD). Companies can ensure comprehensive and globally comparable sustainability disclosures by aligning their reporting practices with multiple standards.

In conclusion, implementing the new interoperability guidance requires a strategic and proactive approach. By following these practical steps and maintaining a forward-thinking mindset, companies can enhance their sustainability reporting, meet regulatory requirements, and build greater trust with their stakeholders.

RSM is a thought leader in the field of Sustainability and Strategy consulting. We offer frequent insights through training and sharing thought leadership based on a detailed knowledge of regulatory obligations and practical applications in working with our customers. If you want to know more, please contact one of our consultants.