The International Financial Reporting Standards Foundation (IFRS Foundation) and the European Financial Reporting Advisory Group (EFRAG) have released new guidance material detailing the alignment between the International Sustainability Standards Board’s (ISSB) standards and the European Sustainability Reporting Standards (ESRS).

The document aims to simplify the reporting process for companies mandated to disclose sustainability-related information. It also sets out to provide practical support on applying both standards alongside each other – with a focus on climate-related disclosures.

The European Union’s Commissioner for Financial Services, Mairead McGuinness, said the guidance “recognises the Commission’s sensible approach to sustainability reporting, and a commitment to ensuring a very high degree of alignment between EU and international sustainability reporting standards”.

She added: “It is important that reporting frameworks in different jurisdictions are interoperable with each other to reduce the reporting burden for EU companies.” 

ISSB chair Emmanuel Faber said: “The ISSB’s goal is to inform investor capital allocation decisions by ensuring they have access to globally comparable, targeted and decision-useful disclosures.” 

The release of the guidance document comes as companies gear up for their first full year of reporting under the ISSB’s first two sustainability reporting standards.  

The first of the two standards, IFRS S-1, sets out principles for disclosing general sustainability-related risks and opportunities, while the second standard, IFRS S-2, deals with climate-related disclosures.

Global baseline in sustainability

While the ISSB has aimed to set a global minimum baseline in sustainability reporting, however, the European Union has embarked on a wider-ranging, more ambitious approach to sustainability reporting.

Companies covered by the Corporate Sustainability Reporting Directive (CSRD) must apply ESRSs for their sustainability reporting, which are designed to align with EU policies and contribute to global standardisation efforts in sustainability reporting.

ESRSs, however, take a “double materiality” perspective – that is to say, they oblige companies to report both on their impacts on people and the environment, and on how social and environmental issues create financial risks and opportunities for the company.

Single, double materiality

This is in contrast to the single materiality approach in the ISSB’s standards, which focus exclusively on financial materiality rather than external impacts.

The new document is designed to address complexities and reduce duplication in sustainability reporting, particularly concerning climate disclosures.

It explains how companies can align general requirements such as materiality and presentation, and offers specific guidance on how to comply with both sets of standards when reporting on sustainability issues other than climate.

The authors of both ESRSs and IFRS sustainability standards have aimed for a high degree of alignment, especially for climate reporting.

This resulted in consistent definitions of materiality, shared terminology, and overlapping climate-related disclosure requirements, with most ISSB climate disclosures included in ESRSs.

However, application of the two reporting regimes alongside each other is not as simple as reading across from one set of standards to the other.

The guidance covers four main topics:

  • general sustainability reporting;
  • climate disclosures;
  • ESRSs to ISSB climate reporting; and
  • ISSB to ESRSs climate reporting. 

Both the European Union and the ISSB are working to ensure a degree of interoperability between their respective standards and those of other reporting frameworks such as the Global Reporting Initiative or the United Nations.

The guidance is based on the alignment between IFRS sustainability standards and ESRSs as at 2 May 2024.

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