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IFRS and EFRAG Publish New Guidance on Interoperability Between ISSB and ESRS Standards

Cover page of the ESRS-ISSB Standards Interoperability Guidance document with logos of EFRAG and IFRS Foundation.

The alignment between the International Sustainability Standards Board’s (ISSB) and the European Financial Reporting Advisory Group’s (EFRAG) standards marks a pivotal advancement.


The recently issued interoperability guidance underscores a significant stride towards harmonizing global and European sustainability disclosure standards, particularly in climate-related disclosures.



Understanding the Interoperability Standards


The recent interoperability guidance issued by the IFRS Foundation and EFRAG functions as an essential toolkit for entities navigating the complexities of compliance with both the IFRS Sustainability Disclosure Standards (ISSB Standards) and the European Sustainability Reporting Standards (ESRS). This guidance is designed to bridge the conceptual and practical gaps between these two sets of standards, offering a detailed roadmap for alignment.


The document meticulously outlines the similarities and differences between the ISSB Standards and ESRS, providing clear, actionable information that aids entities in understanding the overlap and distinct requirements. The goal is to streamline the sustainability reporting process, ensuring that reports generated are both comprehensive and clear, without redundant information that could cloud stakeholder understanding.


Moreover, the guidance aims to enhance the overall quality of sustainability reporting by promoting a unified approach to disclosing material sustainability information. It addresses common challenges such as varying definitions of materiality, disclosure scope, and reporting formats between the standards. By clarifying these issues, the guidance helps companies avoid the pitfalls of double reporting and fosters a more streamlined approach, making it easier for stakeholders to compare and analyze sustainability data across borders and industries.


Through detailed examples and scenario-based explanations, the guidance assists preparers of sustainability reports in making informed decisions about how to best align their reports with both sets of standards.


This is particularly valuable for multinational corporations that face regulatory requirements from multiple jurisdictions, enabling them to create a single, coherent strategy that meets diverse regulatory demands efficiently.



Key Areas of Alignment


Materiality and Disclosure


Both the ISSB Standards and the European Sustainability Reporting Standards (ESRS) place a strong emphasis on the concept of materiality in sustainability reporting. This fundamental principle ensures that the information disclosed is of sufficient relevance and significance to influence the decision-making processes of stakeholders.


The newly issued guidance meticulously outlines how to interpret and apply materiality within each framework, providing entities with robust methodologies to determine what information should be disclosed.


The guidance offers practical examples and comparative analyses that help entities understand where the requirements of the ISSB Standards and ESRS overlap, as well as where they diverge.


It encourages entities to approach these overlaps strategically to maximize efficiency in reporting while maintaining the integrity and depth of the disclosed information. This helps organizations ensure that their sustainability reports meet the high standards expected by global and European stakeholders without unnecessary duplication of efforts.



Climate-related Disclosures


A significant focus of the interoperability guidance is on climate-related disclosures, reflecting the global urgency of addressing climate change and the increasing regulatory focus on environmental transparency.


Here, the guidance shines by detailing the precise areas where the ISSB Standards and ESRS converge on climate issues. It highlights the specific disclosures that are common to both standards and provides guidance on how to effectively integrate and expand these disclosures to achieve dual compliance.


For companies that are initiating their sustainability reporting journey with either the ISSB Standards or ESRS, the guidance lays out a clear pathway for incorporating the necessary climate-related information.


This includes how to report on greenhouse gas emissions, climate resilience, and the anticipated impacts of climate change on business operations. Additionally, the guidance addresses advanced topics such as scenario analysis and the implications of transition risks associated with climate change, ensuring that companies can provide a comprehensive view of their environmental impact and management strategies.



Practical Benefits for Organizations


Organizations utilizing this guidance can achieve several operational efficiencies:


  • Reduced Reporting Complexity: By clarifying similar and divergent elements between the two standards, the guidance helps companies streamline their reporting processes.


  • Enhanced Data Management: Companies are better positioned to collect, govern, and utilize decision-useful sustainability data, which is crucial for informing strategic decisions and external reporting.


  • Improved Stakeholder Confidence: Transparent and consistent reporting facilitated by this guidance reassures investors and stakeholders of the company’s commitment to robust sustainability practices.



Forward-Looking Statements by Regulators and Chairs


Prominent figures have expressed strong support for the interoperability guidance. Mairead McGuinness, Commissioner for Financial Services, emphasized the global challenge of climate change and the necessity of coherent reporting frameworks.


Similarly, Patrick de Cambourg, Chair of the EFRAG Sustainability Reporting Board, highlighted the guidance as a testament to the commitment to global convergence in sustainability reporting.


These endorsements underscore the broader regulatory and economic context in which these standards operate, aiming for a unified approach that addresses the urgent needs of climate change mitigation and sustainability.



Upcoming Events and Resources


To further support the dissemination and understanding of this guidance, a joint event titled "Unlocking Synergy: Interoperability Guidance on IFRS Sustainability Disclosure Standards and European Sustainability Reporting Standards" is scheduled. This event promises to offer valuable insights and practical examples of how to implement the guidance effectively.


In conclusion, the interoperability standards represent a crucial development in the field of sustainability reporting. By reducing the burden of compliance and fostering a clearer understanding of the requirements, this guidance not only supports the practical needs of businesses but also advances the broader goal of sustainable development.


Companies are encouraged to engage with these resources actively and integrate them into their reporting practices to stay ahead in the dynamic landscape of sustainability governance.




Download the guidance material.


Join the EFRAG-ISSB Joint Event "Unlocking Synergy: Interoperability Guidance on IFRS Sustainability Disclosure Standards and European Sustainability Reporting Standards" on 23 May 2024 from 14.00 to 16.00 CET, in Brussels or online. You can find more info & registration here.



 

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