The journey towards enhanced sustainability reporting has taken a significant step forward with the collaboration between the ISSB and the EFRAG.
According to Position Green, together, they’ve introduced joint guidance aimed at facilitating interoperability between the ISSB Standards and the European Sustainability Reporting Standards (ESRS).
Adhering to both ISSB and ESRS standards introduces several challenges for organisations. The ISSB sets a global standard focusing primarily on climate-related disclosures, whereas the ESRS, under the EU’s Corporate Sustainability Reporting Directive (CSRD), addresses a broader spectrum of Environmental, Social, and Governance (ESG) issues through a double materiality lens. Multinational companies, in particular, find themselves facing hefty compliance burdens as they strive to align with both frameworks.
The concept of materiality is pivotal in both frameworks but is approached differently by each. The ISSB prioritises financial materiality—focusing on information that influences investor decisions. On the other hand, the ESRS considers both the financial impact on the company and the company’s impact on society and the environment.
This dual approach necessitates rigorous and sometimes overlapping assessments, adding to the resource and time demands on companies.
Despite the guidance provided to aid interoperability, organisations still struggle with reporting fragmentation and duplication. The guidance offers detailed comparison and alignment insights; however, ensuring that reports satisfy both sets of standards without duplicating efforts remains a challenge.
This requires a deep understanding of the subtle differences in disclosure requirements, including those related to greenhouse gas emissions and climate-related opportunities.
The guidance, although comprehensive, represents a snapshot in time and does not encompass all areas of the standards. As both ISSB and EFRAG standards evolve, and new interpretations arise, companies must remain agile. This dynamic environment necessitates continuous learning and adaptation to stay aligned with the latest guidelines.
To effectively navigate these complexities, companies are advised to undertake several strategic measures:
- In-depth guidance review: A thorough examination of the joint guidance is essential to identify the exact points of alignment and areas requiring additional disclosures to meet both standards.
- Synergistic materiality assessments: Companies can enhance efficiency by harmonising their materiality assessment processes. Utilising findings from ESRS assessments can inform ISSB disclosures and vice versa.
- Keeping abreast of updates: Regularly updating knowledge on guidance and interpretations from both ISSB and EFRAG is crucial for maintaining compliance.
- Engaging with implementation resources: Organisations should utilise available tools such as the ESRS Q&A platform, which offers clarifications on complex standards and responds to technical queries.
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