The ISSB and the ESRS: What We Know so Far

Updated in June 2024

The sustainability reporting landscape has recently seen the emergence of high-quality standards with the adoption of the Corporate Sustainability Reporting Directive (CSRD) at the European level and, internationally, with the publication of the International Sustainability Standards Board (ISSB) sustainability reporting standards. These standards attempt to overcome the obstacle of insufficient availability of comparable and reliable sustainability information to support corporate strategy and investment decisions.

Many questions then arise to understand how these two standards can work together as some organisations will be subject to both. In this article, we will unfold what we already know, and identify areas of intersections and key differences. We will see that full interoperability is unlikely although both the EFRAG (ESRS) and the IFRS Foundation managed to align on major concepts and requirements.

In this article, we will cover the following

• Quick Recap on the CSRD and ISSB
• How do the ISSB and the ESRS Compare?
• What are the main Overlaps between the ISSB Drafts and the ESRS?
• What are the Key Differences between the ISSB Drafts and the ESRS?
• So, How Should We Consider the Interoperability of the ISSB and the ESRS?
• How Can Greenomy Help?
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Quick Recap on the CSRD and ISSB

Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD), was first introduced by the European Commission in 2021. It replaced the Non-Financial Reporting Directive (NFRD), which entered into force in 2014 as the EU's first attempt to standardise ESG reporting. The Directive, which is part of the sustainable finance track of the 2019 EU Green Deal legislative package, was adopted by the EU Parliament in November 2022. Member States will have to transpose it into national law by July 2024 at the latest.

The CSRD strengthens the requirements on sustainability information that companies need to report, as well as expands the scope of the NFRD. To help stakeholders implement the CSRD’s requirements in practice, the EU Commission mandated the European Financial Reporting Advisory Group (EFRAG), a private association, to develop a detailed and mandatory set of disclosure standards, also known as the European Sustainability Reporting Standards (ESRS).

To learn more, read our dedicated articles on the CSRD and the ESRS.

International Sustainability Standards Board (ISSB)

The International Financial Reporting Standards Foundation (IFRS) is a not-for-profit organisation well known for issuing ISO and accounting standards for public companies. In June 2023, they finalised the development of international standards for sustainability reporting to inform and support investment decisions.

In 2021, it created the ISSB in an attempt to establish global sustainability disclosure standards as a result of a strong demand to ensure comparable, reliable, and granular sustainability information. A year later, in March 2022, the ISSB published the first drafts of the reporting standards for consultation. In June 2023, the ISSB issued its first two sustainability disclosure standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The standards apply from January 2024, with earlier application permitted.

It is worth noting that the ISSB consolidated several existing ESG frameworks such as the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) while developing its standards.

How do the ISSB and the ESRS Compare?

Regarding the ESRS, EFRAG has published a set of 12 sector-agnostic standards. These standards contain cross-cutting standards, covering general concepts and requirements (ESRS 1 & ESRS 2) and topical standards, covering specific disclosure requirements for a sustainability matter (including environmental, social, and governance matters).

These requirements are quite extensive and detailed as they include, for example, disclosures on the undertakings’ value chains and detailed disaggregation of Scope 3 emissions. EFRAG delayed the release of the sector-specific standards from June 2024 to June 2026, as well as standards proportionate to SMEs and non-European undertakings. 

Similarly, the ISSB published the final version of its first two standards setting out general requirements (IFRS S1) and climate-related disclosures (IFRS S2). 

As things stand, it is possible to compare IFRS S1 with ESRS 1 & 2,  and IFRS S2 with the topical standard related to climate change in the ESRS, ESRS E1 Climate Change.

What are the Main Overlaps Between the ISSB Standards and the ESRS?

The interoperability between the two standards has been a concern for undertakings and regulators from the start. Both the EFRAG and ISSB were in constant dialogue during their elaboration to ensure the closest possible alignment and decided to build on the same existing framework in their structure approach.

This collaboration recently led to the publication of an interoperability guide between the standards, which offers a comprehensive breakdown of the similarities between the two sets of standards, including an interoperability table that matches ISSB disclosures to the corresponding ESRS disclosure. The table in the document indeed shows numerous similarities among the disclosure requirements but, as mentioned above, these similarities are contained to ESRS 1 &2, and ESRS E1 Climate Change. 

Both sets of standards use the Task-Force on Climate-Related Financial Disclosures (TCFD) framework and are even going further, by adding more requirements to ensure greater granularity. The TCFD is a task-force created in 2015 by the G20’s Financial Stability Board (FSB) to provide recommendations regarding climate-related disclosures. IFRS S1 and IFRS S2 fully incorporate the recommendations of the TCFD. The Financial Stability Board (FSB) has requested that these standards take over the Task Force on Climate-related Financial Disclosures' (TCFD) monitoring of the development of companies’ climate-related disclosures.

In addition to that, the EFRAG and ISSB had in-depth interactions with the Global Reporting Initiative (GRI), to ease convergence and facilitate integration for companies that are already using existing standards.

The alignment between the two sets of standards does not only come from using existing frameworks. The ISSB standards and the ESRS are also aligned on key concepts. Undertakings will now be required to collect information from their value chains. Hence, an alignment on what defines a value chain was seen as necessary.

Moreover, the concept of financial materiality is also aligned (although the ESRS are based on double materiality, see next section) as well as the qualitative characteristics of the requested information. Finally, both standards call for aggregation and disaggregation of information to not obscure material information.

What are the Key Differences Between the ISSB Standards and the ESRS?

Although the two organisations seek alignment between both sets of standards, there are still differences between them that are important to explain.

Double Materiality vs Financial Materiality

Materiality, in the ISSB sustainability reporting standards, is based on financial materiality. In the ESRS, materiality is based on the concept of double materiality. Although these two concepts overlap, this represents a key difference between the two standards.

Double materiality not only focuses on how sustainability matters affect the development, performance, and position of the company—also known as financial materiality—but also on the impacts of the company on sustainability matters—otherwise known as impact materiality.

In practice, it means that companies mandated to report under the ESRS’ double materiality assessment will be in a position to complete the financial materiality assessment under the ISSB standards in a straightforward manner.

The scope of the materiality assessment is also a source of difference between the two standards. Indeed, the entirety of the disclosure requirements under the ISSB standards is based on the materiality assessment outcome. Under the ESRS, cross-cutting standards, which contain general requirements and disclosures, are mandatory regardless of the outcome of the materiality assessment.

Connection to EU Laws in the ESRS

As a product of the EU and a vital component of the CSRD, the ESRS were designed in a way that satisfies numerous EU legal requirements (such as the SFDR, the Benchmark regulation, and Basel Pillar III). This connection to other EU legislation leads to additional requirements in the ESRS which may not be found in the ISSB standards.

The ESRS are also expected to answer to the needs of a broader group of stakeholders. The stakeholders that the ESRS caters to include investors, customers, suppliers, employees, local communities, and regulators. In contrast, the ISSB’s primary users are investors, creditors, and lenders to better inform investment decisions. This broader scope of stakeholders also leads to additional requirements in the ESRS.  

Climate-Related Disclosures

Regarding climate-related disclosures, all requirements from IFRS S2 can be found in ESRS E1 Climate Change. Besides that, ESRS E1 requires more information and granularity in all four reporting areas (governance, strategy, impact risk and opportunities, metrics and targets). This notably includes information required by the SFDR, EU taxonomy-alignment ratios, more details on GHG emissions, and different use of scenario analysis.

It is worth noting that the ISSB standards already provides industry-specific requirements on climate which are yet to be developed by the EFRAG, with expected release in June 2026. 

Voluntary vs Mandatory Disclosures

While the ESRS are based on the CSRD, a directive developed by the EU, the ISSB standards  were developed by an international organisation that has no regulatory power. The ESRS are therefore enforceable by nature whereas the ISSB standards are voluntary. However, one of the missions of the ISSB is to foster consensus among jurisdictions.

Location of Information

Finally, the ESRS requirements for the location of information match the principles set by IFRS S1; however, considering the standards each have specific criteria for identifying information, it is important that the undertaking ensures the information is distinguishable from other information provided. In other words, when reporting under the ESRS the undertaking must ensure ISSB disclosures are identified appropriately, and vice-versa.  

So, How Should we Consider the Interoperability of the ISSB and the ESRS?

A higher degree of  interoperability between both standards is not expected, especially as both sets of standards are already in circulation, and considering the specific connections of the ESRS with other EU laws, its inclusiveness of a broader set of stakeholders, and its materiality approach. However, the ISSB and EU bodies made great progress regarding interoperability; the EFRAG stated in its cover letter, published along with the draft standards in 2022, that the ESRS were designed so that complying with the ESRS will mean complying with the ISSB standards. 

After both sets of standards were officially published, the ISSB and EFRAG consolidated the level of interoperability between the two standards in the interoperability guidance document, co-published in May of 2024. The document shed light on the high degree of interconnection found between IFRS S1 & S2, and ESRS 1, 2, and E1, providing multiple sections and tables comparing the disclosures, highlighting similarities and differences, and also specific gaps between disclosure requirements for undertakings to take into account when reporting.

The level of interoperability, confirmed in the official publication of the ESRS and IFRS standards, shows that a company having to report under both sets of standards will not have to perform two full exercises. Instead, the company will be able to retrieve equivalent disclosures and overlaps. It would allow greater focus on major differences, in order to avoid duplication of work.

To further align on the existing differences between the standards section 4.1 of the interoperability guide co-published by the ISSB and EFRAG offers an additional set of considerations to ensure that compliance with both frameworks can be achieved by an entity starting its reporting journey with ISSB. 

For example, suppose the undertaking is disclosing information on scenario analysis in IFRS 2, but it also wants to comply with the ESRS. In that case, the undertaking will need to use the results of its scenario analysis to inform the assessment of risks, and opportunities and describe the entity’s resilience in relation to climate change. The entity must also disclose whether and how it has considered at least a scenario consistent with the Paris Agreement.

Simplifying ESG Reporting with Greenomy

Greenomy is your AI-driven sustainability reporting platform for CSRD, EU Taxonomy, and all future emerging ESG Standards. Greenomy empowers corporates to measure, disclose and improve their sustainability by digitalising the data collection and reporting process. 

Our technology helps companies reduce compliance costs and risks associated with a new and ever-evolving regulatory landscape, as well as improve their access to financing. In addition, by mapping the data sets of the different frameworks, Greenomy ensures interoperability and avoids the duplication of work for organisations.  

From data collection, thanks to ESG data libraries that seamlessly integrate diverse data sources, to your dedicated AI Sustainability Advisor, Artemis, to navigate best practices from your industry peers and much more, we help you easily achieve ESG compliance. Book a demo to learn more.