New interoperability guidance has been issued to help companies align their sustainability reporting with two leading sets of standards without duplicating effort.

The global IFRS S1 and S2 sustainability disclosure standards were launched last year by the IFRS Foundation and are now managed by the International Sustainability Standards Board (ISSB). Meanwhile, the European Sustainability Reporting Standards (ESRS), a landmark package of EU measures that took effect in October, was developed by the European Financial Reporting Advisory Group (EFRAG).

The interoperability guidance stems from joint work between the IFRS Foundation and the (EFRAG). In a statement, the bodies explained that the guidance highlights for EU companies a number of areas where ISSB and ESRS are aligned. 

It informs preparers about what data they should put together to comply with the relevant areas in both sets of standards at once – regardless of whether they start with ISSB or ESRS. Its objective is to reduce complexity, fragmentation and duplication for companies seeking to apply both sets of standards.

Creating efficiencies

The guidance describes the alignment achieved between the two sets of standards on general reporting requirements. Those rules relate to key concepts including materiality and presentation, along with disclosures for sustainability topics other than climate.

Meanwhile, it also provides preparers with details on the alignment of climate-specific disclosures and what a company starting with one set of standards must know to enable it to comply with the other.

For example, Section 2 – ‘Common climate-related disclosures’ – presents a series of tables showing how paragraphs from the ISSB Standards are linked to their counterparts in ESRS. Intersecting disclosure requirements in ESRS “can be identical (common), or cover at least the disclosure requirements in IFRS S2, while providing also incremental disclosures”, the paper explains.

Sub-topics covered in the guidance include transition plan assumptions, scenario analysis, industry-based metrics, greenhouse gas emissions (disaggregation), climate-related opportunities, capital deployment, carbon credits and financed emissions.

The bodies say companies using the guidance will be better equipped to collect, govern and control decision-useful data just once to meet both sets of standards: “As companies around the world are increasingly mandated to disclose sustainability-related information through the ISSB Standards and ESRS, EFRAG and the ISSB are committed to creating efficiencies where possible to advance transparency, comparability and accountability.”

Practical help

EFRAG Sustainability Reporting Technical Expert Group Chair Chiara Del Prete describes the guidance as a milestone for progress in interoperability and the quality of sustainability-related data. “ESRS preparers are able to report on climate, also in compliance with ISSB Standards, only with a very limited number of points to consider,” she says.

Del Prete adds: “This document also explains that ESRS preparers are able to utilise ESRS to comply with ISSB Standards to report on matters beyond climate. This guidance reflects our commitment to avoid duplicative reporting and support preparers and other stakeholders in their implementation challenges. Now, our next step is digital interoperability.”

ISSB Vice-Chair Sue Lloyd says the guidance recognises the need for efficiencies for those companies that will either be required, or choose, to apply both ISSB Standards and ESRS.

“As jurisdictions around the world move to adopt or otherwise use ISSB Standards, we expect this interoperability guidance will provide practical help to companies needing to understand how to apply the respective requirements of both ISSB Standards and ESRS.”

Mairead McGuinness, EU Commissioner for Financial Services, Financial Stability and Capital Markets Union, comments: “Climate change is a global challenge. I welcome the guidance that 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 adds: “It is important that reporting frameworks in different jurisdictions are interoperable with each other to reduce the reporting burden for EU companies.”

Further reading

Interoperability is one of the core standard-setting areas of focus highlighted in the recent ICAEW report, Shaping Sustainability Standard Setting. The report examines a number of rapid changes in this field, highlighting challenges that standard-setters face – plus key takeaways from the accounting standard-setting experience.

ICAEW Technical Manager, Corporate Reporting, Laura Woods says: “We welcome the publication of the much-called for joint interoperability guidance from EFRAG and the ISSB. We hope it will inform stakeholders’ understanding and provide practical assistance to preparers. 

“However, as our report notes, we believe interoperability should be the stepping stone towards a suitable equivalence regime and ultimately greater convergence over time. So hopefully this important guidance is just the beginning.”

Signs suggest that the pace of convergence is accelerating. On 24 May, the IFRS Foundation announced that it is deepening its relationship with the voluntary Global Reporting Initiative (GRI), with the aim of achieving full interoperability between GRI and ISSB.