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IFRS and EFRAG publish Interoperability Guidance on ISSB Standards and ESRS

On 2 May 2024, the IFRS Foundation and EFRAG, the body advising on European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD), published Interoperability Guidance to illustrate the alignment between the International Sustainability Standards Board’s IFRS Sustainability Disclosure Standards (ISSB Standards) and the ESRS. 

The Guidance explains how companies can comply with both sets of standards, with a specific focus on climate-related reporting. Importantly, the Guidance is not intended to be a formal statement of equivalence. The goal of the guidance is to increase efficiency for entities that report under ESRS and the ISSB Standards by describing how the standards are interoperable. See the EFRAG and IFRS press releases here and here.

The Guidance notes that EFRAG and IFRS have worked together to achieve a high degree of alignment between the two standards, in particular: 

  1. In assessing whether a particular disclosure is considered material when applying ISSB Standards, this assessment is aligned with the determination of whether that disclosure is financially material in accordance with ESRS, and vice versa. While in ESRS the double materiality assessment considers both investors and other stakeholders (including in relation to impact materiality), in ISSB Standards, this assessment is focused on the information needs of investors. On financial materiality, however, the two assessments are expected to provide an aligned outcome. 
  2. The two sets of standards include common defined terms.
  3. There is a high degree of alignment in the climate-related disclosures. Almost all the disclosures related to climate in ISSB Standards are included in ESRS.

The Guidance is structured as follows: 

  • Section 1 contains comments on general reporting requirements in ESRS and ISSB Standards. It explains how ESRS and ISSB Standards are interoperable with regards to materiality, presentation, disclosures for sustainability topics other than climate and relief clauses. 
  • Section 2 illustrates the high level of interoperability related to climate between ESRS and the corresponding disclosure requirements in ISSB Standards. It presents in tabular form the paragraphs in ISSB Standards and the corresponding paragraphs in ESRS. Intersecting disclosure requirements in ESRS can be identical (common) or cover at least the disclosure requirements in IFRS S2 while also providing incremental disclosures. 
  • Section 3 contains information that an entity starting with ESRS needs to know when applying ISSB Standards for climate reporting. It highlights financed emission reporting as an area where the ISSB Standards may require additional information over and above ESRS requirements depending on the activities undertaken by the reporting company.
  • Section 4 contains information that an entity starting with ISSB S2 needs to know when also applying ESRS for climate reporting. It includes the disclosures in ESRS E1 that do not have an equivalent requirement in IFRS S1 or IFRS S2, and the incremental requirements in ESRS E1 associated with common disclosure requirements. 
  • An Annex lists the relief clauses in ISSB Standards and in ESRS. When using one or more of the reliefs, entities must check carefully to see if the reliefs meet the requirements in both sets of standards.

The European Commission welcomed the release of the Guidance, noting that the Guidance shows that EU companies reporting under ESRS can comply with the global standards with minimal additional effort.

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