The interoperability between the European Union (EU) Directive 2022/2464, commonly known as "CSRD" (Corporate Sustainability Reporting Directive), and the standards of the International Sustainability Standards Board (ISSB) is a crucial topic in the landscape of sustainable finance. This aspect is particularly relevant as it represents a cornerstone in creating a coherent and effective global sustainability reporting framework. Let's examine how CSRD aligns with ISSB and the implications of this interoperability for businesses and stakeholders under these regulations.
Large businesses (€50 million turnover and/or €25M total balance sheet and over 500 employees) and publicly listed companies in the EU, except for micro-enterprises listed, are now required to publish detailed information on their social and environmental risks and opportunities, as well as their impact on people and the environment. This obligation stems from the growing need for transparency in corporate activities, essential for directing investments towards more sustainable initiatives and for helping businesses access sustainable financing.
The ESRS (European Sustainability Reporting Standards) were developed based on technical proposals from EFRAG (European Financial Reporting Advisory Group), an independent and multi-stakeholder advisory body. Following a public consultation and significant adjustments to attempt to reduce the administrative burden on businesses, the Commission adopted these standards. The ESRS covers a full range of sustainability issues, from environmental impacts to social and governance issues.
CSRD requires affected businesses to report their impacts and how social and environmental issues influence their business models and strategies, and more generally, all financial risks and opportunities.
This is achieved through a "double materiality" approach, obliging companies within the scope to consider both their external impact (impact materiality) and internal risks and opportunities (financial materiality) related to sustainability.
The International Sustainability Standards Board (ISSB) is a significant initiative launched by the International Financial Reporting Standards Foundation (IFRS), a non-profit organization established in 2001. Created in November 2021 during COP26 in Glasgow, the ISSB addresses a growing need for transparency and accountability in corporate extra-financial reporting, particularly concerning environmental, social, and governance (ESG) criteria.
The ISSB's aim is to develop international sustainability reporting standards (IFRS-S), providing a common language for disclosing sustainability-related risks and opportunities, enabling more informed investments and better consideration of environmental issues. These standards aim to simplify the complex landscape of sustainability reporting, offering a clear and consistent framework for companies worldwide.
The first two inaugural reporting standards were published in June 2023, IFRS S1 and IFRS S2. According to the ISSB, “the standards particularly create a common language to objectify and translate into accounting language the consequences of climate-related risks and opportunities on a company's outlook.”
The announced interoperability between CSRD and ISSB aims to harmonize standards, ensuring that companies subject to CSRD can also comply with ISSB standards without redundant or conflicting obligations. This approach facilitates consistent global reporting (especially for international corporate groups), increases the transparency and reliability of information, and supports more informed investments.
Constructive meetings between ISSB and EFRAG have led to a high degree of interoperability between the standards. Companies subject to CSRD with mandatory reporting obligations and obligations based on the outcome of their double materiality analysis will disclose information very similar to that required by ISSB standards. This interoperability significantly reduces the risk of redundant or double reporting for businesses.
Attention has been paid to the data points of IFRS S2 (ISSB) to consider the corresponding disclosures in ESRS 2 and ESRS E1 (EFRAG). Particular attention is given to the definition of financial materiality, especially regarding information important to investors.
A correlation table has been established to assist preparers and users in identifying the ESRS information corresponding to the requirements of IFRS S1 & S2, particularly in relation to climate. This practical initiative facilitates the understanding and application of standards for affected businesses.
The interoperability between CSRD and ISSB represents a significant step towards a global sustainability reporting system that is not only consistent and comparative but also adaptive to the varied needs of businesses and stakeholders.
By working towards further harmonization, the European Union and global bodies like the ISSB can facilitate a transition to a sustainable and transparent economy, where sustainability information is both reliable and useful for making informed decisions. Businesses are encouraged to closely follow these developments, actively participate in consultations, and prepare their internal processes for an era of more integrated and standardized sustainability reporting.
Sources :
Ec.Europa : https://ec.europa.eu/commission/presscorner/detail/fr/qanda_23_4043
EFRAG : https://efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FMeeting%20Documents%2F2307280747599961%2F04-02%20EFRAG%20SRB%20%20230823%20-%20EFRAG%20IFRS%20interoperability%20and%20mapping%20table.pdf
IFRS : https://www.ifrs.org/groups/international-sustainability-standards-board/