The drive for enhanced sustainability reporting has reached a new milestone with the International Sustainability Standards Board (ISSB) and EFRAG’s joint guidance on the interoperability between the ISSB Standards and the European Sustainability Reporting Standards (ESRS).

This development aims to simplify and streamline the complex landscape of sustainability reporting, but it also underlines several challenges and pain points for companies navigating these requirements.

The challenges of dual compliance

The ISSB and ESRS standards each come with their own set of requirements and nuances. The ISSB focuses on creating a global baseline for sustainability disclosures with an emphasis on climate-related information, while the ESRS mandates a broader scope under the EU’s Corporate Sustainability Reporting Directive (CSRD), covering a wider range of environmental, social, and governance (ESG) factors using the double materiality approach.

This dual compliance can lead to significant reporting burdens, especially for multinational companies that seek to align their practices with both frameworks.

Complexity in materiality assessments

The concept of materiality presents another layer of complexity. The ISSB and ESRS have worked to align their definitions of financial materiality, but differences remain.

The ISSB focuses solely on financial materiality, considering information that impacts investors’ decisions. In contrast, the ESRS incorporates double materiality, which also considers the impact of a company’s activities on the environment and society. Companies must therefore conduct thorough and often overlapping materiality assessments to meet both standards, which can be resource-intensive and time-consuming​.

Fragmentation and duplication in reporting

Despite the interoperability guidance, companies still face the challenge of avoiding fragmentation and duplication in their reporting processes. The guidance provides detailed comparisons and alignment notes, but companies must be vigilant in ensuring their reports meet both sets of requirements without redundant efforts.

This involves understanding the nuanced differences in disclosure requirements, such as those for greenhouse gas emissions, scenario analysis, and climate-related opportunities​.

“Robust data management will be make or break in aligning a company’s disclosures.”

Calum Revfem, Director & Reporting Expert – Position Green

Implementation and interpretation challenges

Implementation guidance and evolving interpretations add to the complexity. The interoperability guidance is a point-in-time analysis and does not cover all areas of the standards.

As practices evolve and new interpretations emerge, companies must stay updated with the latest guidance from both ISSB and EFRAG. This continuous adaptation can be challenging, especially for companies without dedicated sustainability reporting teams​.

Navigating the path forward

To navigate these challenges, companies should take several strategic actions:

1. Thoroughly review the joint guidance: Companies should carefully study the joint guidance to understand the specific areas of alignment and divergence between ISSB and ESRS standards. This includes recognizing areas where additional disclosures are needed to comply with both frameworks.
2. Leverage synergies in materiality assessments: By aligning materiality assessment processes to meet both ISSB and ESRS requirements, companies can reduce redundancy and enhance efficiency. This involves leveraging information from ESRS assessments to inform ISSB disclosures and vice versa.
3. Monitor evolving guidance: Staying updated with the latest guidance and interpretations from ISSB, EFRAG, and other regulatory bodies is crucial. Companies should regularly review updates and adapt their reporting practices accordingly.
4. Utilize implementation support: Companies should take advantage of available implementation guidance, such as the ESRS Q&A platform, which provides answers to technical questions and clarifications on complex aspects of the standards​.

Self-manage compliance with ease

You can set up your team for dual compliance with software that gives them everything they need for self-sufficient reporting. Position Green software is continuously updated by Europe’s leading sustainability reporting team, with built-in guidance, expertise, and best practices.

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