The themes of the harmonization and interoperability of sustainability disclosure standards among various jurisdictions remain at the top-of-mind for international standard-setting bodies. To this end, the International Sustainability Standards Board (ISSB) recently published the International Financial Reporting Standards (IFRS) Sustainability Disclosure Taxonomy. Additionally, the IFRS Foundation and the European Financial Reporting Advisory Group (EFRAG) have published guidance material to illustrate the high level of alignment achieved between the ISSB IFRS Sustainability Disclosure Standards and the European Sustainability Reporting Standards (ESRS); the guidance is focused on how an entity can apply both sets of standards, including detailed analysis of the alignment in climate-related disclosures. The first companies in scope of the Corporate Sustainability Reporting Directive (CSRD) will report against the ESRS in 2025 for the financial year 2024.
IFRS Sustainability Disclosure Taxonomy from ISSB. The taxonomy reflects IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, IFRS S2 Climate-related Disclosures, and their accompanying guidance. The taxonomy includes elements for tagging sustainability-related financial information prepared in accordance with IFRS Sustainability Disclosure Standards. These elements enable a company to tag information about its sustainability-related risks and opportunities in its general purpose financial reports. Tagging makes the information computer-readable, enabling investors to automatically extract, compare, and analyze sustainability-related financial information in a digital format. The taxonomy uses eXtensible Business Reporting Language (XBRL) and can be built on to accommodate additional jurisdiction-specific requirements. The taxonomy is designed to be consistent with the IFRS Accounting Taxonomy; it neither introduces new requirements nor affects an entity’s compliance with the standards.
Interoperability Guidance for ESRS. EC welcomed this interoperability guidance, noting that this shows EU companies reporting under European standards can comply with the global standards with minimal additional effort. The aim is to reduce complexity, fragmentation, and duplication for companies applying both the ISSB Standards and ESRS. Companies utilizing this guidance will be better able to collect, govern, and control decision-useful data once. The guidance describes the alignment of general requirements including on key concepts such as materiality, presentation, and disclosures for sustainability topics other than climate. It provides information about the alignment of climate disclosures and what a company, starting with either set of standards, needs to know to enable compliance with both sets of standards. It also addresses interoperability for climate-related disclosures from the perspectives of an entity applying:
- ESRS that wants to meet all climate-related disclosure requirements in IFRS S2 Climate-related Disclosures and to apply requirements in IFRS S1 that are necessary to apply IFRS S2 and provide climate‑related disclosures
- ISSB Standards that wants to also meet all disclosure requirements on climate change in ESRS E1 and to apply the requirements in ESRS 1 and ESRS 2 that are relevant to climate disclosure.
Visit Moody's Analytics Climate and ESG Risk Microsite to learn how you can proactively incorporate climate and ESG insights into your risk assessment process.
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