The International Sustainability Standards Board (ISSB) and the European Union have achieved a high degree of “interoperability” between their respective sustainability reporting standards, the ISSB’s vice-chair has claimed during a webcast ahead of a meeting last week of the London-based standard setter.

Sue Lloyd said: “The ISSB, the European Commission and EFRAG [European Financial Reporting Advisory Group] have collaborated to achieve a high degree of alignment, especially as mentioned in climate-related reporting.

“This joint effort ensures that companies can comply with both sets of standards efficiently and [harness] the comparability and reliability of sustainability disclosures globally.”

The term ‘interoperability’ refers broadly to the board’s efforts to ensure its sustainability disclosure standards align with and complement existing frameworks such as European Sustainability Reporting Standards (ESRs) and the Global Reporting Initiative.

Future work priority

It is also a key component of the ISSB’s recently agreed agenda priority of supporting implementation.

Interoperability also ensures that ISSB standards can integrate into existing reporting processes, facilitating wider adoption and consistent reporting practices globally.

The board has recently issued guidance dealing with the topic of interoperability that is designed to be read alongside the board’s standards. It is not, however, a substitute for the standards.

The guidance focuses primarily on climate-related disclosures and also covers mandatory disclosures, although it does not comprehensively cover transition requirements.

Lloyd explained during the webcast that the guidance is divided into four main sections:

  • general reporting requirements;
  • climate-related disclosures;
  • guidance for entities whose reporting is based on European Sustainability Reporting Standards; and
  • guidance for entities whose reporting is based on the ISSB’s standards.

The ISSB guidance document not only explains how to use ISSB standards alongside ESRSs, but also addresses climate disclosures unique to ESRSs and any additional reporting requirements they may have.

High level of interoperability

It emerged during the webcast that there are broadly three levels of alignment between IFRSs and ESRSs.

Lloyd said that “one area where the ISSB has achieved a high degree of alignment [with ESRSs]” is climate-related disclosures. She added, however, that there are areas of reporting where International Financial Reporting Standards (IFRSs) and ESRSs have been broadly comparable but have different disclosure requirements, such as with carbon credits.

Finally, there are areas of reporting that are unique to either ISSB standards or ESRSs. For example, both ESRSs and IFRS S2 require disclosure of financed emissions (Category 15, Scope 3) if material.

Asset managers, financed emissions

However, staff explained, IFRS S2 has additional, more specific disclosure requirements for companies in asset management, commercial banking, and insurance until ESRS develops sector-specific standards. During this transition period, companies using ESRSs can refer to IFRS S2 guidance for these disclosures.

At the same time, ESRSs have their own unique additional disclosure requirements beyond those in the ISSB’s standards. These often relate to information aimed at a broader range of stakeholders or for complying with specific EU laws and regulations.

ISSB focused on interoperability

Meanwhile, the ISSB’s staff last week presented an overview of their plan to anchor interoperability within the board’s standard-setting activities.

The document explains that “given ESRSs’ complementary yet broader scope than the ISSB standards”, the ISSB has focused on aligning definitions and key concepts where possible, aligning common disclosure requirements, and identifying requirements unique to each standard.

The purpose of this activity is to deliver disclosures that ultimately meet the needs of investors.

The document also explains that interoperability has been a key consideration in the development of the ISSB’s sustainability taxonomy.

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