Introduction

This guidance, published on 2 May 2024, explains interoperability between ESRS and ISSB Standards, developed collaboratively by EFRAG, the European Commission and the IFRS Foundation. It aims to improve reporting efficiency by enabling entities to comply with both frameworks, particularly for climate disclosures. It clarifies that it is educational and does not override formal standards.

Section 1

This section outlines interoperability in general reporting requirements. Both standards align on financial materiality, defined as information influencing users’ decisions, although ESRS additionally applies impact materiality. This creates a “double materiality” approach versus ISSB’s investor-focused lens.

Presentation differs: ESRS requires a dedicated sustainability statement, while ISSB allows flexibility within general purpose financial reports. ESRS disclosures meet ISSB location principles but may require clearer identification of additional information.

Beyond climate, ESRS includes nine topic-specific standards, while IFRS S1 requires disclosure of all material sustainability risks and opportunities using judgement. Entities may use ESRS or industry guidance (e.g. SASB) to supplement disclosures. Both frameworks include relief provisions, requiring careful alignment when applied concurrently.

Section 2

This section demonstrates a high degree of alignment in climate-related disclosures. Most IFRS S2 requirements are included within ESRS, often with additional or more detailed disclosures. The document provides detailed mapping across governance, strategy, risk management, metrics and targets.

Common areas include governance structures, climate-related risks and opportunities, financial impacts, resilience analysis and emissions reporting. ESRS frequently extends requirements, for example by adding more granular disclosures on value chains, time horizons or financial effects.

The mapping shows that entities can achieve compliance with both standards largely through a single reporting process, though incremental disclosures may be required where ESRS goes further or where ISSB specifies additional detail.

Section 3

This section explains how entities starting with ESRS can also comply with ISSB Standards. While alignment is high, several additional considerations are required.

Entities must ensure disclosure of transition plan assumptions and dependencies where not fully captured by ESRS. Scenario analysis is mandatory under IFRS S2 but not under ESRS; therefore, entities may need to perform and disclose scenario analysis aligned with IFRS requirements, including key assumptions and scenario diversity.

Industry-based metrics must be considered using ISSB guidance until ESRS sector standards are issued. Additional requirements include disaggregation of emissions, disclosure of climate-related opportunities as a percentage of business activity, and capital deployment towards climate risks and opportunities.

Entities must also ensure sufficient disclosure on carbon credits, including verification schemes and credibility. IFRS S2 includes additional requirements on financed emissions for financial institutions, requiring further disclosures beyond ESRS.

Section 4

This section outlines requirements for entities starting with ISSB Standards seeking ESRS compliance. ESRS introduces additional and incremental disclosures, particularly reflecting its broader regulatory mandate under the Corporate Sustainability Reporting Directive.

Key differences include stricter requirements on greenhouse gas emissions boundaries, requiring inclusion of operational control entities beyond consolidated financial statements. ESRS also requires disclosure of gross emission reduction targets and restricts use of carbon credits in claiming target achievement.

Additional disclosures include governance composition, stakeholder involvement, due diligence processes and detailed descriptions of impacts, risks and opportunities. ESRS requires extensive quantitative disclosures, including energy consumption, emissions breakdowns, and financial effects of climate risks before and after mitigation actions.

Further requirements include detailed reporting on transition plans, decarbonisation levers, energy mix, internal carbon pricing and anticipated financial impacts. ESRS also mandates disclosures on greenhouse gas removals and carbon credit usage, including credibility, verification and alignment with recognised standards.

Overall, entities applying ISSB Standards must expand disclosures significantly to meet ESRS requirements, particularly in areas related to impact, granularity and regulatory compliance.