26 October 2022 (Updated 24 January 2023)

What’s the issue?

When the sustainability reporting proposals1 were released in spring 2022 there were key differences in their principles, structure, concepts, terminology and measurement bases underpinning the disclosures. The practicalities of adopting inconsistent requirements concerned preparers. So in response both the ISSB2 and EFRAG3 have since proposed a number of changes to narrow these differences, but some still remain.

Some of these differences are important – driven by EU priorities and legislation. However, acknowledging what is essentially the same, and distinguishing these areas from what needs to be different, will drive interoperability. Both sets of proposals include requirements to provide information that is needed by investors so there should be an identifiable area of intersection. Identifying this, and making it clear, would support companies that wish to apply both sets of requirements.

In discussing interoperability, the ISSB and EU bodies are paving the way for a practical solution for preparers applying both new sets of sustainability standards. We fully support this approach – which would ease the burden for preparers – but caution that interoperability demands that requirements be the same, not simply similar.

Mark Vaessen, Chair,
Global Corporate & Sustainability Reporting Topic Team

What was proposed?

The ISSBTM proposals focus on the information needs of investors, creditors and other lenders. Information is material if omitting, misstating or obscuring it would reasonably be expected to influence decisions that the users of general-purpose financial reporting make on the basis of that reporting, which provides information about a specific reporting entity.

The draft ESRSs focus on the needs of broader stakeholders – e.g. investors as well as customers, suppliers, employees, local communities and regulators. Some information is always required; other information is material based on ‘double materiality’ principles – i.e. information that is either financially material, has a material impact on people or the environment, or both.

There is significant overlap in the type of information requested by the proposals, but also some key differences.

  • ESRSs are designed to meet the needs of a wider audience and EU legislative requirements. This leads to additional information requirements under ESRSs.
  • ESRSs include detailed requirements on 10 topics across environment, social and governance. The ISSB proposals provide principles to follow for reporting across all relevant sustainability topics, but detailed requirements only on climate.
  • The ISSB proposals already include industry-specific requirements on climate. Equivalent proposals will be developed by EFRAG later.
  • In some areas, similar information would be requested in different ways. This means that it is unclear whether the same disclosure could satisfy different demands.

What’s the ISSB and EU's latest thinking?

The ISSB’s vice-chair set out a potential route forwards to the EFRAG Sustainability Reporting Board that would support companies wishing to apply both IFRS Sustainability Disclosure Standards and ESRSs together. It centres around identifying a common area of intersection – i.e. a subset of the requirements that would be aligned sufficiently such that applying one standard would satisfy the other.

The ISSB and EU bodies are collaborating to create an interoperability mapping table to highlight the intersection.The key challenge here is to maximise the content in the intersection and avoid having similar requirements that are excluded from the intersection because they are subtly different.


In its October 2022 board meeting, the ISSB indicated the direction of its standard setting to EFRAG and supported expanding the area of intersection. Its decisions (set out in the table below) were accelerated to give EFRAG certainty before it released updated draft standards in November 2022.

What is confirmed? What is being clarified?
  • TCFD4 structure in IFRS S1 and S2
  • Primary users are investors, lenders and other creditors
  • Material information would not be obscured by other content
  • Definition of the value chain
  • Time horizons would not be prescribed
  • Disclosure would be required on the current financial statement impact of climate-related risks and opportunities
  • Disclosure of the current effect of physical and transition risks, and opportunities
  • Disclosure enabling investors to understand whether climate scenarios used are aligned with the ‘latest international agreement on climate change’5
  • Description of materiality to be amended to avoid confusion – replacing some references to ‘enterprise value’ with unambiguous guidance
  • Use of greehouse gas (GHG) Protocol Standards for measuring Scope 1, 2 and 3 GHG emissions (subject to reliefs)
  • Different types of targets
  • Use of the term ‘carbon credits’ instead of ‘offsets’ and disclosure on planned use of carbon credits
What is new?
  • Disclose how the entity uses climate-related scenario analysis to inform risk and opportunity identification
  • Disclose emissions targets (if any are set) by type, and indicate whether they are driven by regulation


In the updated draft ESRSs released in November, EFRAG has made key changes to support interoperability compared to earlier versions. This includes:

  • aligning to a greater extent with the ISSB on the:
    • concepts of financial materiality and value chain;
    • content of cross-cutting disclosure requirements; and
    • architecture of its standards (i.e. use of TCFD framework structure); and
  • introducing disclosures included in proposed IFRS S2.

What’s the impact?

Creating a clear area of intersection would give companies applying both IFRS Sustainability Disclosure Standards and ESRSs certainty that by applying one they could comply with both. It would allow for areas of difference to be maintained where needed, but would create efficiencies that would support more effective reporting, and reduce costs for preparers.

This route forwards demonstrates a vision for how preparers could apply the requirements of IFRS Sustainability Disclosure Standards and ESRSs together without unnecessary duplication or cost.

Actions for management

  • Track the redeliberations of IFRS Sustainability Disclosure Standards and ESRSs to see how these discussions progress.
  • Consider the processes, systems and controls designed to comply with multiple sets of requirements – there will still be differences to manage.
  • Consider how your reporting can be structured to accommodate multiple sets of requirements.

How did we get here?


Document version Reference
Proposed IFRS S1 ED/2022/S1 Published 31 March 2022
Proposed IFRS S2 ED/2022/S2 Published 31 March 2022
First set of proposed ESRS Public consultation on the first set of Draft ESRS - EFRAG Published 29 April 2022
Open session of EFRAG’s Sustainability Reporting Board – presentation by ISSB vice-chair Sue Lloyd EFRAG SRB Meeting 19 October - EFRAG Recording of presentation at EFRAG SRB meeting on 19 October 2022
ISSB Board meeting: 18–21 October 2022; Montreal

AP3C4D Interoperability - key matters

Meeting summary

The ISSB discussed ways it would facilitate interoperability with jurisdictions including the EU
Draft ESRSs First set of draft ESRS – EFRAG Published 23 November 2022
EFRAG Conference – speech from Commissioner McGuinness EFRAG on corporate reporting Presentation to the EFRAG conference on 7 December 2022

1 Proposed IFRS® Sustainability Disclosure Standards from the International Sustainability Standards Board (ISSB) released in March 2022 and proposed European Sustainability Reporting Standards (ESRSs) released in April 2022.

2 In its January 2023 meeting papers, the ISSB summarised the changes it has proposed to date to draft standards IFRS S1 General Requirements for Sustainability-Related Financial Disclosures and IFRS S2 Climate-related disclosures.

3 The European Financial Reporting Advisory Group (EFRAG) submitted an updated set of draft ESRSs to the European Commission in November 2022.

4 Task Force on Climate-related Financial Disclosures

5 The ISSB proposals refer to the ‘latest international agreement on climate change’, which represents the Paris Agreement (2016) at the time of publication.

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