In the realm of sustainability reporting, businesses are facing new compliance requirements from both the CSRD and the ISSB.
Corporate Sustainability Reporting Directive
The Corporate Sustainability Reporting Directive (CSRD) adopts a structure akin to financial reporting. While primarily targeting EU companies, the CSRD extends its standards and regulations to encompass certain non-EU entities.
Effective from January 5, 2023, the CSRD mandates regular reporting based on the European Sustainability Reporting Standards (ESRS). These reports compel companies to divulge social and environmental risks inherent in their operations or products, thus providing investors and stakeholders with crucial insights into the company's societal and environmental impact.
International Sustainability Standards Board
On the other hand, the International Sustainability Standards Board (ISSB), introduced by the IFRS Foundation in November 2021, is a burgeoning framework designed to establish a foundation for sustainability disclosures. With a primary focus on managing environmental impacts, particularly those related to climate change, the ISSB seeks to develop voluntary standards that are both cost-efficient and effective.
Its four primary objectives include: 1. Formulating standards for a universal baseline of sustainability disclosures. 2. Catering to the requirements of investors. 3. Empowering companies to furnish comprehensive sustainability reports to global capital markets. 4. Facilitating compatibility with region-specific disclosures intended for stakeholders.
CSRD versus ISSB: Contrasting Reporting Frameworks
While the CSRD and the ISSB share some common ground in their objectives, significant disparities characterize their operational approaches.
Applicability
The CSRD applies to all EU-based companies, with certain non-EU entities falling under its purview if their market activity in the EU exceeds 150 million euros. Conversely, the ISSB's reach extends globally, targeting companies irrespective of their geographic location.
Standards
CSRD mandates the adoption of its compulsory standards, which member states are required to transpose into their national legislation by July 6, 2024. In contrast, the ISSB has introduced voluntary standards, with their adoption contingent upon explicit mandates from national jurisdictions.
Target Audience
CSRD's scope encompasses all sectors, with reports subject to scrutiny by external auditors to ensure compliance and data accuracy. In contrast, ISSB exclusively targets the financial sector, directing its reports toward investors, lenders, and creditors, with a focus on financial relevance.
Materiality
CSRD incorporates a dual materiality approach, necessitating companies to consider both the impact on the planet and people, as well as financial implications in their sustainability reports. ISSB, on the other hand, emphasizes financial materiality alone, employing a single materiality assessment.
Scope
CSRD mandates companies to assess a comprehensive array of cross-cutting and topic-specific standards related to environmental and social governance in their reports. ISSB, while also assessing sustainability and climate risks, currently covers fewer topics. However, it is in the process of developing standards related to biodiversity, human capital, and human rights, promising further expansion in the future. Both frameworks offer standardized reporting methods to ensure compliance and efficiency for companies.
As businesses navigate the evolving sustainability reporting landscape, understanding the nuances between frameworks such as the CSRD and ISSB becomes paramount. While the CSRD emphasizes comprehensive standards applicable primarily within the EU, the ISSB offers a global perspective with voluntary standards focusing on financial materiality. Both frameworks aim to enhance transparency and accountability despite differing scopes and approaches.
As countries move towards implementing and adopting these standards, businesses must remain vigilant in their compliance efforts to meet the demands of investors, stakeholders, and the planet. By embracing standardized reporting techniques and staying abreast of evolving regulations, companies can play a pivotal role in driving sustainable practices and fostering a brighter future for all.