Sustainability Reporting: CSRD versus ISSB

Sustainability reporting is an aspect of corporate sustainability that has evolved rapidly in a short period of time. In response to new laws, businesses are now expected to supply relevant organizations with reports on their global impact. To produce these reports, companies are required to scrutinize their operations, product manufacturing, and chemicals management to assess potential risks. These new sustainability reporting laws will not only enforce stricter regulations on companies, but they will also safeguard the health and wellbeing of people and the planet. 

Corporate Sustainability Reporting Directive

The Corporate Sustainability Reporting Directive (CSRD) is a reporting framework that follows a financial reporting structure. Its standards and laws apply predominantly to EU companies, though some non-EU companies are held accountable by the CSRD. 

New standards enforced by the CSRD from 5 January 2023 mandate that companies publish regular reports, according to the European Sustainability Reporting Standards (ESRS), on the social and environmental risks identified in their business operations or products. These reports will ensure that investors and stakeholders can access data on the impact companies have on people and the environment.  Read our article about “The role of investment-grade data in sustainability reporting“.

International Sustainability Standards Board

Conversely, the International Sustainability Standards Board (ISSB), announced by the IFRS Foundation in November 2021, is a developing framework aiming to provide a baseline of sustainability disclosures. With a focus on managing environmental impacts, such as climate change, the ISSB hopes to produce voluntary standards that are cost-effective and efficient.   

Its four objectives are as follows: 

1. To produce standards for a global baseline of sustainability disclosures 
2. To meet the needs of investors 
3. To enable companies to provide comprehensive reporting on their sustainability to global capital markets 
4. To facilitate inoperability with jurisdiction-specific disclosures aimed at stakeholders 

CSRD versus ISSB

Though the two reporting frameworks overlap in certain expectations, there are big differences in how they operate.
 

Applicability 

The CSRD is applicable to all companies operating in the EU. Some non-EU companies are also accountable if they generate more than 150 million euros on the EU market.  

The ISSB is applicable at an international level for companies across the globe. 

Standards 

The CSRD has published mandatory standards that companies must adopt. Their standards need to be transposed by member states by 6 July 2024.  

The ISSB has produced voluntary standards. National jurisdictions must explicitly mandate their use. 

Target audience 

The CSRD targets any sector. Reports are evaluated by external auditors to check compliance with the CSRD, and to monitor the accuracy of the information being reported.  

The ISSB targets financial sectors, so it is exclusively concerned with investors, lenders, and other types of creditors. The information generated is limited to the relevance in the financial sector.  

Materiality 

There are two types of materiality: 

• Financial: evaluates the impact that the planet and people have on businesses 
• Impact: evaluates the impact businesses have on the planet and people
   

The CSRD has adopted double materiality for their method of assessment, making it mandatory for companies to consider both impact and financial materiality in their sustainability reports.  

The ISSB, on the other hand, focuses on financial materiality, and only requires one assessment – therefore operating with single materiality.  

Scope 

The CSRD asks companies to assess two cross-cutting standards and 10 topic specific standards related to environmental and social governance in their reports.  

The ISSB assesses sustainability and climate risks, in addition to two standards. Unlike the CSRD, the ISSB does not require businesses to report on as many topics. However, the ISSB is currently elaborating on standards related to biodiversity, human capital, and human rights; as a result, we expect to see new standards published in the future.  

Both reporting frameworks offer companies the opportunity to achieve compliance with standardized and efficient reporting techniques. 

Current position of standards

As of March 2024, the following countries have already implemented approved legislation by the CSRD: France, Hungary, Finland, Romania, Czech Republic.  

Legislation has been introduced, though yet to be adopted, in Lithuania, Slovakia, and Slovenia.  

Consultations are currently being held, with draft proposals issues in Norway, Sweden, Latvia, Ireland, Spain, Netherlands, and Luxembourg.