understanding IFRS and ESRS (for US companies) a recap
As the world of ESG reporting evolves, the push toward more standardized, regulated disclosures is becoming clear—this includes Integrated Financial Reporting Standards (IFRS) and European Sustainability Reporting Standards (ESRS), which are rapidly setting a new global benchmark for sustainability disclosure.
Here's what you need to know:
IFRS: Financially Material Risks + Opportunities
IFRS was developed by the International Sustainability Standards Board (ISSB). It seeks to consolidate voluntary frameworks, such as Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD), providing a global baseline for sustainability disclosures.
The primary audience for IFRS is investors, as it emphasizes financially material ESG risks and opportunities.
Key Requirements
S1 General Requirements: Broad requirements on sustainability-related governance, strategy, risk management and metrics
S2 Climate Disclosures: More specific requirements, including scopes 1, 2 and 3 emissions and climate-related risks, opportunities and financial impacts
Importantly, IFRS encourages companies to integrate these disclosures with their financial reports to present a holistic picture to investors.
ESRS: Europe's Move to Mandatory ESG Reporting
In the European Union, the Corporate Sustainability Reporting Directive (CSRD) is driving change by mandating sustainability disclosures for thousands of companies, including non-EU businesses with operations in Europe. Through CSRD, the ESRS framework was developed, comprising 12 standards across ESG topics.
Key Features of ESRS
Double Materiality: Companies must assess and report on financial materiality (risks to the company) and impact materiality (impacts on the environment and society)
Sector-Specific Guidance: ESRS will provide tailored requirements for different industries
Mandatory Assurance: Sustainability reports will require third-party assurance, evolving toward a process similar to financial audits
Cross-Border Scope: US companies with significant EU operations are also within the CSRD’s purview
Overlapping Frameworks
The ESG reporting landscape is consolidating. IFRS and ESRS integrate elements of voluntary frameworks like the Global Reporting Initiative (GRI), SASB and TCFD.
For Example
ISSB heavily relies on TCFD and SASB
ESRS aligns with GRI, focusing on impact materiality
This harmonization is good news for companies already reporting under these voluntary frameworks, as it simplifies the transition to regulatory compliance.
Why This Matters
Whether or not these regulations immediately impact your organization, aligning with IFRS and ESRS sends a powerful message to investors and stakeholders: your company is forward-thinking, resilient and prepared for a rapidly evolving global ESG landscape. The shift from voluntary to mandatory, standardized reporting is here, and US companies that embrace this change will be better positioned to meet regulatory requirements and stakeholder expectations.
(feel free to copy paste ^^this^^ if you need to make the case to an internal stakeholder)
As climate risk remains a top priority across all frameworks, focusing on climate-related disclosures will be crucial for long-term success in ESG reporting.
Preparing for the Future
The shift to regulated ESG reporting will require significant preparation. Here’s how organizations (even those in the US that might not be subject to these regulations) can get ready:
Conduct a Double Materiality Assessment: Identify financial and impact-material ESG topics
Centralize Your Data: Gather and assess all ESG data in one place to identify gaps
Be Audit Ready: Prepare for external assurance of sustainability reports
Leverage Existing Frameworks: Use SASB, TCFD and GRI as a foundation for compliance
