EU lawmakers and the IFRS Foundation historically haven’t seen eye-to-eye on sustainability reporting. A major sticking point is the EU’s double materiality standard used in CSRD reporting. When the ISSB standards were in development, EFRAG urged the IFRS to adopt its double materiality standard; however, this was rebuffed by the IFRS. Ultimately, the two standards reached a limited interoperability agreement. However, with the ongoing omnibus reforms and simplifications, the IFRS has floated a new proposal: have the EU adopt ISSB standards and supplement specific double materiality based disclosures. Responsible Investor reports that the IFRS Foundation responded to an ongoing EFRAG consultation, stating:
“In the context of the EU’s work to simplify its sustainability reporting regulatory regime, the most effective way to ensure efficient reporting is to enable companies to use the ISSB standards as a starting point and ‘top up’ with specific impact disclosures to achieve compliance with CSRD/ESRS,”
The simplification process has been messy, and EFRAG’s most recent draft ESRS cuts the standards by 68%. Additionally, these cuts potentially endanger the level of interoperability with ISSB standards. It’s unclear if EFRAG will be open to the idea of ditching the ESRS for the ISSB, but many believe that such a move would further standardize global reporting. It would also provide some clarity to the simplification process that continues to be rather chaotic.
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