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Sustainability: which standards will be globally accepted?

Author: ICAEW Insights

Published: 05 Sep 2023

That sustainability needs to be baked into corporate reporting has long been apparent, but which standards should be adopted? Stephen Zeff speculates on the relative influence of the ISSB and EFRAG.

It’s an intriguing question. On the one hand, there is the International Sustainability Standards Board’s (ISSB) series of IFRS Sustainability Disclosure Standards; on the other there are the European Sustainability Reporting Standards (ESRSs), developed by the European Financial Reporting Advisory Group (EFRAG) and endorsed by the European Commission, that could be adopted as required standards in jurisdictions around the world. 

In the early 21st century, the International Accounting Standards Board (IASB) introduced financial reporting standards which were adopted by the EU for listed companies, with Australia and New Zealand following suit shortly thereafter, thus ensuring a worldwide clientele for the IASB.

Fast forward to the 2020s and the issue of environmental, social and governance (ESG) standards is a hot topic. This time, Europe has decided to issue its own standards. But a charge has also been given to the ISSB, which the IFRS Foundation formed in late 2021 as a sister-board to the IASB to issue ESG standards. 

The EU’s programme has proceeded at a swift pace. In November 2022, the EU Parliament adopted the Corporate Sustainability Reporting Directive (CSRD), mandating EFRAG to develop draft ESRSs for submission to the European Commission as technical advice. Having completed consultations with EU authorities and expert groups, the European Commission adopted the delegated act including the first set of 12 finalised ESRSs at the end of July. A two-month scrutiny period by the European Parliament and the EU’s Council is now underway. So long as no objections are raised by either of the co-legislators, the ESRSs will go into effect. The overarching CSRD is expected to come into force for the reporting year 2024 and will apply to all large and listed companies, which constitutes about 50,000 EU businesses. 

The ISSB, for its part, issued its first two IFRS Sustainability Disclosure Standards designated as IFRS S1 and IFRS S2 in June 2023. The International Organization of Securities Commissions has, in an unprecedented decision, announced its endorsement of the two standards. However, so far, no country’s regulatory body or standard setter has said whether it will adopt the ISSB’s standards for required, or even voluntary, use by companies. 

The open question is whether jurisdictions around the world will opt for the ISSB’s standards, the EU’s standards, or neither. Efforts are being made to minimise the differences between the two, but only time will tell whether such efforts have been successful. 

The big difference between the situation in 2001 as regards the IASB’s clientele and the current situation as regards the ISSB’s clientele is that, this time, the EU is developing its own standards. How will this affect the success of the ISSB’s venture?

Stephen Zeff FCA (honorary), Keith Anderson Professor of Accounting, Rice University, Houston, Texas

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