Interoperability between the ESRS and existing sustainability reporting standards and laws

According to the European Financial Reporting Advisory Group (EFRAG), the GRI Standards served as a guide for the preparation of the ESRS. Accordingly, on September 5th 2023, EFRAG and GRI published a Joint Statement of Interoperability, which states that close cooperation has achieved a high degree of interoperability between the two standards, particularly in the area of reporting on material sustainability-related impacts.  

In principle, material impacts already identified in accordance with the GRI can be used as a starting point for identifying the associated risks and opportunities. The GRI can also be used to identify further longlist topics (in addition to the topics specified by ESRS 1 AR 16). Companies that currently report in accordance with GRI are therefore already partially prepared for reporting in accordance with ESRS. Nevertheless, companies should not underestimate the effort involved in the changeover. The biggest difference between the two reporting standards is the materiality analysis, which was extended to financial materiality in the ESRS as part of the introduction of double materiality. This means that financial opportunities and risks that have an external impact on the company in connection with sustainability aspects must now also be analysed.  

Despite such differences, companies reporting in accordance with ESRS are considered to be reporting "with reference to" the GRI Standards.  

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Due to the geographical limitation of the ESRS to the EU, in individual cases it may make sense for companies to report in accordance with GRI in addition to the mandatory ESRS. It is also possible to draw on individual elements of existing GRI reporting when reporting in accordance with ESRS. The draft of a GRI – ESRS Interoperability Index​ which has been in existence since November 2023, serves as a support here.

Both the European Sustainability Reporting Standards (ESRS) and the Sustainability Disclosure Standards (ISSB SDS) developed by the International Sustainability Standards Board (ISSB) aim to establish uniform standards for corporate sustainability reporting. The ISSB was set up by the IFRS Foundation to create global standards that resulted in the ISSB SDS and establish a framework for reporting on sustainability practices. IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and S2 (Climate-related Disclosures) have been in force since 1 January 2024.  
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A key difference lies in the scope of application and the target group: The ISSB SDS are global standards that are applicable across industries and internationally, while the ESRS are based on European laws and therefore focus on the European Union. The ISSB SDS have so far been voluntary as long as no legal framework prescribes them as mandatory, while the ESRS are mandatory due to their integration into the Corporate Sustainability Reporting Directive (CSRD). Although both standards focus on the relevance of decisions when identifying risks and opportunities, the ESRS includes both investor and stakeholder interests in the evaluation, whereas the ISSB SDS limits this to investor interests only. A further difference can be seen in the materiality analysis: the ISSB SDS focus on financial materiality with regard to sustainability and, in particular, climate-related aspects, while the ESRS apply the principle of dual materiality, which includes not only financial risks and opportunities in connection with sustainability aspects but also the company's impact on people and the environment. 

Despite these differences, there are overlaps between ESRS and ISSB SDS. In principle, both standards have similar approaches to determining the materiality of information and how this information should be presented. Therefore, organisations can produce consistent reports that meet the requirements of both standards. Furthermore, the ISSB's definition of financial materiality, for example, has been adopted by the ESRS. This means that companies can use the same internal processes to identify risks and opportunities in connection with sustainability issues. Accordingly, similar methods and resources can be used to provide the necessary information. This makes it more efficient to comply with both standards, as separate approaches or systems are not required. 

Furthermore, the overlaps between the ISSB and ESRS standards mainly relate to disclosure requirements, particularly in the area of climate. The ESRS fully covers some of the requirements of the ISSB (in particular IFRS S2). Climate-related risks and opportunities must also be identified and the impact on the company's financial position, adaptation strategies and the potential financial impact of climate-related measures must be disclosed. Reporting is based on the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures). 

To summarise, companies that have to report according to the ESRS guidelines will largely disclose the same data as those that follow the ISSB standards.

The TNFD is a framework for publishing nature-related topics in a corporate context and for developing a corresponding risk management system. The final framework was published in September 2023.  

Since 2022, EFRAG and the TNFD have been exchanging information on the (further) development of reporting standards. Accordingly, the institutions have jointly published information on the interoperability of the standards. For example, the correspondence mapping published in June 2024 provides an overview of how the data points between the two reporting standards relate to each other. All 14 disclosure requirements for publication under the TNFD are covered in the ESRS. For example, the disclosure requirement "Strategy A: Description of the nature-based dependencies, impacts, risks and opportunities identified by the organisation over the short, medium and long term" (TNFD) can be found in ESRS 2 SBM-3 and ESRS 2 IRO-1. 

The basic structure of the standards is similar. Both the ESRS and the TNFD are organised around four dimensions, to which the individual disclosure requirements and their data points are assigned: Governance, Strategy, Risk Management and Key Performance Indicators and Objectives. This structure is based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and enables clear comparability of reporting. 

A central component of the TNFD is the LEAP (Locate, Evaluate, Assess, Prepare) approach, which guides companies to systematically identify and assess their nature-related risks and opportunities. This approach promotes a clearer understanding of the interactions between companies and natural resources and can also be applied in accordance with ESRS to support the materiality assessment. With regard to the materiality analysis approach, both frameworks rely on dual materiality. In principle, both reporting standards require the disclosure of impacts, risks, opportunities and dependencies.

The CSDDD (Corporate Sustainability Due Diligence Directive​, hereinafter referred to as CS3D) came into force in the European Union on 25 July 2024. It is primarily aimed at corporate due diligence obligations in relation to human rights and the environment. The EU member states are now obliged to transpose the CS3D into national law within two years, by 26 July 2026. In Germany, this is expected to be done by amending the German Supply Chain Due Diligence Act (LkSG).  

In addition to the fact that the ESRS are standards, while the LkSG is a national law and the CS3D is the European equivalent, the focus of the latter is on the fact that companies are obliged to comply with due diligence obligations along their supply chain or the entire value chain (CS3D). In the LkSG, these obligations include the establishment of a risk management system, regular risk analyses, preventive measures, a complaints procedure, remedial measures and documentation and reporting obligations to the BAFA. The CSDDD goes beyond and requires companies to fulfil active due diligence obligations along their entire value chain. This includes the identification, prevention, mitigation and remediation of negative impacts on human rights and the environment.  

However, the interoperability with the ESRS is reflected in the common objective of both sets of regulations: the promotion of sustainable business practices. While the ESRS create the basis for transparent reporting, the LkSG and the CSDDD ensure that these reports are supported by specific measures and due diligence obligations. For example, there are overlaps in certain data points such as ESRS 2 (General Disclosures), ESRS E2 (Environmental Pollution), ESRS S1 (Company Labour Force), ESRS S2 (Value Chain Labour Force) and ESRS S3 (Affected Communities).  

Companies therefore benefit from a harmonised approach in that data collected for ESRS reporting can also be used to fulfil the LkSG/CSDD requirements. It should also be noted that, according to the current government draft, reporting in accordance with the CSRD is to replace the reporting obligation under the LkSG to the BAFA.​