Order out of chaos

By Douglas Stuart, CPA, CA; Alison Parker, CPA, CMA; Basma Majerbi; and Stuart Snaith
Nov 16, 2023
Photo credit: mycola/iStock/Getty Images

Improvements in corporate sustainability reporting

The sustainability reporting landscape has been described as an “alphabet soup,” with a myriad of acronyms representing different standards, frameworks, regulatory agencies, and reporting directives, many of which are built on, or endorse, alternative approaches to corporate sustainability reporting.

Fortunately, however, important strides have recently been made in this area through the drafting of new accounting standards for the disclosure of sustainability-related risks, opportunities, and impacts, as well as for climate-related disclosures. These new standards include:

  • IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures), which were issued by the International Sustainability Standards Board (ISSB) on June 26, 2023;1 and
  • The European Sustainability Reporting Standards (ESRS), which were developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission on July 31, 2023.2

In addition, in March 2022, the US Securities and Exchange Commission (SEC) proposed new amendments for climate-related disclosure with the final release still under discussion in the fall of 2023.3

Many see the release of these new standards and rules as a coming together of corporate sustainability reporting requirements that is effectively creating order out of chaos. Some key differences remain, however, and companies that operate across multiple jurisdictions need to keep these differences in mind.

A shifting landscape

The ISSB has made significant inroads since it was established by the International Financial Reporting Standards (IFRS) Foundation in November 2021 to create a “global baseline” of corporate sustainability disclosure standards.4 These standards—the aforementioned IFRS S1 and IFRS S2—remain voluntary for Canadian companies as well as for companies in other countries that support the ISSB. Not only do these standards lay out industry-specific sustainability disclosure topics, but they also specify sets of performance metrics companies will report on to facilitate comparisons between similar firms. The standards also identify technical protocols that auditors can use when providing assurance over the reported information.

Jurisdictional adoption of this global baseline is still needed to make reporting under the ISSB standards mandatory for public companies. Encouragingly, the International Organization of Securities Commissions (IOSCO) endorsed the ISSB standards on July 25, 2023, appealing to its 130 member jurisdictions to consider how the ISSB standards might be incorporated into their respective regulatory structures.5 Erkki Liikanen, former governor of the Bank of Finland, called the IOSCO’s endorsement of the ISSB standards a “landmark and a historical achievement.”6

While the global baseline is a major step forward in harmonizing sustainability reporting, it is important to recognize that it is—at its heart—based on the principle of financial materiality. In other words, while it embraces reporting on non-financial drivers of firm value (e.g., the number of work stoppages, the percentage of alternative fuel consumed, etc.), IFRS S1 and IFRS S2 exclude information that is not considered likely to have an impact on the firm’s enterprise value.

The ISSB’s focus on investors—over other stakeholders who may be more concerned about a firm’s broader impact on people and the planet—is consistent with the focus of the Sustainability Accounting Standards Board (SASB) in the US. Indeed, IFRS S1 and IFRS S2 were largely built on the SASB standards, which are still recommended for use in identifying material ESG issues for industry-specific disclosures.7

A more comprehensive approach

The missing piece of the ISSB’s global baseline—the one that would help complete the sustainability reporting puzzle—is a concept known as “double materiality,” which has long been included in the standards of the Global Reporting Initiative (GRI).8

Double materiality acknowledges two categories of material information: 1) information that has a direct impact on the firm’s value (in the sense of financial materiality from an investor’s perspective), and 2) information that allows a wider range of stakeholders to better understand an entity’s impacts on people, the planet, and profits (known as “impact materiality”).

Working closely with the GRI, the European Financial Reporting Advisory Group (EFRAG) included the double materiality principle when creating its first set of European Sustainability Reporting Standards (ESRS),9 thus taking a broader view as to what constitutes “material” sustainability information. This is because the ESRS are not solely investor-focused and instead were created, in part, to assist with reporting information to help meet public policy objectives as well as the demand by other stakeholders for impact reporting.

As of August 2023, the first set of ESRS includes 10 topical standards: climate change, pollution, water, biodiversity and ecosystems, resource use and circular economy, own workforce, workers in the value chain, affected communities, consumers and end users, and business conduct. There are also two cross-cutting standards for general requirements (ESRS 1) and general disclosures (ESRS 2).10

Unlike the ISSB standards, which remain voluntary, the ESRS—which, as mentioned earlier, were adopted by the European Commission on July 31, 2023—will become mandatory for some companies as early as the 2024 financial year. Accordingly, Canadian companies with securities listed on an EU exchange—as well as those with significant EU revenues, branches, or subsidiary operations—should watch out, as they may also need to report under ESRS.

Companies reporting under both ISSB and ESRS

While the ISSB standards and the ESRS differ in that the former are investor-focused and the latter emphasize both financial and impact materiality, there are similarities in approach, and there are some common disclosure requirements. In its July 31 statement about the adoption of ESRS, EFRAG said it “is currently making major efforts to develop standards for SMEs [small and medium-sized enterprises] and to prepare guidance to foster implementation, interoperability of ESRS with overlapping ISSB standards as a contribution to joint work with the ISSB, and interoperability of ESRS with other relevant international standards.”11

Speaking on behalf of the ISSB on August 30, 2023, Sue Lloyd, ISSB vice-chair, said: “By aligning common disclosures wherever possible, we have also reduced the risk of duplication in reporting for companies that are using both sets of standards.”12

Both statements are a further testament to global standard-setters’ commitment to achieving alignment.

Has the dust settled?

With such a myriad of sustainability disclosure frameworks and standards in existence, some stakeholders may find the release of two novel sets of standards (the ISSB standards and the ESRS) tedious and unnecessary. A more optimistic perspective is that the release of these standards will reduce fragmentation and consolidate the hodgepodge of disclosure requirements that previously characterized the sustainability reporting landscape.

Indeed, there has been some progress in this regard. For instance, on August 23, 2023, EFRAG published a meeting paper that maps out the interoperability between IFRS S1 and IFRS S2 and ESRS 2 (General Disclosures) and ESRS E1 (Climate Change).13 EFRAG also published a meeting paper on the interoperability between the ESRS and GRI standards in which it notes that the “ESRS have adopted the same definition of impact materiality as GRI.” It also states: “Entities reporting under ESRS are considered as reporting with reference to the GRI Standards (as defined by GRI 1).”14

Despite this progress, however, the sustainability reporting landscape remains complex, with changes driven by a variety of stakeholder groups operating in different policy environments. For example, we have yet to see what the outcomes of the proposed SEC climate-disclosure rules will be. As mentioned earlier, the SEC has delayed the release of its new climate rules, which also delays mandatory inclusion dates for US filers.

Still, a new disclosure baseline is taking shape, and it’s an encouraging development. Combined with other initiatives, a solid baseline will help to reduce greenwashing and address some of the concerns about the credibility of ESG data that have helped fuel the recent anti-ESG movement.15

It is important to remember that standards bring consistency and comparability to corporate reporting, but it is up to regulators to make them mandatory in their respective jurisdictions. Just what this “new order” will mean for investor decision-making, corporate sustainability performance, and policy-makers… only time will tell.

Author bios

Douglas Stuart is an assistant teaching professor at the University of Victoria’s Gustavson School of Business, a CPABC faculty ambassador, and the author of “Toward a Global Baseline of Sustainability Reporting: Movement Gaining Momentum” (CPABC in Focus, May/June 2023).

Alison Parker is an assistant teaching professor at the University of Victoria’s Gustavson School of Business, a CPABC faculty ambassador, and an educational consultant for CPA Western Canada.

Basma Majerbi is an associate professor at the University of Victoria’s Gustavson School of Business. She leads the Impact Investing Hub, a research and education hub that aligns finance and investments with climate and sustainability action.

Stuart Snaith is an associate professor at the University of Victoria’s Gustavson School of Business.

This article was originally published in the November/December 2023 issue of  CPABC in Focus.


1 IFRS, “ISSB issues inaugural global sustainability disclosure standards,”, June 26, 2023.

2 Directorate-General for Financial Stability, Financial Services and Capital Markets Union, “The Commission adopts the European Sustainability Reporting Standards,”, July 31, 2023.

3 Soyoung Ho, “SEC Delays Climate Change Disclosure Rulemaking,”, June 15, 2023. At the time of this writing, adoption has not been announced.

6 Ibid.

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