ISSB update March 2023 Part II – NordESG

ISSB update March 2023 Part II – Sustainability and Materiality in ISSB / IFRS, GRI and ESRS

In the first part of this series (linked here) we discussed the core concepts of the proposed ISSB IFRS S1 and S2 sustainability reporting standards. In this series’s final instalment, we cover the definition of “sustainability” and “materiality” in the context of ISSB / IFRS. Since we believe interoperability is essential, we also look for similarities or differences in the definitions for these terms in the widely adopted GRI reporting framework and the future European Sustainability Reporting Standard (ESRS).

ISSB / IFRS, GRI, and ESRS – An short history

Before we dive into the details, here is a short history of the three reporting standards we are covering in this blog post. 

ISSB / IFRS | The IFRS Foundation launched the ISSB in 2021 to develop standards for the global baseline of sustainability disclosures. In March 2022, the ISSB released the first set of exposure drafts. Developing the IFRS S1 and S2 standards, the ISSB could draw from the experience of the CDSB, the Value Reporting Foundation, the SASB, and the International Integrated Reporting Council. It is expected that the final standards will be released mid-2023. 

GRI | The Global Reporting Initiative (GRI) was founded in 1997 in Boston, USA and is currently located in Amsterdam, the Netherlands. The GRI standard is one of the most used sustainability reporting frameworks globally. GRIs reporting standards cover in-depth cross-cutting, environmental, social and governance topics. 

ESRS | The EFRAG developed the European Sustainability Reporting Standard to meet the reporting requirements of the transition from the Non-financial Reporting Directive (NFRD) to the Corporate Sustainability Reporting Directive (CSRD). Like GRI, the ESRS covers in-depth cross-cutting, environmental, social and governance topics, with the release of the final versions of the 12 ESRS standards expected in mid-2023. 

How the ISSB / IFRS defines sustainability

Establishing a universal definition for “sustainability” seems to be a difficult task. Or as Purvis, Maou and Robinson [1] pointed out, “The last 20 years have witnessed a surge in publications on ‘sustainability’, to the extent where ‘sustainability science’ is often seen as a distinct field […]. Yet despite this, ‘sustainability’ remains an open concept with myriad interpretations and context-specific understanding.” 

The United Nations Brundtland Commission definition is “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Seen from this viewpoint, sustainable development requires “an integrated approach that takes into consideration environmental concerns along with economic development.[2]

In the context of ISSB / IFRS, the term “sustainability” is described as “the ability for a company to sustainably maintain resources and relationships and manage its dependencies and impacts within its whole business ecosystem over the short, medium and long term.” and as “A condition for a company to access the resources and relationships needed (such as financial, human and natural), ensuring their preservation, development and regeneration to achieve its goals.” This description “enables a company to explain to investors how sustainability-related impacts, risks and opportunities can affect its performance and prospects” and “builds on concepts from the Integrated Reporting Framework.[3]

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A shared understanding of the concept of materiality?

What might be true for the term “sustainability” is also true for “materiality”, where we found many different definitions for what seems to be the simple question of “what is materiality”? If you want to learn more about the “materiality madness” you can read our blog post on this topic here.

ISSB / IFRS | The disclosure standards use the same definition of materiality as IFRS Accounting Standards to ensure investors understand sustainability risks and opportunities: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence investor decisions.[3]

GRI | defines “Material topics are topics that represent an organisation’s most significant impacts on the economy, environment, and people, including impacts on their human rights.” 

ESRS | Applying the concept of double materiality, the ESRS takes both perspectives (impact and financial) into consideration simultaneously. Hence the following definition “A sustainability matter is material from an impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short-, medium- and long-term time horizons. Impacts include those caused or contributed to by the undertaking and those which are directly linked to the undertaking’s own operations, products, or services through its business relationships. Business relationships include the undertaking’s upstream and downstream value chain and are not limited to direct contractual relationships.” [ESRS 1-3] and “A sustainability matter is material from a financial perspective if it triggers or may trigger material financial effects on the undertaking. This is the case when it generates or may generate risks or opportunities that have a material influence (or are likely to have a material influence) on the undertaking’s cash flows, development, performance, position, cost of capital or access to finance in the short-, medium- and long-term time horizons. Risks and opportunities may derive from past events or future events and may have effects in relation to: (a) assets and liabilities already recognised in financial reporting or that may be recognised as a result of future events; or (b) factors of value creation that do not meet the financial accounting definition of assets and liabilities and/or the related recognition criteria but contribute to the generation of cash flows and more generally to the development of the undertaking.” [ESRS 1–3]


Different audiences for sustainability reporting influence the scope of materiality across the frameworks: While ISSB / IFRS focuses on investors as the key audience for sustainability reporting, GRI and ESRS follow a multi-stakeholder approach. Hence, the scope of materiality is wider to meet the demands of different stakeholder groups – that is reflected in the concept of double materiality. 

So is it all about semantics when it comes to the definitions of materiality and sustainability? We don’t think so. ISSB / IFRS plans to set the global baseline for sustainability reporting. However, ESRS and GRI reporting frameworks may have a different scope of sustainability and materiality. Seen from this perspective, ESRS has the potential to cover all the disclosure requirements of ISSB / IFRS. Future developments may also include the “outside-in” perspective in ISSB / IFRS. In any case, the interoperability (read more here) of reporting frameworks would be a highly welcome development to ensure comparability and frictionless exchange of sustainability information in a globalised world. 

How is this relevant for companies? One aspect is the burden of sustainability reporting using a variety of reporting frameworks and the friction that comes with this approach. On the other hand it is also about compliance costs – especially for those companies outside the EU that do substantial business within the EU and may, in future, face the challenge of reporting under both, the ISSB / IFRS and ESRS frameworks on their sustainability performance to meet the requirements of the CSRD. 

We will keep you updated on future developments in reporting standards and their interoperability on this blog. 

Sources and further reading




About NordESG

NordESG is an advisory firm helping corporates develop, articulate and execute their ESG and sustainability strategies. Our work includes sustainability performance reporting support under various ESG frameworks, strategy development or conducting materiality assessments. By doing so, we help businesses meet their disclosure compliance requirements like CSRD but also help them proactively communicate their strategy to other stakeholders like investors, customers and local communities in which they operate. Our work is focused mainly on Europe and North America.

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