ISSB vs CSRD: Who Sets the ESG Rules of Tomorrow?
As the European Union works through political tensions around its Corporate Sustainability Reporting Directive (CSRD), the spotlight is shifting toward the International Sustainability Standards Board (ISSB), whose global influence is growing rapidly. With the EU proposing simplification measures under the Omnibus Directive, some are beginning to question whether the CSRD could eventually be replaced or overshadowed by the more streamlined ISSB framework.
The Growth of ISSB
Launched by the IFRS Foundation and formally announced at COP26 in 2021, the ISSB has moved swiftly from concept to implementation. Its standards, IFRS S1 for general sustainability disclosures and IFRS S2 for climate-related disclosures, came into effect in January 2024. Backed by over 35 jurisdictions representing more than 60% of global GDP and over half of global emissions, the ISSB is emerging as a global benchmark.
Countries like Brazil and Singapore have adopted ISSB standards mandatorily, while others, such as the UK and China, are tailoring them for national use. Even countries with mature ESG regulations like Canada and Australia are aligning their frameworks with ISSB principles. This momentum is helping bridge the sustainability reporting gap between the Global North and South.
CSRD vs ISSB: A Tale of Two Frameworks
While both the CSRD and ISSB aim to bring clarity and transparency to sustainability reporting, their approaches differ significantly.
The CSRD follows a double materiality model where companies must report how sustainability issues affect them financially and on their social and environmental impact. It’s also sector-specific, with detailed, prescriptive reporting standards and defined boundaries.
The ISSB, on the other hand, emphasizes financial materiality, focusing on information useful to investors. It adopts a more principles-based approach, allowing greater flexibility in disclosures.
Despite their differences, both frameworks align structurally with the Task Force on Climate-related Financial Disclosures (TCFD) and include future-oriented risks and target-setting, with climate remaining a central theme.
ESG Divergence: Global Trends
The global ESG reporting landscape is evolving in varied directions. China, the world’s top emitter, plans to fully align listed companies with ISSB standards by 2030. ESG reporting in China will include double materiality and comprehensive emissions data under pressure from both regulators and stock exchanges.
In contrast, the United States has seen a rollback in federal ESG initiatives. The SEC’s climate rule, approved in 2024, is now indefinitely delayed. A new federal bill, the “Prioritising Economic Growth Over Woke Policies Act,” has further dampened future ESG rulemaking. However, progressive states like California are stepping up. Laws such as SB 253 and SB 261 will require companies to report full emissions data and climate-related financial risks by 2027, with significant penalties for non-compliance. States like New York, Illinois, New Jersey, and Colorado are replicating the same action.
The UK's Balancing Act
The UK has championed ISSB standards and plans to mandate them for listed companies by 2026. However, questions remain about scope, assurance, and technical requirements such as digital tagging. Political divisions and post-Brexit positioning, especially in the wake of the EU’s Omnibus push, add further complexity.
A Fragmented but Shifting Landscape
Amid CSRD-related tensions that the EU is dealing with while the US tackles regulatory rollbacks, countries like Indonesia, Malaysia, and Brazil, are hopping on the ISSB bandwagon. The result is a patchwork of ESG rules around the world:
ISSB could emerge as the global minimum standard for sustainability reporting.
CSRD may remain the most rigorous framework for in-depth accountability.
China is forging a hybrid path blending national goals with global standards.
For multinational corporations, understanding and navigating both the ISSB and CSRD will be essential.
Also Read: Sustainserv Launches Free Tool for CSRD Compliance
While the EU’s CSRD faces political pushback and implementation challenges, ISSB’s momentum shows no signs of slowing. Whether the ISSB will replace the CSRD remains uncertain, but in an interconnected world, both frameworks may end up coexisting, shaping sustainability reporting from different angles.
If you're curious to learn more, follow our Regulators News.
Source: Sustainability Magazine
