Conducting an ESRS and IFRS Gap Assessment

Introduction 

BSR worked with a global technology company to conduct a gap assessment against the European Sustainability Reporting Standards (ESRS) and International Sustainability Standard Board's (ISSB’s) International Financial Reporting Standards (IFRS). This project enabled the company to prepare to report in accordance with the requirements of the EU Corporate Sustainability Reporting Directive (CSRD) and ISSB and to plan for short-, medium-, and long-term actions to close existing disclosure gaps. 

Background 

The sustainability field is shifting from voluntary to mandatory reporting standards. The CSRD provides rules on corporate sustainability disclosure within the EU and mandates compliance against the European Sustainability Reporting Standards (ESRS). Under the CSRD, large companies operating in the EU and EU-listed companies, as well as large companies with securities on EU-regulated markets, are obliged to report on all identified material topics based on a double materiality assessment. ISSB's IFRS Sustainability Disclosure Standards aim to equip investors with globally comparable, decision-useful sustainability information. Various national jurisdictions have also decided to adopt ISSB standards within their respective regulations or are consulting on their introduction. 

Given the evolving sustainability reporting landscape, a global technology company headquartered in the US identified the need to assess its preparedness for upcoming mandatory reporting requirements. Non-compliance with mandatory reporting regulations, such as those imposed by CSRD, could lead to fines and reputational damage, while failure to report in a manner that is comparable to international peers could impact reputation and limit a company's access to capital in the international markets.

BSR's 30+ years of experience with sustainability reporting and approach to assessing disclosure gaps resonated with the company's wish for a detail-oriented, thoughtful process. To ensure compliant and robust reporting practices, BSR helped the company understand which requirements are applicable to them based on their double materiality assessment, and the gaps between their current reporting practices and the desired future state. 

BSR’s Response

BSR worked with the company to assess all applicable general and topical ESRS standards, as well as IFRS S1 and S2 (focusing on climate). This aligned with the results of the company’s Double Materiality Assessment, which was also led by BSR as a separate project. Using BSR’s ESRS and IFRS gap assessment tools, which provide a detailed comparison between reporting requirements and relevant disclosures, BSR reviewed all publicly available sustainability information and identified no, partial (where some revisions were necessary to comply), and full (where the disclosure was missing) gaps in relation to all applicable ESRS and climate-related IFRS standards. The team then provided a summary of gaps per standard and developed recommendations and next steps to start the planning process for compliance with CSRD and IFRS. 

Impact 

The project allowed the company to take a forward-looking approach to reporting. Aside from identifying and prioritizing disclosure gaps, the information also highlighted potential areas where process changes could be considered. As a next step to this work, the company is working to assign different topical areas to appropriate departments, to work on closing data gaps and implementing necessary process changes.

Conclusion 

As the sustainability field solidifies mandatory reporting requirements, gap assessments will be critical to preparing for compliance. While CSRD is a regulatory requirement for all large companies operating in the EU and all EU-listed companies as well as large companies with securities on EU-regulated markets, compliance with IFRS sustainability disclosure standards may be requested by various investors in the future. To ensure consistency and the achievement of desired outcomes, all teams (finance, risk, procurement, sustainability, etc.) will need to collaborate closely and apply the same level of rigor to both financial and sustainability reporting. It is important for companies to invest in a long-term vision, prioritize, and focus on a mindset shift toward holistic approaches to compliance while not losing sight of broader sustainability strategies. 

Get in Touch 

Interested in learning more about BSR's approach to voluntary and mandatory reporting? Please contact BSR's Reporting team. 

This case study was written by Verena Nüchter and Anna Zubets-Anderson.