Sustainability Reporting / ESG
Treatment under IFRS
The ISSB (International Sustainability Standards Board) has issued IFRS S1 (general sustainability disclosures) and IFRS S2 (climate-related disclosures). Both build on the TCFD framework and are geared to decision-usefulness for investors (financial materiality).
- IFRS S1: general requirements (governance, strategy, risk management, metrics and targets).
- IFRS S2: climate-related disclosures, including physical and transition risks and Scope 1/2/3 greenhouse-gas emissions.
- Focus on financial materiality (effects on enterprise value); no mandatory double materiality.
- Adoption into national law is jurisdiction-dependent; not yet mandatory in the EU to date.
Treatment under German GAAP (HGB)
The EU CSRD (Corporate Sustainability Reporting Directive) is gradually replacing the previous non-financial statement under §§ 289b ff. HGB. Reporting follows the ESRS (European Sustainability Reporting Standards).
- § 289b HGB: the non-financial statement (previous law) for certain large, capital-market-oriented entities.
- § 289c HGB: minimum content requirements (environmental, employee and social matters, human rights, anti-corruption).
- § 289d HGB: recognised frameworks may be used.
- § 315b HGB: the consolidated non-financial statement.
- CSRD/ESRS: a phased introduction with mandatory external assurance; the German transposition into the HGB was most recently not yet complete.
Key differences
- Double materiality: ESRS/CSRD requires disclosures on impacts on people and the environment AND on financial risks; IFRS S1/S2 focus on financial materiality.
- The ESRS are considerably more extensive and granular than IFRS S2.
- Assurance: CSRD initially requires limited assurance; for IFRS S1/S2 the assurance requirement depends on the jurisdiction.
- Placement: CSRD requires it to be embedded in the (group) management report; IFRS S1/S2 are more flexible.
Example
Worked example
Note: A conceptual comparison without journal entries – sustainability reporting is not a matter of accounting measurement but of reporting obligations. The exact effective dates, size thresholds and the status of the German transposition into the HGB are in flux and are deliberately not stated here as fixed dates; the relevant current primary sources govern (European Commission, Federal Law Gazette). Assumptions: no numerical assumptions – a purely conceptual comparison of the reporting requirements.
Step 1 – The two frameworks at a glance
| Feature | IFRS S1 / S2 (ISSB) | ESRS / CSRD (EU) |
|---|---|---|
| Issuer | ISSB (IFRS Foundation) | European Commission (based on EFRAG drafts) |
| Notion of materiality | financial materiality | double materiality |
| Primary audience | mainly investors and capital providers | investors and broader stakeholders |
| Core structure | TCFD pillars: governance, strategy, risk management, metrics and targets | topical standards (E, S, G) plus cross-cutting standards |
| Level of detail | global baseline | more extensive and granular |
Step 2 – The decisive difference: materiality
The topic of "climate change" makes the difference in perspective clear:
| Perspective | IFRS S1/S2 (financial) | ESRS (double) |
|---|---|---|
| Outside-in: how does the climate affect the company (risks/opportunities for value and cash flows)? | captured | captured |
| Inside-out: how does the company affect the climate, the environment and people? | not primarily | captured in addition |
Financial materiality considers only the effects on the company; double materiality additionally requires the effects of the company on its environment.
Step 3 – Greenhouse gas emissions: Scope 1, 2 and 3
Both frameworks build on the GHG Protocol and require disclosure of all three scopes:
| Scope | Content | Example |
|---|---|---|
| Scope 1 | direct emissions from owned or controlled sources | own vehicle fleet, heating |
| Scope 2 | indirect emissions from purchased energy | purchased electricity, district heating |
| Scope 3 | other indirect emissions across the value chain | upstream and downstream: supply chain, use of sold products |
Step 4 – Placement and assurance
| Feature | IFRS S1/S2 | CSRD/ESRS |
|---|---|---|
| Placement in reporting | depends on jurisdiction, flexible | within the (group) management report |
| Digital format | depends on jurisdiction | machine-readable digital tagging envisaged |
| External assurance | depends on jurisdiction | envisaged, starting with limited assurance |
Key takeaway
Both frameworks share the same climate/TCFD structure (governance, strategy, risk management, metrics) and the Scope 1/2/3 logic. The defining difference lies in the notion of materiality – financial (IFRS S1/S2) versus double (ESRS/CSRD) – and in the legal embedding: the EU anchors the reporting in the management report on a mandatory basis with external assurance, whereas IFRS S1/S2 form a globally uniform baseline whose binding force each jurisdiction sets individually. The exact effective dates, size thresholds and the status of the German transposition are in flux and are deliberately not stated here as fixed dates – please consult the current primary sources.