IFRS standards and EFRAG standards are two sets of sustainability reporting standards that aim to provide relevant and reliable information to investors and other stakeholders. However, they have some differences in their scope, approach, and content. Here are some of the main contrasts between them:
- Scope: IFRS standards focus on the financial materiality of sustainability issues, meaning how they affect the financial performance and position of the reporting entity. EFRAG standards cover both financial and non-financial materiality, meaning how sustainability issues affect the interests and needs of a wider range of stakeholders, such as employees, customers, suppliers, regulators, and society.
- Approach: IFRS standards adopt a principles-based approach, meaning they provide general guidance and objectives that can be applied to different contexts and circumstances. EFRAG standards use a mixed approach, meaning they combine principles and rules that specify the minimum requirements and disclosures for each topic.
- Content: IFRS standards are based on the framework of the Task Force on Climate-related Financial Disclosures (TCFD), which covers four areas: governance, strategy, risk management, and metrics and targets. EFRAG standards are broader and more comprehensive, covering 22 topics across three dimensions: environment, social and human, and governance.
The applicability of the two sets of standards depends on the jurisdiction and the type of entity. IFRS standards are voluntary and global, meaning they can be adopted by any entity in any jurisdiction that wants to provide consistent and comparable sustainability information to investors. EFRAG standards are mandatory and regional, meaning they apply to large public-interest entities in the European Union, such as listed companies, banks, and insurance firms.