IR and ESRS: antagonistic or complementary?

A crucial doubt concerns those involved in sustainability reporting: Are IR (Integrated Reporting) and ESRS (European Sustainability Reporting Standards) antagonistic or complementary?

Although both aim at improving corporate transparency, they remain in fact two distinct approaches with divergent objectives and methodologies. While this can be a challenge for companies accustomed to sustainability reporting, it is an insurmountable obstacle for novices.

At Way2Global we have been reporting the efforts of our sustainable commitment for years, and we like to keep abreast of the state of the art in international standard-setting activities. With the advent of the ESRS, we wanted to explore balancing our trusted IR Framework of the IIRC with the new type of Standard, and we are happy to share our experience to help clarify any doubts.

IR and ESRS: what are they?

At a time when corporate transparency is increasingly in demand, IR and ESRS stand as beacons that guide companies committed to fully and transparently reporting and communicating their sustainability performance and impact.

The IR (Integrated Reporting) is a reporting framework that combines the financial and non-financial aspects of corporate activities into a single Integrated Report. Under the banner of a holistic approach, it renders a complete, transparent view of the business, highlights the interconnections between corporate strategies, financial performance, and the impact on sustainability. The main objective of the IR is to provide investors and other stakeholders with a thorough, reliable understanding of the value generated by the company over the long term.

On the other hand, the ESRS (European Sustainability Reporting Standards) focuses on ESG impact reporting and disclosure, requiring companies to measure and communicate their actions and impacts in those three areas, namely, the environment, social and governance. The required disclosures cover crucial topics such as greenhouse gas emissions, the use of natural resources and waste management, but they also deal with social issues such as employee health and safety, diversity and inclusion, and impacts on local communities, as well as governance issues such as business conduct, adoption of good supplier behavior, and risk mapping and management practices.

Both the IR and the ESRS are key tools for companies that want to demonstrate their social and environmental responsibility, providing a comprehensive view of the value generated over the long term. However, there are significant differences between the two of them that could complicate the reporting process, rather than simplifying it.

What are the differences between IR and ESRS?

As a Benefit Corporation focused on the translation of reporting and the dissemination of an ethical, transparent reporting culture, we at Way2Global also wanted to be ahead of the times and concretely be involved in reporting that experiments with the balancing of IR and ESRS criteria.

To understand how to structure disclosures, data points and criteria of the two worlds, we began with a careful analysis of the key differences between the two methodologies, which can be broken down into the following 6 points.

Purpose: The ESRS aims at improving the consistency and comparability of disclosed information, aligning it with the EU climate goals, while the IR focuses on the quality of information that defines long-term value creation to support the decision-making processes of the investors’ capital allocation.

Scope: The ESRS are intended for European companies, while the IR has a global scope.

Focus: The ESRS focuses on the concepts of due diligence, ESG risk management, the value chain and double materiality. Instead, the IR emphasizes long-term value creation, strategic foresight and connectivity among the six kinds of capital, while also enhancing the company’s opportunities in terms of future positioning.

Approach: The ESRS prescribes a structured format for disclosure of detailed and specific sustainability data to facilitate comparability. The IR uses a flexible approach and an integrated narrative to connect diverse aspects of business performance through integrated thinking.

Target audience: ESRS reporting is aimed at investors, regulatory authorities and shareholders. In contrast, the Integrated Report describes how the company creates value over time, primarily for the benefit of investors, but also for a broader audience, including customers, employees and partners.

Time frames: The ESRS requires the company to provide disclosures according to rigid, predefined short-, medium- and long-term time frames, while the IR allows reporting according to flexible time frames that companies can adapt to their particular industry and needs.

Although these differences are substantial, the common objective is to improve transparency and corporate responsibility in terms of sustainability.

How can you integrate IR and ESRS?

Integrating IR and ESRS is a crucial challenge. Realizing that the two approaches are not antagonistic but complementary is the first step toward effective integration.

The IR offers a holistic, systemic view of corporate performance, including financial and non-financial aspects, while the ESRS focuses on the impacts of the company in the three ESG domains. For effective integration, it is essential to adopt a strategic approach that can harmonize these two aspects.

First, it is necessary to define a clear vision and business strategy that recognizes the importance of both approaches and defines relevant objectives and KPIs for both the IR and the ESRS, identifying commonalities in order to integrate information consistently and avoid redundancies.

Second, developing a robust and reliable data collection system is essential for collecting information relevant to both the IR and the ESRS. This is a complex process that may involve collaboration between different business departments and the adoption of dedicated IT systems for data collection, analysis and presentation.

Third, it is crucial to adopt a flexible approach, in order to adapt the reporting strategy to the changing needs of the market and the important regulatory changes taking place. It may be necessary to regularly update processes and reporting systems in order to comply with emerging best practices and standards in the field of sustainability.

Another aspect to consider is communication. It is important to have clear, transparent communication of the results achieved by reconciling IR and ESRS methodologies, both internally within the company and externally to investors, customers, communities and other stakeholders, so as to strengthen the corporate reputation and promote sustainability awareness.

Finally, it is good practice to professionally translate the reports produced and all materials needed to publicize and disseminate the efforts the company has made on this theme. In this case, we at Way2Global are ready to support you with our professional translation services.

For more than 30 years, we have been handling all aspects of financial translation, our core business, with a particular focus on translation of sustainability reporting: from sustainability reports to integrated reports, from NFDs to Sustainability Statements.

Contact us now to find out more about our services.