EU Omnibus: Could the ISSB Replace the CSRD?

As the EU's Corporate Sustainability Reporting Directive (CSRD) faces political tensions and delays, attention is shifting to the International Sustainability Standards Board (ISSB).

With support from more than 35 jurisdictions representing more than 60% of global GDP and more than half of global emissions, ISSB's influence is undeniably growing.

The rise of ISSB

The ISSB's trajectory, from an IFRS Foundation consultation in 2020 to a globally backed reporting framework, is a key reason behind its influence.

It was formalised at COP26 in 2021, its first draft standards were released in 2022 and by January 2024, IFRS S1 (general disclosures) and IFRS S2 (climate disclosures) came into effect.

ISSB’s design aims for global comparability and has attracted widespread endorsement:

• Mandatory adoption: Brazil, Singapore
  
• National customisation: UK, China
  
• Voluntary pilots or consultations: Japan, Ghana, Thailand

Even nations with robust ESG regimes, such as Canada and Australia, are working on localised ISSB versions. 

This rapid expansion has brought about a convergence of Global North and South priorities in sustainability reporting.

CSRD vs ISSB

The ISSB is geared towards financial materiality, meaning it prioritises information relevant to investors. 

In contrast, the CSRD takes a double materiality approach, requiring companies to report not just on how sustainability issues impact them financially but also on how their operations impact people and the environment.

The ISSB takes a principles-based approach, offering flexibility in how companies report.

However, the CSRD is far more narrow with sector-specific standards, defined reporting boundaries and detailed requirements. 

Despite these differences, both frameworks share a climate-first approach and align structurally with the Task Force on Climate-related Financial Disclosures (TCFD). 

Both also include forward-looking risks and target-setting as part of their methodology.

Diverging ESG strategies

China, the country with the most greenhouse gas emissions, is starting to make some progress.  

By 2026, all listed companies in China must report ESG data with full alignment to ISSB anticipated by 2030. 

Dual pressure from regulators (e.g. the Ministry of Finance) and exchanges (like the SSE, SZSE and BSE) is driving the shift, with double materiality and Scope 1, 2 and 3 emissions all on the agenda.

In contrast, the United States has cooled its federal ESG ambitions:

• The SEC’s climate rule, approved in 2024, has been shelved indefinitely following legal opposition
• The “Prioritising Economic Growth Over Woke Policies Act” reduces future ESG regulation.

However, some individual states like California are stepping up:

• SB 253 (Climate Corporate Data Accountability Act) mandates Scope 1, 2 and 3 reporting by 2027 with penalties up to US$500k
• SB 261 (Climate-Related Financial Risk Disclosure Act) requires climate risk disclosure for large companies with penalties up to US$50k.

Other states like New York, Illinois, New Jersey and Colorado are following suit with similar climate disclosure rules.

The result is a fragmented, but not inactive, ESG landscape across the US.

The UK’s ESG

The UK has endorsed ISSB standards and is expected to mandate them for listed companies by 2026. 

However, questions remain. Natalia Lemanska, Co Founder of Green Guardian, asked on linkedin:

• “When will the rules come into force? 
• Will the rules extend to large private companies or even SMEs in the future? 
• Will disclosures require sustainability reporting assurance (limited or reasonable)?
• Will companies be required to adopt XBRL tagging for greater data comparability?
• How aligned will it be with the EU’s CSRD (especially in light of the Omnibus proposals)?”

The UK government faces both pro-ESG momentum through Labour’s policy stance, Net Zero Council and global pressure alongside growing anti-ESG rhetoric, like the EU’s Omnibus, US President Donald Trump and other geopolitical priorities.

A global shift?

While the EU navigates internal resistance and the US sees regulatory rollback, emerging markets like Brazil, Indonesia and Malaysia are embracing the ISSB. 

The result is a global mosaic where:

• ISSB may become the default minimum for global investors
  
• CSRD sets a high bar for detailed accountability
  
• China follows a hybrid path, fusing national objectives with global alignment

Multinational companies will increasingly need to master both frameworks, depending on their market exposure.

While ISSB is on the rise, it may remain less rigorous than the CSRD. 

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