Navigating Sustainability Reporting
Sustainability reporting has evolved into a critical aspect of corporate governance, with stakeholders increasingly demanding transparency and accountability on environmental, social, and governance (ESG) issues.
Two key frameworks dominate the landscape: the Global Reporting Initiative (GRI) and the newly introduced by European Union European Sustainability Reporting Standards (ESRS). Understanding the distinctions and overlaps between these standards is essential for organizations aiming to meet regulatory requirements and stakeholder expectations, especially when operating or having business relations across national borders. This article will help you decide which framework is more appropriate for your organization and provide practical insights into the integration and application of these standards.
GRI vs. ESRS: an overview
Global Reporting Initiative (GRI)
GRI is one of the most established and most widely used frameworks for voluntary sustainability reporting, established in 1997. It provides comprehensive guidelines that help organizations disclose their impact on various sustainability topics. GRI standards are designed to be global and adaptable across industries, focusing on one-directional materiality (in other words, impact materiality) — addressing primarily how a company’s activities affect the economy, environment, society, and human rights.
European Sustainability Reporting Standards (ESRS)
The ESRS is a new framework established under the Corporate Sustainability Reporting Directive (CSRD), which came into effect in January 2024 in the European Union. ESRS is mandatory for companies operating within the European Union that fall under the scope of the CSRD. Unlike GRI, ESRS is built on the concept of double materiality, considering both how a company impacts the world (i.e. impact materiality) and how external sustainability factors impact the company (this is what is called financial materiality). This dual approach aligns with the European Union’s goal of increasing transparency and standardizing sustainability reporting across the region.
Key differences and similarities
1. Materiality approach
GRI: Focuses on one-directional materiality (impact materiality), where the primary concern is the impact of a company on the economy, environment, society, and human rights.
ESRS: Emphasizes double materiality (impact and financial materiality), requiring companies to report both on their impacts on the world and how external sustainability issues may affect their business.
2. Scope and applicability
GRI: Global applicability, used by companies of all sizes and sectors worldwide. Voluntary but widely adopted.
ESRS: Mandatory for companies in the EU under the CSRD, with specific thresholds determining applicability and gradual adoption. The standard is also relevant for non-EU companies with significant operations in the EU.
3. Granularity and detail
GRI: Offers flexibility in reporting, allowing companies to tailor disclosures based on their materiality assessment and context of business activities. The level of detail can vary depending on the organization’s maturity and stakeholder expectations (for example, a refort could be prepared in reference or in accordance with GRI standards).
ESRS: Based on double materiality assessment procedure, reporting requires a higher level of detail, with stringent requirements on data collection, reporting, and the integration of sustainability into the corporate strategy. This includes mandatory disclosures across environmental, social, and governance topics, with less flexibility compared to GRI.
4. Interoperability
GRI: Has been foundational in shaping global sustainability reporting. It has also updated its standards to incorporate elements of double materiality, making it more aligned with the ESRS.
ESRS: Designed with interoperability in mind, especially concerning GRI and the International Sustainability Standards Board (ISSB) standards, to reduce duplicative reporting. The ESRS-GRI Interoperability Index helps companies map GRI disclosures to ESRS requirements.
Practical insights for choosing between GRI and ESRS
Assess regulatory requirements
If your company is based in the EU or has significant operations within the EU, compliance with the ESRS under the CSRD is mandatory. In this case, ESRS should be your primary reporting framework, though GRI will most likely complement it due to part of ESRS topic standards being yet under development.
Consider your stakeholder base
For companies with a global stakeholder base, particularly outside the EU, GRI remains a crucial framework due to its widespread recognition and acceptance. Reporting under GRI can help maintain credibility with international investors, customers, and NGOs.
Leverage existing reporting practices
If your company already has a robust GRI reporting process, transitioning to ESRS can be less burdensome. The ESRS standards have been aligned with GRI to a large extent, meaning that your existing GRI-based reports can be adapted to meet ESRS requirements. Utilize the ESRS-GRI Interoperability Index to streamline this process.
Strategic integration
The ESRS places a strong emphasis on integrating sustainability into corporate strategy and governance. Companies new to this approach should begin by enhancing their internal processes and aligning sustainability goals with business objectives. For organizations already reporting under GRI, this may involve expanding your materiality assessment to include the double materiality perspective required by ESRS.
Prepare for increased scrutiny
The detailed nature of ESRS reporting will likely subject your sustainability disclosures to greater scrutiny, particularly from regulators and investors in the EU. Investing in data management systems and ensuring robust internal controls will be crucial to meeting these stringent requirements.
Plan for future reporting needs
Even if your company is not currently subject to ESRS, aligning your reporting practices with both GRI and ESRS can be a strategic move. This dual approach will prepare your organization for future regulatory changes and enhance your reputation among stakeholders demanding high transparency levels.
Switzerland moves to tighten corporate sustainability Reporting: aligning with EU standards
The Swiss Federal Council has proposed an amendment to the Swiss Code of Obligations (CO) to align its corporate sustainability reporting rules with the EU’s Corporate Sustainability Reporting Directive (CSRD). This proposal, currently under consultation, suggests significant changes to the existing non-financial reporting requirements for Swiss companies, potentially expanding the scope from 300 to about 3,500 companies.
Key changes include:
- Expanded Scope: The amendment would extend reporting obligations to a broader range of companies, including “public interest entities” and companies meeting certain financial and employee thresholds.
- Reporting Content: The content of sustainability reports would be more detailed, covering environmental, social, human rights, and governance factors, and aligning with international standards such as the European Sustainability Reporting Standards (ESRS).
- Audit and Assurance: Unlike current regulations, the new rules would require sustainability reports to undergo an assurance process by independent auditors or conformity assessment bodies.
- Dual Materiality Principle: Companies must report on both the impact of their activities on sustainability issues and the impact of these issues on the company.
- Mandatory Compliance: The current “comply or explain” option would be removed, making it mandatory for companies to report on all specified sustainability topics.
- Shareholder Involvement: Shareholders would have a binding vote on the sustainability report at the annual general meeting.
- Criminal Penalties: Existing criminal penalties for inaccurate or incomplete reports remain unchanged.
This proposal seeks to enhance the transparency and accountability of Swiss companies in their sustainability practices, bringing them closer to EU standards.
Conclusion
Choosing between GRI and ESRS depends on several factors, including your company’s location, stakeholder expectations, and existing reporting practices. For companies operating within the EU, ESRS compliance is non-negotiable, but GRI still plays a vital role in ensuring global reporting consistency. By understanding the nuances of each framework and leveraging their interoperability, companies can develop a robust sustainability reporting strategy that meets regulatory requirements and stakeholder expectations, while also driving business value.
In the evolving landscape of sustainability reporting, staying informed and adaptable is key. Organizations that proactively align with both GRI and ESRS standards will be well-positioned to navigate the complexities of sustainability disclosure and contribute meaningfully to global ESG goals.
Do you need help with preparing your company’s sustainability report?
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Giulia Facchini, giulia@actingresponsibly.com
Samira Di Cicco, samira@actingresponsibly.com
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Date: 18 September 2024
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